It isn't unusual for cable networks to be forced into protracted negotiations with cable and satellite providers to get their channels carried on basic packages. Especially for a new network like Fox Sports 1 (FS1), the lack of market or ratings leverage can make negotiations on spec difficult. So when Fox Networks set out to launch their new all-sports network in 90 million US households, it was no small task.
Those negotiations were still in question as recently as Wednesday with Time Warner Cable (one of the largest distributors in the New York City-area), Cablevision (the other major New York area distributor), DirecTV, and Dish Network, but by Thursday afternoon, things appeared to be wrapped up and every distributor is now reportedly on-board.
Wednesday's reports had FS1 close to deals with the two satellite providers, but they were not expected to reach an agreement with Time Warner before launch. The SPEED channel will officially become Fox Sports 1 on all cable television systems this Saturday, August 17th.
"We are thrilled that virtually all pay-television customers across America will have access to FOX Sports 1," Fox Networks President of Distribution Mike Hopkins said in a statement. "This network launch is a major milestone for Fox and will alter the sports television landscape. We are grateful to our distribution partners for making this all possible."
The new network will own the rights to all of the new Big East conference's sports, primarily airing men's basketball games. Other live content on the network will include college football, NASCAR, soccer, boxing and UFC, with Fox planning to shift Major League Baseball games (regular season and postseason) to the channel in 2014 as well.
The hold-up in negotiations likely revolved around the carrier fee that Fox was asking for. The SPEED Network currently earns just 23 cents per subscriber from Cable providers, while FS1 will reportedly look earn 80 cents per subscriber to start off and balloon to $1.50 per household after a few years.
Update: According to a report in SportsBusinessDaily, the subscriber fees were the hold-up, with the group of carriers balking at an agreement that would cost them significantly more than the current SPEED network rate. At the end of the day, in order to get the agreements done, Fox Networks caved and accepted a subscriber fee of just 23 cents per household, per month. That is the same rate that the SPEED network had been earning under these carriage agreements, or at least close to it.
By comparison, ESPN collects over $5.00 for each cable subscriber every month, and that rate continues to balloon. ESPN 2 alone is worth more than 23 cents per subscriber in a bundled package with the self-proclaimed Worldwide Leader's main channel. The ESPN company is worth around 40% of the total value of parent company Disney and earns a tremendous amount from these rights fees (though advertising attached to live sports is also a massive revenue source).
In cable networks, the subscriber fees are a consistent revenue source that broadcasters can rely on, unlike the ebb and flow of ratings-influenced advertising rates. Fox Sports 1 will be disappointed with their inability to generate a higher subscriber fee off-the-bat, but that just means that a bigger emphasis must be placed on selling advertising and maximizing the value of the thousands of hours of live content they have acquired.
For the Big East, it is clearly a benefit that Fox did not hold out to press the issue on a higher fee. Launching on 90 million set-top boxes was key to the new conference's decision to sign on with the upstart national network. It may even be that agreements with the Big East, NASCAR, UFC and others required FS1 to fulfill a promise to launch the network with that reach, causing them to fold in negotiations.
Normally the lower rate of revenue would be concerning given that the network will have to invest in the marketing of its content -- including the Big East Conference itself -- but with the deep pockets of FS1's parent company, those concerns should be lessened.