It’s not clear what was more of a shock: that 21st Century Fox — and not a streaming service — won the rights to NFL Thursday Night Football games for the next five years, or that it paid a nearly 50% premium to do it.
But despite falling ratings for the games — down by about 12% last year, by some estimates — the Fox broadcast network may see the Thursday-night package as the cornerstone for an over-the-top service that could rival ESPN Plus, The Walt Disney Co.’s much-touted sports OTT service slated for the spring.
Fox agreed to pay about $3.3 billion over five years for the rights to 11 Thursday-night games annually, in weeks 4-15 of the season, beating out previous rights-holders CBS and NBC, which had shared the package for the past two years.
Simulcasts Play On
As with CBS and NBC, all games airing on Fox will be simulcast by NFL Network, and Fox Sports will be responsible for producing 18 regular-season contests, with seven games airing on NFL Network only. (NBC owns the rights to the Thanksgiving night game under its Sunday Night Football package.)
Both CBS and NBC, according to reports, had lost big money on the games — about $65 million per year for CBS and $68 million annually for NBC, according to UBS Securities analyst John Hodulik. He predicts those losses could balloon to about $265 million for Fox.
According to reports, Fox is paying an estimated $660 million per game for the 11 matchups each year, about 47% higher than the $45 million per game CBS and NBC were paying as part of the old deal.
On the surface, the deal is a head-scratcher: Why pay a premium for an asset that is obviously in decline? But the key, according to several analysts that follow the company, lies in the fine print.
Digital End Run
As part of the deal, Fox will get the digital rights for both Thursday Night Football and the Sunday-afternoon football Fox already airs, including mobile rights. That, according to Hodulik, could be the foundation for a direct-to-consumer product in the future.
Fox has already agreed to sell its 20th Century Fox movie and TV production studio; cable networks FX, FXX and National Geographic; and its 22 regional sports networks to Disney in a deal valued at $66.1 billion. The TNF rights could help augment the properties it is keeping after the deal — its Fox broadcast network and TV stations, cable networks Fox News Channel and Fox Business Network, and national sports networks FS1, FS2 and Big Ten Network.
With the Disney deal, Fox hinted to the street that it believes the future of TV is live sports and news. The TNF deal only hammers that point home more succinctly.
In a note to clients, Sanford Bernstein media analyst Todd Juenger added that while the deal seems on the surface to be a money loser, it could point to Fox’s plan to position itself in a post-Disney deal world as a “sports broadcast network.”
“Under that theory, of course Fox would want to secure as many premiere, long-term rights as they could,” Juenger wrote. “Carrying that to its logical conclusion, we realized there is a chance that, after selling most of its company to Disney to enable Disney’s OTT strategy, Fox may actually end up in a position to have a stronger sports OTT product in the U.S. than Disney.”
Fox appears dead serious about its commitment to football and to the Thursday-night package. In a conference call announcing the deal last week, Fox president Peter Rice put it simply: “You either have the rights to the most-watched content, or you don’t. We believe in buying the very best rights, and the best rights are NFL.”
RBC Capital Markets media analyst Steven Cahall wrote that while the TNF package had a high price, Fox probably paid for most of it with its tax reform-related gains.
“The play here is clearly strategic, with the longer-term rights moving Fox further away from entertainment programming, while keeping it in a strong position to negotiate retrans/reverse comp,” Cahall wrote. “And, the deal appears to be co-terminus with Fox’s Sunday NFC rights that finish after the 2022 season, potentially putting Fox in a stronger negotiating seat when the rights come down (Fox will now producing some 120-plus games per season).”
BTIG media analyst Rich Greenfield, who has been a critic of Disney and a big proponent of over-the-top offerings, also believes that Fox could use the TNF rights to launch a direct-to-consumer product. But he sees the purchase as more of a move by Fox to show its unflagging commitment to the NFL. Despite the ratings turmoil, live NFL games still place at the top of the ratings in the 18-49 demographic, the most attractive to advertisers.
“Fox’s Thursday-night NFL decision would appear to indicate that they will do almost anything to keep Sunday-afternoon NFL rights post-2022,” Greenfield wrote, adding that he expects the NFL to make a decision on the post-2022 package by the end of next year or early 2020. “Despite all the ‘noise’ in the press about NFL ratings declines, there is still nothing even close to the power of the NFL’s content with legacy media more than willing to overpay (No 1 and No. 2 programs in A18-49).”
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