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  HOME | Business & Economy (Click here for more)

Will Regulators Penalize Fox-Disney Deal over Sports? – Heard on the Street

NEW YORK – With viewers turning to streaming video, sports has come to dominate traditional TV, according to a report from Dow Jones Newswires.

In 2005, sports accounted for 14 of the 100-most viewed broadcasts, while in 2015, it was 93 out of 100, according to MoffettNathanson.

That is one reason behind a potential 21st Century Fox-Disney deal, which could be announced as early as this week.

And it is one reason why regulators could frown on such an agreement, Dow Jones added.

People involved with the talks say that, in addition to Fox’s television and movie studios and its FX and National Geographic cable networks, Disney would also acquire Fox’s regional sports networks.

The 22 networks are worth roughly $23 billion in enterprise value, according to MoffettNathanson.

That makes them nearly a third of the total value of the $71-billion deal.

Wall Street Journal parent company News Corp and 21st Century Fox share common ownership.

These sports networks are local cable channels that have exclusive rights to hometown games.

They have been a major force behind the escalating costs of sports licensing rights.

If you want to watch the Detroit Tigers on TV, for example, you have to subscribe to Fox Sports Detroit.

Combined with Disney’s ESPN and stakes in the three leading college conferences channels (Big Ten, S.E.C., and A.C.C.), the channels would give Disney a conspicuously dominant sports portfolio.

This could draw the attention of regulators who are already challenging another big media deal – AT&T’s acquisition of Time Warner.

The issue would be how much more dominant would Disney be than Fox is right now, with its Fox Sports and regional sports networks.

Sports channels already have enormous leverage in this sector, Dow Jones added.

Subscribers won’t buy a cable package that excludes their must-watch channels, so sports channels have been able to charge cable and satellite distributors steadily rising prices for carrying their networks.

Disney’s ESPN, which has 90 million subscribers, bags nearly $8 billion a year in fee revenues.

That makes it the highest-grossing cable channel around.

As one of the few remaining spots that can be counted on to attract large audiences, sports channels take a big cut of advertising revenue too. Spending on ads for sports rose 50 percent in the decade to 2015, even as advertising rates in the industry generally stayed flat or declined.

The merger would give Disney even more leverage with distributors.

“You can’t run a pay-TV company with consumers who like sports without ESPN and Fox’s regional networks,” says Michael Nathanson of Moffett Nathanson.

Disney could also run the channels on an ESPN streaming service, which it plans to launch next year.

“As long as sports have an important place in viewing, the regional sports networks could be leveraged far beyond what anybody thinks at this moment,” said John Janedis of Jefferies, LLC.

Antitrust regulators have typically focused on deals where consumers could be hurt.

It is not hard to imagine pay-TV operators calling the deal anti-consumer.

If a Fox-Disney merger runs afoul of regulators, sports will likely be their focus.

 

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