UFC Deal Is All About FX Sub Fees for News Corp.

Martial arts fights on Fox garner attention, but rights package is really fueled by cable network’s battle with operators

Last October, UFC Chief Dana White told B&C he would get a broadcast TV deal in 2011, and sure enough his new pact with News Corp. puts the mixed martial arts outfit on Fox. And that handful of fights per year got much of the attention and subsequent media coverage from a splashy announcement in Los Angeles last week on the network’s lot.

But for News Corp., this deal wasn’t at all about a few Saturday nights per year on the Fox broadcast network. Instead, the company is betting the UFC rights package will help with a major corporate initiative: FX punching and kicking its way to the top of the cable rankings in terms of both ratings and, especially, revenue.

Cable networks are already driving profits for News Corp., but Chief Operating Officer Chase Carey believes the division has much untapped potential, particularly at FX, whose license fees are scrawny compared to its older rivals. In fact, FX’s relatively modest sub fees have been a big source of attention within the company recently.

SNL Kagan estimates that cable, satellite and telco distributors pay 44 cents per sub per month for FX, well behind its general entertainment cable network peers. TNT gets $1.16, USA gets 60 cents and TBS gets 57 cents. And the timing won’t hurt, as News Corp. is facing an upcoming negotiation with DirecTV for its channels.

Carey is a big believer in live sports, and for good reason. Basketball and baseball prop up ratings at Turner’s TNT and TBS. And the WWE pumps millions of viewers per week into USA, the top-rated cable network.

Adding live sports—be it college football, UFC, or, perhaps next season, NFL football, if News Corp. can land a much sought-after new package of games being shopped—is a sound strategy, according to Derek Baine, analyst at SNL Kagan.

“On the recent News Corp. conference call, they were talking about big license-fee increases for FX,” says Baine, who notes FX’s ratings “have grown pretty dramatically recently. I think adding sports will capture the attention of cable operators.”

“The truth of the matter is, if you want to be a full-service network in basic cable and you want to be relevant to that audience, you need to be in the sports business,” says well-regarded FX Networks President John Landgraf, who was recently rewarded with a new three-year contract.

FX’s entertainment lineup already attracts more young male viewers than its general entertainment competitors, and Landgraf notes an 80% overlap between UFC watchers and FX viewers.

Of course, live sports is not cheap. News Corp. is reportedly paying at least $100 million per year for seven years for UFC programming to air on Fuel and Fox Deportes as well as Fox and FX.

“What you see is News Corp. really significantly investing in the channel, between the rampup in original programming and marketing and the simultaneous ramp-up in acquired programming between Two and a Half Men and movies, and now the simultaneous ramp-up in sports programming,” says Landgraf.

Using sports to strengthen FX is probably a more economical strategy for News Corp. than trying to start a cable sports network of its own, a move the company has often discussed internally.

And Landgraf says he would rather turn to sports than reality television to boost ratings. “I never wanted to go in that direction with FX,” he says.

The bottom line is Landgraf thinks UFC will help the network in upcoming carriage negotiations. “First and foremost, it’s going to help us with the audience, and I think the audience is ultimately your leverage with the cable operators,” he says.

FX has been using the slogan “There Is No Box” to describe how its programming doesn’t fit into the typical TV mold. Landgraf says he had been wondering whether it was time to freshen that up, but didn’t think he needed to rebrand. “‘There Is No Octagon’ will not be coming to our channel anytime soon,” he says.

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