The Fox Sports 1 Gambit

Several months ago, when Fox announced the launch of Fox Sports 1, it boldly proclaimed that the network would have the biggest launch for a television network in history, opening in 90 million homes. At the same time, it reportedly told cable operators that it would honor old Speed contracts and only jack up their rates as those old contracts expired.

This Saturday, Fox Sports 1 will launch in 90 million homes, a number of which will be under old Speed contracts. But what happened in between is another story entirely.

It all started about a month ago, when it came out that FS1 didn’t have deals in place with three of the nation’s four largest providers, DirecTV, Dish Network, and Time Warner Cable. The piece noted that not having deals in place a month before launch – or even until the days leading up to or even just after launch – wasn’t unusual and characterized the talks as “amicable”, but it seemed to put the lie to Fox’s earlier lofty promises. As it turned out, contrary to Fox’s earlier claims, no cable operator was being allowed to carry FS1 at old Speed rates without signing a new contract at higher rates, and Fox would start preparing to offer a watered-down version of Speed to cable operators that didn’t agree to carry FS1 at higher rates to fulfill their old contracts.

That was pretty much it for the next month, with the prospect of four of the nation’s largest cable companies (Time Warner handles negotiations for Bright House Networks) not carrying FS1 at launch in the back of everyone’s minds, and potentially becoming more foreboding as the launch neared with no news of an agreement with any of them. The rest of the top 11 companies were lined up, but that was only enough for about 45 million subscribers, only about half of what Fox had promised. And all the news coming out about it was coming from outside channels, with not a peep from Fox about the prospect of launching with a fraction of the audience of NBCSN, aside from the ongoing efforts to ready “Speed Lite” – no calls to contact any of the companies and pester them to get Fox Sports 1, nothing. As recently as last Thursday, Fox executives assured investors that FS1 would launch in the promised 90 million homes, but considering how frugal all three companies have been with sports networks (DirecTV continues not to carry the Pac-12 Networks in their second year, and Time Warner Cable is in a nasty dispute with CBS), no one else in the sports blogosphere felt it was even plausible that Fox would get deals done with all three before launch. Those Fox executives must have seemed delusional.

Fast forward one week later, and all three companies reach agreements with FS1 on the same day. And how does Fox go from no progress with any of the three companies for a month to reaching agreements with all three on the same day? Apparently, by… allowing them to air FS1 under their old Speed contracts.

What happened? What I suspect is that Fox was always bluffing, pretty badly actually. They always had the option ready to allow distributors to show FS1 at Speed rates, but if seven of the top 11 distributors (and probably several smaller distributors besides) were willing to raise their prices, why wouldn’t Fox try to get as much money as it could as soon as it could? Fox wanted to see if it could con all the nation’s distributors to take the higher price, using “Speed Lite” as the implied consequence if they didn’t, and I suspect DirecTV, Dish, and TWC saw through the bluff. I do think if it was just DirecTV, or just Dish, or just Time Warner Cable holding out, Fox would have gone ahead and given them “Speed Lite”, but Fox never intended to take the PR hit of launching FS1 in half the homes they promised (and having only 45 million households able to see the stacked UFC card the network’s first night or the States’ first glimpse of Jay Onrait and Dan O’Toole).

I do think it odd, regardless of anything else, that Cablevision (another company prone to get into disputes with sports networks) and Cox were apparently allowed to take their old Speed rates in time to be reported as being on board on Monday, but DirecTV, Dish, and TWC continued to hold out until Wednesday, when they ended up getting the exact same concession. It’s worth noting that Cablevision and Cox are smaller than the other three; perhaps, not wanting to add another seven million or so angry customers to the many that could be left out with the satellite companies and TWC, Fox gave those two companies what they wanted in hopes of being able to put more pressure on the remaining three, though that may have actually crippled their leverage if the satellite companies and TWC caught wind of what they had done. Or perhaps work was already well underway on wrapping up negotiations when that list on Monday came out. Or perhaps Fox gave those two companies concessions in order to help shut up the companies that took the higher price (perhaps specifically the companies most likely to speak up) when it offered the lower price to the other three.

Whatever the case, I don’t think it’s looking at it from the right perspective to claim Fox made “major concessions” and took “steep losses”. By making sure FS1 gets on the ground running without any major carriage embarrassments, Fox has done much to ensure its health in the long term, and by getting as close to those embarrassments as they could, they made sure they pocketed a tidy sum more in the short term than if they had just let everyone carry FS1 under the Speed contracts.

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