Game On! Why Rupert Murdoch Wants to Tackle ESPN

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Mike Segar / REUTERS

Former NFL football great and broadcaster Terry Bradshaw speaks during a presentation to announce Fox's new sports network "Fox Sports 1" in New York, March 5, 2013. Bradshaw will host a daily football program called "Fox Football Daily." Fox Sports 1 will begin broadcasting in August of 2013.

In a word: money.

For months, News Corp., the media giant conglomerate run by billionaire mogul Rupert Murdoch, has been preparing to launch a new national Fox sports network. On Tuesday, Murdoch finally stepped into the batter’s box. Fox Sports 1, as the company is calling it, presents a direct challenge to ESPN, which dominates cable sports and is one of the most lucrative cable channels on television.

Murdoch’s move is just the latest indication that live sporting events have become one of the hottest areas of the media business.

The debut of Fox Sports 1 is not a surprise. Last month, News Corp. COO and trusted Murdoch deputy Chase Carey, called the network’s launch “the world’s worst-kept secret.” Fox’s challenge to ESPN, which is majority-owned by Disney, comes amid an increasingly crowded playing field. Both CBS and Comcast-owned NBC have launched national sports networks. So have the major professional sports leagues and many of the most powerful college conferences.

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This August, Fox Sports 1 will become available in 90 million homes across the country, according to company officials, who unveiled the new channel at an event in New York on Tuesday. The network, which is replacing the company’s Speed motor sports channel, will broadcast Major League Baseball games, college basketball and football, World Cup soccer, and NASCAR racing, among other sports. Fox Sports 1 will also feature the return of legendary talk-show host Regis Philbin, who has been hired to host a 5 p.m. afternoon show. Veteran football broadcaster Terry Bradshaw will also join the network.

It’s not hard to understand why Murdoch is moving aggressively onto ESPN’s turf — he’s been planning this play for years. Americans love to watch live sports, which is why advertisers devote so much effort into developing ads for the Super Bowl, which is considered to be the advertising showcase of the year.

“ESPN, quite frankly, is a machine,” Fox Sports executive vice president Bill Wanger said in comments cited by the Associated Press. “They have very consistent ratings, obviously huge revenue. We’re coming in trying to take on the establishment. It’s no different than Fox News or Fox Broadcasting back in the ’80s. We’re going to have to scratch and claw our way all the way to the top.”

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Murdoch is the underdog here, but he has defied the odds before, as with the introduction of the wildly successful FOX broadcast network and Fox News Channel, which dominates the cable news ratings. “We would remind those who think ESPN’s incumbency is insurmountable that Fox has succeeded as the insurgent in two other significant cases: broadcast, with the launch of FOX in the mid-80s, and cable news, with the launch of Fox News Channel in the mid-90s,” RBC analyst David Bank wrote in a research note cited by Reuters.

ESPN, which generates $6 billion in revenue every year, commands $5.15 per month for each subscriber from the major cable television companies, the highest subscription fee of any cable channel. By comparison, Fox Sports North, among the most lucrative of the Fox regional sports channels, only generates $3.68 per month, according to research firm SNL Kagan. (News Corp. currently owns 22 regional sports networks across the country, which will help promote the new national channel.)

ESPN offered a muted response to Fox’s challenge. “We like our position,” ESPN spokesman Josh Krulewitz told the AP. “We have always had vigorous competition so there is really nothing substantially new here. Others are, however, beginning to recognize what we have long known: The power of live sports, especially in light of technological advances, is substantial and brings tremendous value in today’s entertainment landscape.”

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In preparation for the launch, Murdoch has been systematically gathering broadcast rights for major sports teams. Last fall, the company re-signed a deal to televise Major League Baseball games, and announced a blockbuster pact to buy 49% of the Yankees Entertainment and Sports (YES) Network, the country’s most valuable regional sports network. That deal, which values YES at a whopping $3 billion, allies Murdoch with the Bronx Bombers, arguably the most valuable professional sports franchise in the world.

“They’ve lined up an impressive amount of sports rights and they appear to be off to a good start,” SNL Kagan analyst Derek Baine told Bloomberg. “But nobody expects them to be ESPN overnight.”

So why did it take so long for Fox to challenge ESPN? For the last few years, Murdoch and News Corp. have been somewhat preoccupied with the U.K. phone-hacking scandal, which led to the closure of News of the World. Several former News Corp. employees have been charged with criminal conduct for illegally breaking into the cell phones of British celebrities and crime victims.

The debut of Fox Sports 1 comes as News Corp. is in the process of breaking itself into two independent companies. Fox Group will include the new sports channel, as well as the company’s most lucrative entertainment businesses, including Hollywood movie studio 20th Century Fox, the FOX broadcast network, and cable news leader Fox News Channel. These businesses accounted for 90% of News Corp.’s operating income in 2012. A much smaller publishing entity, which will keep the name News Corp., will include the company’s newspapers, its education business, and the HarperCollins publishing house.

Correction 3/6: An earlier version of this story said News Corp. closed The Sun newspaper. The company actually closed News of the World.