Cable operators and industry observers are waiting to see
what transpires in the aftermath of News Corp.'s buyout of Fox/Liberty Networks partner
Liberty Media Group, and how it will affect the cable sports landscape.
Several operators are concerned that Fox's control of most
of the regional sports network business could mean further increases on already expensive
sports network licensing fees as Fox continues to aggressively pursue both local and
national sports rights.
Other observers, however, are confident that the deal will
provide greater efficiencies within the regional sports business, which could curtail
significant licensing increases in the future.
As expected, the deal announced last Tuesday will provide
Fox with full control of Liberty Media's 50-percent interest in Fox/Liberty Networks,
which owns nine regional sports cable networks and stakes in several other sports
networks, the FX entertainment network, Outdoor Life and Speedvision cable networks.
Fox will also own outright Fox/Liberty's 40-percent stake
of a venture with Cablevision Systems Corp., which includes the New York Knicks basketball
and New York Rangers hockey teams and the Madison Square Garden Network.
In exchange, Liberty will receive approximately 8 percent
of non-voting News Corp. stock, making the company the second-largest shareholder in the
international entertainment and sports conglomerate.
The deal gives Fox full management control of the
burgeoning regional sports business, which generated more than $300 million in advertising
revenues last year and topped the $525 million mark in licensing fees, according to Paul
"It makes the decision-making process a little faster,
and speed is the essence when you're in the sports business," said Tracy Dolgin,
COO of Fox/Liberty Networks. "Beyond that, "I don't think you'll see any major
changes from Fox."
While Dolgin praised Liberty as a "dream"
partner, he said the deal now allows Fox to better develop the marketing and programming
synergies around Fox's sports and entertainment properties. "It will allow us to gain
a number of synergies throughout the rest of the business."
It will also give Fox more freedom to pursue future sports
programming packages on both a local and national basis. It also gives Fox almost
carte-blanche ability to spend millions for those packages, which some operators fear
could lead to potentially higher affiliate licensing fees for operators. Regional sports
nets carry some of the highest licensing fees for basic networks, with many topping the $1
"We've seen sports licensing fees continually increase
year after year to unprecedented levels," said one top-10 MSO executive. "I'm
not encouraged that this deal will stop the increases, but could actually exaggerate those
But Ron Martin, COO of Buford Television, believes that the
consolidation of the regionals under one roof will result in lower operating costs, which
could be reflected in future rates.
"Certainly, the fact that it's in the hands of one
managing group may make the business more efficient, which hopefully makes for better
[licensing] deals," Martin said.
Dolgin downplayed any major programming moves for Fox,
saying that the company's current national programming lineup is a perfect supplement to
the regional networks' local sports programming. "We have enough national programming
now, but should the right national product come before us, we would certainly go after
it," he said.
The deal, however, will most likely end News Corp.'s run at
owning sports team properties.
The media conglomerate, which also holds ownership options
on the Los Angeles Lakers basketball team and Los Angeles Kings hockey team, will have to
get approval from the leagues before the deal is completed. Any further ownership
investments in pro teams would most likely be met negatively from the leagues, according
Fox executives also downplayed a potential buyout of
Cablevision's interests in Fox Sports Net and five regional sports networks. The proposed
deal would give Fox total control of all the Fox/Cablevision-owned regionals. In return,
Fox would give Cablevision its interest in the MSO's sports and entertainment properties.
"We have a good relationship with Cablevision, and
we're not negotiating any [deal]," Chase Carey, co-COO for News Corp., told analysts
during a conference call on the deal.
Dolgin commented that Liberty's investment in News Corp.
was a testament to the company's overall commitment to building the business. "This
just shows how much they believe in us to want to own us," he said.
John Malone, chairman of Liberty Media, said in a prepared
statement that Liberty has long believed "that [News Corp.] is one of the best
managed and positioned global entertainment companies in the world."
"As evidenced by today's investment, we are impressed
by the strategic direction News Corp. has taken in building out its content and
distribution assets," the statement continued.
While Liberty will continue to hold interests in several
regional sports networks, including Home Team Sports, Fox Sports South and Sunshine
Network, it has no plans to become an active participant in the sports ownership business.
"This certainly marks our exit from the sports
business," Liberty CEO Robert "Dob" Bennett quipped during an analyst
Liberty also announced that it will buy 28.1 million News
Corp. shares held by MCI WorldCom. MCI will exercise warrants on 56.2 million non-voting
News Corp. shares, Liberty said.
News Corp. will buy back all of MCI's shares and resell
half of them to Liberty as part of the Fox/Liberty Networks deal.