A Competitor for ESPN?

08/14/2013 7:00 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Hey sports fans, get your Fox Sports 1.  The most interesting thing about the rollout of Fox Sports, which is supposed to compete with ESPN, which is owned by ABC, which is owned by Disney, is that they recently announced how much money they were going to put into the initial effort.  The initial effort, it sounds like a lot of money.  To you and I, $200 million is more than we usually carry around but in terms of a commitment to trying to displace ESPN, this seems like really not a whole lot of threat. 

Fox Sports 1 is supposed to go on the air really the middle of August, August 17th or so, with about 16.5 hours of programming a week.  It is what you start off with.  You start slow and you build up.  The question that a lot of investors have is how this is going to drive up the costs in the sports broadcasting area.  Basically, you have a lot of people bidding, a lot of money for a relatively small number of very, very high profile projects.  Everybody wants the Olympics, everyone wants NASCAR, everyone wants NFL football, college football, you know the names.  The more bidders you have, the more the price of these things goes up, which means the profitability of something like ESPN, which is the real profit motor of Disney, would go down so that is the worry here that we are seeing as Fox Sports gets rolling. 

It is really the first major effort since News Corp split into two divisions so this is a major, major effort for this new part of the business.  The question really is where does bidding go and how fast are people willing to throw money at something that they know is not going to make any profit.  When you have a new kid on the block who wants to make an impression and build up a profile, they are really not going, oh okay, so we won’t bid an extra $4 for the Olympics because we know we are not going to make money on the average investment rate.  That is not what the game is right here.  The question is how high Fox will go to try to eat into the ESPN brand, to try to build mindshare, so this is going to start to get expensive.

$200 million doesn’t look like it is going to get expensive really, really quickly so probably, if you own Disney, you are probably not looking at a problem for 2013, maybe not 2014, but at some point, if Fox is going to make a go of this, they are going to have to start bidding higher, they are going to drive costs higher, and you have the networks also looking at this and going oh, okay, sports is really one of the few things where we are sure we can get an audience if we have the product so you have all of these companies bidding and I really suggest that somewhere around 2014, you might want to look at exactly the trends that are going on and costs at ESPN and Disney.

This is Jim Jubak for the Money Show.com video network. 

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