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Fox’s Regional Sports Outlets Could Serve as Balm for Disney’s ESPN

Disney’s $52.4 billion stock deal to acquire a good chunk of 21st Century Fox will give the backer of Disneyland new heft around the globe, including places like Europe and India. But it will also give Disney something of a hometown touch in places like Kansas City, Oklahoma, and even in Manhattan.

One of the most lucrative pieces of Disney’s Fox haul is the latter’s passel of regional sports networks — cable networks devoted to coverage of the games and matches in particular markets, rather than the nation or world at large. Among the Fox assets are Fox Sports West, which televises games by the Los Angeles Angels and Anaheim Ducks, among others; Fox Sports Detroit, which runs match-ups with the Detroit Pistons, Lions, and Red Wings; and Fox Sports New Orleans, which keeps fans in touch with the New Orleans Pelicans. In all, the networks produce more than 5,500 live games per year — including those from New York’s YES cable network, owned jointly by Fox and the New York Yankees.

And while you won’t see a “Monday Night Football” broadcast on any of the 22 regional sports outlets Disney could soon control, the networks could just serve to support Disney’s ESPN, which finds itself in a moment of great flux.

The regional sports outlets may not be as sexy as FX or the various Fox studios, but they don’t have to be. Analyst Michael Nathanson estimates the sports nets are worth around $23 billion — a bigger valuation than any other piece in the Fox purchase. Assuming the deal closes, ESPN would go from representing 25% of Disney to 16%.

The question will be whether the local-sports outlets can help take some heat off of ESPN, which has been experiencing notable declines for some time. Like many other media outlets, ESPN has grappled with massive changes in the way people consume content – even live sports. ESPN’s subscriber base has shrunk to 88 million subscribers in the U.S., Disney disclosed in a recent annual report, compared to 100 million at a peak in 2010. Even as ESPN pays millions of dollars in rights fees every year to the NFL, Major League Baseball, the NBA, and other sports organizations to show the games that bring audiences to its screens, it must invest and re-calibrate its employee base for viewers who prefer to stream their sports content on mobile screens. ESPN has had three rounds of layoffs since late 2015.

Speaking during a conference call with investors Thursday morning, Walt Disney CEO Bob Iger articulated a strategy in which regional outlets — RSNs, in industry jargon — would prove to be “a perfect complement” to ESPN’s nationally focused programming. There could even be some exchange of content, he suggested, with ESPN’s national coverage made available to the sports nets and local coverage from the RSNs highlighted on ESPN.

“There will be a sharing of product so that we can infuse ESPN national with some more local content” as well as the other way around, Iger said. “The result will be that both will be better.”

But the local channels might also be used as means of burnishing the larger outlet. What if the regional shows all had their own versions of “SportsCenter” or “First Take”?

To be sure, the networks are not a cure-all for the main problem afflicting ESPN – migrating viewers. As consumers feel more at ease with streaming programs on demand, ESPN will continue to face a  challenge to keep the same numbers of people tuning in to its hallmark programs.

Local outlets may also be more durable than the national one. A New York Yankees fan in some cases would probably rather sacrifice a costly national sports service than jettison his or her link to an attractive package of Yankees games and an ability to see more of them than a national “game of the week” broadcast might provide. And would an Atlanta Hawks aficionado really get enough detail from the occasional national feed of an Atlanta Hawks game than is offered regularly by Fox Sports South?

How much the local networks might contribute to some of ESPN’s coming projects remains to be seen. Disney intends to launch the sports-content streaming service “ESPN Plus” in 2018. Because the purchase is expected to take as much as 12 to 18 months to come to pass, the new offering won’t be able to make use of the local networks’ various efforts. And it’s not clear when they will. Rights to sports programming – even local clips – tend to be locked up for years.

Disney has bought ESPN some time with its purchase of Fox’s sports-programming jewel. How much time will have to be determined after the purchase is truly complete.

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