New York -- When Cablevision Systems Corp. chairman Charles
Dolan flipped the switch last week to officially launch Fox Sports Net, he also opened the
floodgates to a new national/local sports hybrid that executives said could hit both ESPN
and cable operators in the pocketbook.
Armed with a multimillion-dollar advertising campaign, five
regionals formerly under the SportsChannel name officially switched last week to the Fox
Sports Net moniker. Matched with Fox's 10 owned-and-operated regionals, as well as
six affiliated regionals, Fox Sports Net will aggressively challenge ESPN for national
sports advertising, said Fox executives.
But with strong national product wrapped around popular and
highly rated local games -- as well as consistently increasing production and programming
costs -- the regionals will most likely look for operators to ante up as much as $2 per
subscriber, per month by the turn of the century.
Last week's launch ceremony at Cablevision's
Madison Square Garden was the culmination of the $850 million deal between Fox/Liberty
Networks and Rainbow Media Holdings Inc. in June. That deal gave Fox 40 percent of the
then-eight Rainbow Sports networks -- MSG Network, SC New York, SC Chicago, SC Florida, SC
Ohio, SC Pacific, SC Philadelphia and SC New England. All but MSG and SC Florida have been
re-branded under the Fox Sports name (SC Philadelphia has since closed down).
'It gives advertisers efficiencies that they
didn't have with just a regional or just a national product,' said Tracy Dolgin,
executive vice president and chief operating officer of Fox Sports Net.
'Fox Sports Net represents an opportunity to produce
and sell high-quality network product on a national basis, while offering valuable local
programming,' Dolgin said. 'For advertisers, it's the best of both
worlds.'
But maintaining production quality and holding on to team
rights will most likely cost operators in the near future. Already upset over
industry-high licensing fees that range from $1.20 per subscriber to as much as $1.50,
operators may soon have to dish out $2 for the popular channels.
'I don't think that it's out of order to
believe that a regional sports service could be over $2 by the year 2000,' said
Michael Bair, vice president of Rainbow Media Sports Holdings.
Despite the current perceived high cost of regional sports
networks, Bair said the regionals -- which generate high ratings for local-team telecasts
-- are undervalued compared with most basic services.
'No other service does an 8.0 rating on their best
shows other than the regional sports networks,' Bair said. 'When you're
talking about value per rating, we're probably the cheapest on the dial.'
That rationale, however, doesn't sit well with
operators, which -- under pressure from Washington -- are trying to keep cable rates down
while offering the most variety and value to consumers.
'We continue to be troubled by the significantly
increasing cost of sports programming; we always swallow some of those increases, but we
can't help but pass some on to the subscribers,' said Mike Luftman, vice
president of corporate communications for Time Warner Cable. 'We get complaints if we
raise prices, but if we take [sports] off, [customers] will completely burn the house
down.'
If regional fees reach such levels, John Mansell, analyst
for Paul Kagan Associates Inc., said Fox risks the possibility of operators moving local
sports off expanded-basic tiers and into a la carte or migrated-product tiers.
'The danger for those networks is that there will be
some backlash from cable operators and regulators that could lead to a movement where the
sports services could be offered on an a la carte basis,' Mansell said. 'If that
happens, their advertising base disappears.'
A MediaOne spokesman said that if rates do increase to
those levels, 'we would sell it on an a la carte basis, at whatever price Fox
sets.'
Regionals often resist operators' attempts to move
sports services off expanded-basic (known as CPS) tiers.
But Dolgin said operators' complaints about high-cost
services are baseless when you look at the overall value of the regional services.
'To blame one or two sports services for the rising
costs of cable doesn't make much sense,' Dolgin said. 'It's not like
we're making an unbelievable windfall [on the licensing fees]; we all would like to
pay less for sports rights, but that is the reality of the marketplace.'
Ironically, the operators themselves might be driving up
team-rights fees in the future. Several operators, along with ESPN and other alternative
distribution companies, have battled Fox for the rights to local teams in a number of
markets, driving up rights costs. Next year, Houston-based Fox Sports Net Southwest will
most likely fight Marcus Cable for rights to the Texas Rangers Major League Baseball and
Dallas Stars National Hockey League teams. Marcus owns a minority share in the Rangers,
along with a majority partner, billionaire Tom Hicks, who also owns the Stars.
'The perception was that by combining all of the
regionals, there wouldn't be any higher rights fees, but you now have cable operators
that are bidding against Fox,' Mansell said.
Along with providing quality product, Bair said the
regional services have developed more community-oriented initiatives that generate even
more value for operators.
Meanwhile, the SC networks are aggressively marketing the
Fox name locally. Most of the SC networks had already been distributing Fox Sports
Net's national programming, including Fox Sports News.
Charles Dolan, chairman of Cablevision, said he was
'elated' with combining the SC services with the powerful Fox brand name.
'This will mean even more growth for the networks,' he said.
While there may be a little initial confusion from
consumers, Bair believes that the high brand awareness of the Fox Sports name will ease
the transition process.
'Consumers will have some concern about where
SportsChannel has gone, but primarily, they want to know where their local sports teams
are,' Bair said. 'With the positive Fox Sports brand already established, it
won't take long for the consumer to make the transfer easily.'
SC Chicago and SC Ohio have been particularly aggressive on
the marketing side, each committing over $1 million to a multimedia campaign incorporating
popular athletes from their local professional teams, Rainbow said.
