Defections Wear on Fox Sports Net

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For Fox Sports Net, 2004 was a year that saw several pro-team defections that spawned competing regional sports networks and the loss of staple National Hockey League games, scrapped due to a labor impasse.

Still, FSN executives called it a year that made the national service and its affiliated regional sports networks stronger — and they expect to score big in 2005 with new shows, a greater emphasis on new wrinkles such as HDTV and on-demand programming, and a renewed emphasis on the local product.

FSN president Bob Thompson said the network and its family of more than 20 owned and affiliated regional sports networks flourished in 2004 even though four new regional sports networks — featuring pro teams formerly affiliated with the Fox networks and now aligned with key cable affiliates — made their debuts.

Comcast Corp. teamed with four Chicago-based pro teams to launch Comcast SportsNet Chicago; the National Basketball Association’s Sacramento Kings moved to Comcast Sports West; two Denver-based pro teams formed Altitude Sports and Entertainment; and the NBA’s expansion Charlotte Bobcats bypassed Fox to tip off the Carolinas Sports Entertainment Television (C-SET).

PAYING UP FOR TEAMS

Despite the setbacks, FSN was able to reach long-term distribution agreements with several pro franchises last season — including with Major League Baseball’s Houston Astros and the NBA’s Houston Rockets and Memphis Grizzlies, thwarting the planned launch of more competing RSNs.

“This year has been challenging, but overall 2004 was a great year for us,” Thompson said. “We renewed some deals in markets where the launch of a new RSN had been threatened, like Houston and Memphis.”

FSN denied having a mandate to re-enlist expiring pro franchise deals at any cost, but the network did open its pocketbook to pay higher-than-expected fees to secure rights in several markets.

For example, to keep MLB’s Colorado Rockies from defecting to Altitude, FSN Rocky Mountain dished out a reported $200 million over 10 years — and purchased a minority interest in the team.

Fox also spent a reported $600 million to secure multi-year cable rights to the Astros and Rockets to keep them from launching a competing service to Fox Sports Southwest.

“We think that we’ve shown to the industry that we intend to be here for the long term and operate these networks in a manner that’s beneficial to our teams, distributors, advertisers and ultimately our viewers,” Thompson said.

What effect the new deals will have on the operator license fees remains to be seen. But it’s inevitable those rights will eventually climb as well.

Thompson said it’s hard for operators to complain about increased rights fees when they’re often the ones bidding up rights fees.

Along with Comcast, MSOs owning regional sports networks include Cox Communications Inc., which launched a New Orleans-based regional service in 2003, and Time Warner Cable, which is teaming with Comcast and baseball’s New York Mets to launch a tri-state service in 2006.

NHL MONEY SAVED

“When a local [cable] distributor decides to come in and compete for rights and those rights go up, ultimately someone is going to have to pay,” Thompson said. “But it’s going to be difficult for a distributor who does bid against us for local rights to sit across the table from us and tell us that an increase in our price isn’t justified when they’re responsible for the increase in those rights.”

The NHL lockout due to a dispute over a players’ salary cap has helped Fox alleviate some of its increased financial outlay. Published reports indicate that if a deal isn’t completed by Jan. 14, the NHL’s board of governors could vote to pull the plug on the entire 2004-05 campaign

“From a financial standpoint, clearly it’s a net benefit not having to pay the rights fees,” Thompson said.

Nevertheless, Thompson bemoaned the loss of over 500 hundred NHL games, particularly in markets such as Detroit, St. Louis and Pittsburgh where hockey generates strong ratings.

“It’s always disappointing not to have one of our three big sports, especially in markets such as Pittsburgh, Detroit and St. Louis that are very strong NHL markets,” Thompson said. “We miss it from a product standpoint, and some markets miss it from a ratings standpoint.”

He did say that the networks have been able to fill the time with additional NBA games and college basketball and football telecasts.

From a ratings perspective, Thompson said the RSN scored increases in nearly all major sports categories in 2004. He noted that MLB, college football and the current NBA season each posted a 3% rise from 2003.

In 2005, Thompson said FSN will concentrate resources on maintaining and improving its current regional stable.

He said Fox will spend a “significant” amount of time and effort getting greater distribution for its three Fox College Sports regional sports networks, currently in 3 million homes.

The Bowl Championship Series deal Fox Sports reached in late November should aid the networks in terms of creating shoulder programming for the college football championship games. And FSN will look to create more VOD product on the event and the original programming side.

“For us, it’s an issue of working out footage rights with leagues and teams, and then coming to agreement with the distributors for a business model that makes sense,” Thompson said.

He also expects a huge rise in the number of live HD games the RSNs will produce, to nearly 1,000 in 2005 from 200 last year.

FSN is also exploring a number of interactive options with News Corp. corporate sister DirecTV Inc., although he declined to elaborate.

'SCAVENGER HUNT’

On the programming side, FSN is working on several pilots, including a sports “scavenger hunt” series and an outdoor sports/reality show that will film from sites in markets served by its RSNs.

“These are shows that have national potential but are built up from the regions,” said FSN chief operating officer Randy Freer. “At the same time, we’re still looking at shows that are more national that work down toward the regions.”

Freer said the regional networks will look to develop more grass-roots marketing and programming initiatives in an effort to “reach back” into the communities they serve. “Whether it’s [supporting] an after school program or a Boys and Girls Club or some of the other things that need help on a local level, we have the ability to go in do some things with them,” he said. “It’s a region by region look at what makes the most sense.”

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