- Rupert Murdoch’s $66bn sale of Fox assets to Disney casts long shadow over sports-rights market
- Disney will be stronger sports player in US but doubts remain about its appetite for risk elsewhere
- Sky-BT truce a tangible sign of Murdoch’s softening on sports-rights acquisitions
What is Rupert Murdoch up to? This question is vexing sport right now and it’s hardly surprising. Money from Murdoch’s pay-television operations has transformed the fortunes of sports leagues around the world over the last 30 years and suddenly it looks like the tap is about to be turned off.
Murdoch’s sale of 21st Century Fox assets to The Walt Disney Company this month was not just a sports deal. It’s as much, if not more, about Hollywood movies and hit TV series. But sport is a vital element. Of the $66bn (€55.7bn) value of the deal, the 22 Fox regional sports networks (RSNs) Disney is buying are valued at $20bn.
On top of that, Disney also picks up Sky’s European pay-television business, Fox Sports channels around the world (including the Eredivisie league channel in the Netherlands but excluding Australia, where they are owned by News Corp) and Star in India. The assets Murdoch has kept are all in the US: the main Fox national network, Fox News, Fox Business, the Fox cable sports channels and the Big Ten Network of college sports.
The official line is that the old newsman is going back to his roots in news and sport in the smaller, nimbler New Fox – “pivoting at a pivotal moment”, in his own words.
The alternative, more worrying, narrative is that the biggest gambler on the value of live sport the media industry has ever seen has just cashed in his chips and left the table. He has seen the writing (specifically, the acronym FAANG) on the wall and quit while he is ahead. There is no shortage of industry operatives inclined toward this view.
As sports media rights consultant Phil Lines puts it: “The move came from them [Fox] to sell. Why do you normally sell? It’s hard to argue that you are doing that because you think the future is bright. I think the future is far from certain and I don’t think they are confident they have found a way they can play in it. But they have not been that bold entrepreneurial thing they used to be for a long time.”
David Murray, formerly the BBC’s head of sports rights, points out that the so-called FAANGs (Facebook, Apple, Amazon, Netflix and Google) are not the only threat on the horizon. “Why was Murdoch prepared to sell so many prime assets? The long-term threat is not just from Amazon, but the fact that sports bodies will be able to put out their own OTT premium services. As sports go more direct-to-home, it is the pay-television providers that will suffer. It is curious that he is walking away from sports, yet hanging on to newspaper assets, which arguably will decline quicker than pay-TV.”
Content, not platforms
Not surprisingly, from within the Murdoch empire there is a desire to see this as one more brilliant roll of the dice from the 86-year-old. The hope is that the $40bn cash pile he walks away with will fund a sports and news empire that can hold its own in a world where digital natives are cutting cords and generally playing havoc with traditional business models.
As one Fox source says: “Never underestimate [Murdoch’s] ability to surprise. He is still absolutely on top of his game and still sees where things are going before anyone else. He has decided you can’t be a platform business and a content business, you are either one or the other. He has got rid of all the hard infrastructure the Facebooks, Amazons and the OTT players do not have.
“The focus is on content – news and sport, what he was always good at. I think there will be an increased focus on sport, but it might be more selective. It’s about being able to deliver the best content to drive the highest prices from the platforms, which still need content. And they still don’t have the expertise in producing it.”
In the New York offices of the Octagon sports marketing agency, an optimistic reading of the sale prevails. Daniel Cohen, senior vice president of the agency’s media rights consulting division, says: “For Murdoch, this is a retrenchment back to live, not just in sports. It’s how he built his business in the first place. It’s how he disrupted the entire industry.
“You are going to see Fox at the table for all major properties. They tried to pivot to more talking heads stuff, but it didn’t really work. I think you will see them acquiring more live premium content. Premium rights fees are going to continue to soar because Fox is going to bring a big wallet.”
Disney’s US powerhouse
While some analysts question whether doubling down on legacy media assets is really the smartest way for Disney to prepare for the upcoming global content battle with the likes of Amazon and Facebook, there is little doubt that the Disney which emerges will be a stronger player in the US sports-rights market. The RSNs are critical to this.
As Cohen points out: “They have deals of 10, 15 and 20 years with the local sports teams in those markets, typically the NBA, NHL and MLB teams. It’s an incredibly profitable business. And a lot of them are joint ventures, where the team takes either real equity or synthetic equity in the network. What Fox has done well – and which it now hands off to ESPN/Disney – is position themselves as almost inseparable from the team. Disney will now have the opportunity to layer in national content, with ESPN rights and shows. It will be a fascinating blend of local and national sports news and coverage that has never really existed before.”
As ESPN’s subscriber base has fallen from 100m to 88m in just over a decade profits have been trimmed, but this deal could halt the slide, Cohen argues. “If you look at what drives revenues for Disney, it’s ESPN.
It’s been struggling with affiliate fees and carriage deals, but the next lot of carriage deal renewals are coming up now and it will be hard for the carriers to say no. If I’m Comcast or Time Warner and I have to sit across the table from this library of content, it will be really hard to tell my consumers I’m not going to be carrying it.”
Back to the future
If Murdoch’s true intentions for sport are the enigma at the heart of the deal, the second most difficult aspect to read is Disney’s long-term strategy for sport outside the US. The company’s previous failures in Asia and Europe are well documented. How will going back to these territories a decade later with the same Disney culture work out?
For Cohen, this is not likely to be the number one priority at Disney’s Burbank HQ. “First, they have to fix what is broken in the US and figure out the future direction. That will be a 12- to 18-month process. Then they can look outwards. By acquiring Sky and Star they have great rights. The last time ESPN tried to go international they didn’t have the right kind of aggressive, Fox-style mentality. And they didn’t have the scale. Now they are armed with a lot of premium rights, a significant market share in the UK and India and the technology to build out from that, through the acquisition of [streaming service] Bamtech, which will help the direct-to-consumer roll-out.”
Lines can see the potential but still has his doubts. “One weakness for Disney has been distribution. They have bought a lot of distribution and a lot of data [with this deal]. Potentially, if you align Disney, ESPN, Star and the Fox channels around the world, that’s a very powerful group to put together. But quite how together it will be is a different matter. If you can make them all row in one direction, it’s powerful. But their track record suggests they won’t. My experience up to now is that Americans find it difficult to grasp the differences between the US and all the other markets.”
And it remains questionable, in a fragmented sports-rights market, just how much scale matters. William Field, founder of the Prospero Strategy consultancy, says: “It’s not that scale doesn’t matter in sport, but you cannot take the model of the movie and entertainment industry and transfer that into sport. They are completely different markets. Just buying scale doesn’t buy you a lot. We’ve talked for years about the possibility of Sky buying pan-European rights, or rights across the UK, Germany and Italy, and we haven’t seen very much of it. If you are a smart rights owner, you sell your content territory by territory and rely on the competitive dynamics within each territory to drive maximum value.”
Other informed sources are not expecting an aggressive global roll-out of the ESPN brand. One source close to ESPN points to a small but significant detail of the deal: Disney’s reference to $2bn of cost savings.
“There could be a full-on retrenchment [outside the US]”, the source says. “I think there will be a lot of rationalisation and they won’t look to compete head-on in territories where there is a lot of competition. Do they really need a Fox channel in Africa? The view at Disney will be: if it doesn’t wash its face, let it run down. Disney has always been obsessed with head count. If, with the same number of people working in Europe, Asia or Africa, they could be making a slightly higher margin in the US, they will focus on the US. I expect them to really consolidate in the areas that are driving revenues and look to cut costs in the ones that aren’t.”
UK rights freeze
Disney will inherit Fox’s planned acquisition of the 61 per cent of the Sky UK operation that Fox doesn’t already own, subject to approval by the UK competition regulator. Within hours of the Disney-Fox deal being announced, Sky and rival pay-television operator BT Sport unveiled a cross-carriage agreement in which the two platforms will retail each other’s channels. To what extent the impending Disney takeover of Sky drove this is unclear, but both deals have the same defensive mindset.
Murray argues that this new, less aggressive approach from Sky will sit well within the culture of the Disney organisation: “From being a high-growth business, Sky now feels a much more mature business. And what Disney is very good at is milking mature assets – look at what they have done with the Star Wars franchise. Sky is more like a utility business now than a growth business. It no longer needs that approach of ‘death to all comers’ by outspending them, which has been its strategy up to now. If I were the Premier League I would be more than a bit worried.”
The league has just announced the tender process for its domestic rights for the three seasons from 2019-2020. Until the BT-Sky announcement, analyst consensus was of an uplift of at least 40 per cent on the current £5.14bn for live games. Now, the bear case is for a reduction in value; the bull case for flat growth or a small increase. Other rights-holders will face the same problem in the coming years unless the tech giants step up in a way they haven’t so far.
Lines, who was formerly responsible for the international sales of Premier League rights, agrees the deal will put a brake on sports-rights inflation in the UK. Having spent most of the year working as an adviser to the English Football League on its renewal with Sky, he has sensed it coming for a while.
“The truce has only just been announced but the mindset has been like that for some time”, he says. “They don’t need more content; they need to pay less for what they have. They’re both happy with what they’ve got. The value of the Premier League rights going down has to be a possibility. Sky has found it painful at this level of rights fee. The broadband war [which drove competition between the two platforms] is largely over. These are mature businesses; it’s all about share price now.”
Field, who has also been an adviser to the Premier League on new technologies, sees the hand of Disney already at work. “This immediately de-risks the Premier League auction. Neither can now surprise the other with a knock-out blow for Premier League rights, or at least it reduces the commercial rationale for trying to do so. It removes the risk of losing a lot of Premier League rights and therefore not having the best football to put on their platforms. They will undoubtedly still compete for the rights to some degree, as there will be money to be made from having matches on their own channels but they are effectively accepting a period of competitive coexistence. The Sky/BT platform battle needs to be over so that they can marshal their forces against a new potential enemy, Amazon.”
He concludes: “While the main strategic logic for the merger is not about sport, the Premier League auction is so important to Sky’s business that I’m sure that there will have been conversations with Disney about it. Disney certainly doesn’t want to read news stories that Sky has screwed up by either over-bidding or losing all the rights.”