When news first broke, one month ago, that Disney was in talks to acquire most of 21st Century Fox, reports indicated that sports assets would not be part of the deal. Now CNBC is reporting that in fact, the deal is likely to include Fox’s regional sports networks (though not its flagship sports network FS1).
This is potentially huge news for ESPN.
ESPN lost 100,000 subscribers last month alone, according to Sports TV Ratings using Nielsen data, and FS1 lost 199,000. Both networks are being hit hard by cord-cutting, and the trend is not likely to suddenly reverse itself. ESPN laid off 250 people this year, more than 100 of them on-air personalities.
But the biggest help will come from parent company Disney: First, through its acquisition of MLBAM Tech, which will build an ESPN standalone streaming platform; and now, potentially, through its acquisition of Fox’s regional sports networks (RSNs).
What are Fox’s RSNs?
Fox Sports owns 22 regional sports networks (according to its own site) and each is pegged to a specific city (Fox Sports Detroit, Fox Sports Kansas City), state (Fox Sports Oklahoma, Fox Sports Tennessee) or region (Fox Sports Midwest, Fox Sports North).
Not all of Fox’s RSNs are called Fox Sports. 21st Century Fox owns Prime Ticket, which airs games of LA pro and college teams, SportsTime Ohio, which airs Ohio pro and college teams, and owns a majority stake of YES Network in New York, home of the Yankees, Brooklyn Nets, and NYCFC soccer.
Comcast, similarly, owns a range of RSNs with names like CSN New England and CSN Mid-Atlantic, and this year rebranded them all under the NBC Sports name.
RSNs tend to get strong ratings in seasons when the local team is winning (and, in some key media markets, even when the team isn’t winning). In baseball, for example, teams like the Kansas City Royals and Cleveland Indians have delivered very good ratings in the past two seasons for the RSN in their home markets.
In many cases, RSNs are part-owned by a local team, and that team ownership stake would likely remain unaffected by a change in parent company from Fox to Disney. The Yankees, for example, own a piece of YES, and the LA Dodgers own a piece of Spectrum SportsNet LA.
ESPN does not have RSNs. It has regional radio affiliates (ESPN Radio Orlando is 580 AM, ESPN Radio Nashville is 102.5 The Game FM), and city-specific web portals (ESPNDallas.com, ESPNBoston.com), but no regional sports TV networks. Yet.
What can ESPN do with Fox’s RSNs?
If Disney does acquire Fox’s 18 RSNs, it’s easy to imagine that the first thing it would do is rebrand them under the ESPN name: ESPN Tennessee, ESPN Carolinas. Or Disney might create a new umbrella brand name for the RSNs to live under, like ESPN Local Tennessee, ESPN Local Carolinas, to differentiate them from the national ESPN flagship channels: ESPN, ESPN2, etc. And ESPN could dual-air some of its ESPN2 shows on RSNs to get them wider reach.
Disney could also use the RSNs to help inject new life into the SportsCenter franchise, which has flailed in primetime slots in the past year. Imagine localized versions of ESPN, which could potentially compete for eyeballs with local news, for a sports fan in Nashville, say, who only wants to see news about the Titans, Predators, Grizzlies, Tennessee Volunteers, and Vanderbilt Commodores.
And the possible synergies from Disney through its acquisition of MLBAM Tech are clear: BAM Tech is building subscription streaming products for both ESPN and Disney right now, and Disney could roll local content from RSNs into those products.
More channels to worry about filling with content
Rich Greenfield, media analyst with BTIG, doesn’t think owning the RSNs makes much sense for Disney. He sees the move as 21st Century Fox Executive Chairman Rupert Murdoch wisely dumping a group of dusty assets, and Disney CEO Bob Iger making a baffling bet on the same assets.
“Disney’s problem is it already has too much leverage in sports, that’s what everyone’s problem with Disney stock has been,” Greenfield says. “Buying Fox dramatically increases their bet on sports, so I don’t get it. Maybe you can rationalize owning more of Hulu. But you’re getting Sky, FX, RSNs, you’re getting so much other stuff that is welded to the legacy ecosystem, it makes it that much harder to shift the business to over the top. If you believe that cord-cutting is happening, why do you want to have more assets that are heavily tied to that ecosystem?”
It’s a fair question. But perhaps Iger has something else in mind, a way to spread the footprint of ESPN across the new RSNs without creating a new burden for more content creation, which is very costly.
Source says Murdoch has not been high on the RSNs for several years. Same old media story: rights fees rising at a faster rate than affiliate revenue. https://t.co/cqODqsOcoU
— John Ourand (@Ourand_SBJ) December 5, 2017
Greenfield goes so far as to call the Fox deal potentially “one of the worst moves of Bob Iger’s career.”
He says there are smarter media acquisitions Disney could be making, like Activision Blizzard, Spotify, or Twitter. “To me, SportsCenter in 2017 is Twitter,” he says. “Why buy RSNs when you could buy Twitter and own the sports content platform of the future?” (Disney was indeed rumored to be eyeing Twitter last year, but it didn’t happen.)
Of course, Disney could still go ahead and make another major acquisition. Under Iger, the Mouse House has gobbled up bankable content franchises like Marvel, Pixar, and Star Wars, and that has gone extremely well. Iger clearly sees value in getting even more creative intellectual property from Fox.
It’s worth wondering what value he sees in acquiring local sports television channels during an era of cord-cutting and cable fragmentation. It could signal new life for ESPN — or continued decline.