Fox wants to keep its National Football League TV rights package. It just doesn't want to be pummeled in the process. To avoid another $500 million write-down on its current NFL agreement, affiliates have a new game plan: Buy two packages. Simple, right?
Here's the catch: The second NFL option would be part of a broadcast DTV offering. And fans would pay for the service. That would provide the elusive second revenue stream that could help Fox avoid another multimillion-dollar meltdown, while affiliates hope it eases network pressure to help pay for future program rights.
All told, Fox has written off almost $1 billion on its current sports packages, which also include Major League Baseball and NASCAR.
The NFL is seriously considering carving out at least one new TV package that would kick in for the next rights cycle, starting in 2006. The league isn't talking specifics, but broadcast sources say it's leaning toward a digital cable package similar to DirecTV's NFL Sunday Ticket deal. That exclusive deal expires at the end of the 2005 season, enabling the league to create new digital packages. That's the one Fox affiliates want the network to buy.
John Tupper, immediate past chairman of the Fox affiliates board, is a believer. He figures football fans would pay $1.25 per game, or $24.95 for a season pass. Multiply that times 30 million and you have a $750 million business, more than enough to cover the yearly rights fee.
The government would take roughly 5% of those fees—the feds plan to tax multicast pay channels—but Fox's ad sales on its regular Sunday-afternoon broadcasts would deliver a couple hundred million dollars in profit. In fact, Tupper says, the model is up and running in Salt Lake City, a broadcast digital service called USDTV (B&C, Jan. 12). Local stations have banded together to offer cable channels over their otherwise unused digital multicast spectrum. They charge consumers far less than what a conventional cable subscription would cost. USDTV chief Steve Lindsley has briefed Fox brass on the operation, and Tony Vinciquerra, president of the Fox Networks Group, calls it "an interesting model."
Other affiliates are interested. "The use of the DTV spectrum is key for all of us. The technology is moving in our direction," says Emmis Communications CEO Jeff Smulyan. "I wouldn't limit it to subscription sports. There are a lot of opportunities there."
Sports media consultant and ex-CBS Sports President Neal Pilson has doubts. "I don't see the distribution being there in 12 to 18 months," he says. (That's when likely renewal talks for the NFL TV rights are like to begin.) "You're talking hardware in homes and delivery of multiple signals in multiple markets. It's not going to happen that fast."
The wildcard might be Fox-owned DirecTV. Combining the satellite service's infrastructure with local spectrum space might just yield a DTV killer app—if Fox and its stations can figure out how to share the wealth.