The driving motivator behind Fox’s $80 billion bid for Time Warner
By: Brian Mulligan, CEO, Brooknol Advisors July 19, 2014 2:34 pm
The most important man in sports for the last 25 years has been News Corp.’s Rupert Murdoch. When he signed the network’s first NFL deal in 1993, it elevated Fox and provided the NFL another credible buyer for NFL rights. In the process, the economic landscape for sports was forever changed. He was an innovator with overhead cameras, graphics, and colorful but highly competent announcers. He brought showmanship to sports. He saved baseball when no one else other than Fox showed up to buy the national broadcast rights in the early 2000s. Baseball was thought to be a dying sport. He revived it. Further, in the early 2000s he made NASCAR more accessible with breakthrough informational graphics and sound enhancement, and pushed every angle to promote the sport. I was a part of that team that left no stone unturned. NASCAR became the fastest growing spectator sport in the U.S.
Murdoch understands the local and tribal nature of sports. He launched the Fox Regional Sports Nets (FSN) to capture that tribalism and utilize it to compete with ESPN. FSN airs local professional baseball, basketball and hockey games, as well as regional college football games, greatly increasing the value of those teams and their players. In a clever move on paper, Fox sought to create a better ESPN though FSN. The plan, created by CEO Chase Carey, was to have local sports teams play in primetime on FSN and matriculate that audience to national programming like their own Sports Center. It didn’t work because of right issues, logistics and the randomness of when games ended. So a switch was made to local programing after games. But getting quality local talent and programing proved challenging, especially in light of the high quality and wide coverage enjoyed by ESPN. Fox produces quality pre- and post-game shows having had the No. 1 pre-game show for the NFL for many years. But getting such programming proved illusive for FSN and remains so.
Buying Time Warner (TW) will give Fox access to certain sports on TBS, TNT and TruTV, where on a national level Fox hasn’t been a player, or only a marginal one, such as with the NCAA’s March Madness, NBA (national broadcast) and golf. Fox will secure the No. 1-rated pre- and post-game NBA program with Ernie, Kenny and Sir Charles on TNT. Through HBO, Fox will acquire the highly acclaimed championship boxing series, high quality and award winning HBO sports documentaries and “Real Sports.” With HBO, Fox will gain the profitable pay-per-view arrangements, a gold mine if managed correctly. These quality sports and programs can be repurposed and reimagined in a way that allows for a serious contender to ESPN. Fox has more TV outlets with its Fox-owned stations and their duopolies than any media company. Fox/TW will have more high-quality cable channel outlets than any competitor by far. With HBO GO cutting edge mobile technology for repurposing or streaming sports. Fox has the rights to the biggest global viewing sports event in World Cup in 2018 and 2022, which will be able to leverage the above outlets. Fox, through Sky Sports and Fox Latam, has the best international sports presence of any U.S. operator. ESPN did a magnificent job promoting the World Cup this year, but there is nobody better than Fox at promotion.
I have combined entertainment companies on a worldwide basis and with the right team, plan and leadership, it is still hard work and tough decisions must be made. Nonetheless, it will be relatively straightforward to extract a billion dollars of savings out of combining the two giant entertainment segments of a TW and Fox. The same is true of revenue synergies on the entertainment side. Selling CNN will take care of any material anti-trust issues. Financing by the banks if they buy into the cost synergies will also be straightforward. The entertainment side is the easy part.
Fox has been No. 1 in every major media and entertainment segment in the U.S. it has gone after at one time or another except one, 24/7 sports, specifically ESPN. Carey is an expert in leveraging sports to create value having done it with Fox before and then at DirecTV. Now he is back at Fox, and a third time can be an additional charm. James Murdoch used sports to create value at BSkyB and Lachlan Murdoch was the president at Fox during the revival of MLB and launch of NASCAR. Both Murdochs are now at Fox. So it is a team that understands how to utilize sports to create value. The key will be taking the aforementioned quality sports assets, rights and broadcast and cable outlets and combining them in a unique way that delivers a superior sports viewing experience and must-see appointment TV surrounding the games.
Rupert Murdoch is unlike any mogul I have known. For most moguls, such a massive combination would cause a leader to go into a conservative cost-cutting mode and only seek low-hanging fruit on the revenue side. I believe that is the path he will take on the entertainment side. But on the sports side he will play to win, double down and invest. He, Chase, Lachlan, James and the rest of the management team have the hard part of combining the sports assets in a way that beats ESPN. But, the combined pieces, management expertise, motivation and investment capital all are present to give Fox a solid shot.
