While Fox Sports 1 believes it will be competitive with ESPN within a few years after its August 17 launch, at least one of Bristol’s corporate overseers seems all but dismissive of the startup’s chances.
Speaking Thursday at a Nomura Securities investor conference, Walt Disney Co. chief financial officer Jay Rasulo offered a dim view of the competitive landscape. “We always get asked about Fox Sports 1 and other competitors … and what we think is there may well be a very fierce battle for a distant No. 2 in that business,” Rasulo said. “People are going to spend a lot of money, they’re going to step up to bid on a lot of rights, and they’re going to wind up a distant No. 2. So, I feel pretty confident about our hand there.”
Certainly, ESPN has an enviable head start on the likes of FS1 and the established challengers NBC Sports Network and CBS Sports Network. For one thing, its affiliate fees are the highest in the business—$5.54 per subscriber per month, according to the latest SNL Kagan estimates. Given a sub base of 98.7 million households, ESPN in 2013 stands to rake in a staggering $6.56 billion in guaranteed affiliate revenue.
Rasulo said that ad sales accounts for around 30 percent of ESPN’s overall revenue haul. Per Kagan, the flagship net last year raked in $1.72 billion in sales, out-earning second-place TNT by some $670 million.
By comparison, FS1 precursor Speed last year took in $215.1 million in carriage fees and around $85.4 million in ad sales revenue—roughly 4 percent of what ESPN generated in the same period.
But as RBC Capital Markets analyst David Bank noted in a recent omnibus report, if FS1 can bump up the legacy affiliate rate from 22 cents per sub to $1.00 while quadrupling its ad sales deliveries, “the company could add approximately $1.2 billion to the top line.”
Certainly, FS1 has the requisite rights deals in place to compete in the 24/7 sports marketplace. Along with its Major League Baseball package and a college football roster that includes Big Ten and Pac-12 games, FS1 can also host college basketball games, Nascar races, international soccer matches and UFC bouts.
Incremental growth suits News Corp. svp David Hill just fine. Back in March, when the company officially announced its plans to launch FS1, Hill acknowledged that it would take some time to get to the point where the startup net could hold its own against the Worldwide Leader in Sports. “We’re not expecting to knock ESPN off in a week or two," Hill said, adding, “It’s going to take two to three years” before FS1 can compete with ESPN on equal footing.
For his part, Rasulo said that ESPN would continue to compete against all comers for top-tier sports rights packages—within limits. “We’re not complacent. We look at everything that comes up,” he said. “There are things that just get bid up to the point where we certainly can’t see a return on it, and sometimes I question how anybody can see a return on those kind of numbers. I mean, you look at the NCAA Final Four and who wouldn’t want that property? [Well] I know who wouldn’t—somebody who’s not willing to pay what it went for. I mean, the Olympics, hockey. They’ll break the budget and they won’t incrementally add enough to pay back.”
The premiere sports property that ESPN will unquestionably look to retain in the near term is the National Basketball Association. The league’s current $7.44 billion with ESPN and TNT expire at the end of the 2015-16 campaign; should FS1 hit its early projections, look for Fox to make a serious run at playing the pro hoops spoiler. (As the major rights packages have been nailed down for the next eight to 15 years, the NBA is literally the only game in town for the foreseeable future.)
But Rasulo likes his chances, regardless of how crowded the field of pretenders becomes. “In terms of the use of multiplatform, in terms of having a broad array [of rights], in continuing to be the most popular brand for advertisers, the most popular brand for fans—we’re not complacent about that,” Rasulo said. “We’re not sitting back and resting on our laurels, but we do feel incredibly secure and confident about our position.”