Murdoch Deal Sets Stage for Fox Challenge to ESPN

Media titan Rupert Murdoch, who roiled the sports world last month with plans to purchase the Los Angeles Dodgers, on Monday announced a deal to create the first toe-to-toe competitor to the sports powerhouse ESPN, the nation’s most profitable cable network.

The deal stitches together 17 regional cable sports channels with 55 million subscribers under the Fox sports banner. Murdoch’s new sports network will be grounded in hometown sports, but will be in a strong position to bid for national sports contests and sell advertising based on its national reach.

The competition between Fox and ESPN probably will further drive up the cost of sports programming as the networks bid for the most desirable sporting events. Consumers may get more choices, but it could come at a higher price in cable rates or pay-per-view packages.

While much has been written about the bitter personal feud between Murdoch and Ted Turner, the largest shareholder in Time Warner Inc., Monday’s deal underscores an emerging rivalry that is strictly business--between Murdoch, the chairman of News Corp., and Michael Eisner, the head of Walt Disney Co., which owns ESPN.

Culminating months of negotiations, a partnership of News Corp. and Liberty Media Corp. agreed to pay Cablevision Systems Corp., a Long Island cable operator, $850 million for a 40% interest in eight regional sports networks, Madison Square Garden and the New York Knicks and Rangers professional sports teams.

Sources say Disney lost out to the Fox/Liberty Networks partnership with an $800-million bid made as a defensive tactic to protect ESPN. Disney was also runner-up to Fox earlier this month in a bidding war for International Family Entertainment, whose Family Channel will give Fox a cable outlet for children’s and family programming to rival the Disney Channel.

The battle for prominence in sports and children’s programming has become fierce. Cartoons and sports translate better than any other programming across borders, and both News Corp. and Disney are seeking to build juggernauts in those areas to fuel international growth.

While Disney’s strength is in the United States, with the Disney Channel, theme parks, animated movies and ESPN, News Corp. is the global 800-pound gorilla that has used sports to drive television viewership. Internationally, News Corp. has had the upper hand in bidding wars with ESPN because of Murdoch’s willingness to pay higher prices to support distribution through British Sky Broadcasting and similar satellite services in Asia and Latin America.

Now Murdoch is trying to translate that success overseas into the United States. He started four years ago by buying rights to broadcast National Football League games on his struggling Fox television network, giving it instant credibility in the United States.

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Cable is the next step. A News Corp. purchase of the Los Angeles Dodgers would help Murdoch’s relations with Major League Baseball, whose games air on his fX cable channel and Fox broadcast network. More importantly, such a purchase would lock in rights to the Dodgers for his Fox Sports West 2 regional sports channel. Disney, which owns the Anaheim Angels baseball team and the Mighty Ducks hockey team, has considered starting a regional network to air those games.

Monday’s deal gives Murdoch another cable outlet to use as leverage in negotiations with major sports leagues. It unites under the Fox Sports banner Cablevision’s eight sports channels--in New York, New England, Chicago, Florida, Philadelphia, San Francisco and Ohio--with nine regional networks already owned by the Fox/Liberty Networks partnership to give advertisers the national reach of ESPN and the higher ratings that local sporting events draw. While local games will continue to be the bread and butter of Fox’s collective 17 channels, programming such as news shows, specials and games of national interest will be televised over the network to its 55 million homes. (ESPN has about 70 million subscribers.)

Another mogul, John Malone, the chairman of Tele-Communications Inc., has used his influence to help the Cablevision deal along. Malone recently traded a chunk of TCI subscribers and debt for a third of Cablevision, which gave him a say in driving a sports cable deal for Liberty/Fox. Malone controls Liberty Media.

Analysts said Monday’s deal probably will intensify the bidding wars for sports rights by putting News Corp. on a more even footing with Disney. Disney could use the combined clout of its ABC Sports division and ESPN to justify paying higher prices for sports packages. News Corp. is already using such an approach, winning rights to Major League Baseball by offering an outlet for games on the Fox network, fX and its nine Fox Sports cable networks, which simultaneously televise games on Thursdays.

Fox may be able to bring its additional regional clout to bear in negotiations beginning this fall with the National Football League and the National Basketball Assn., whose contracts with broadcasters are about to expire.

“This deal allows Fox to spread the rising cost of sports rights across a broader array of assets,” said Christopher Dixon, an analyst at PaineWebber Inc.

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For Fox, the Cablevision networks were the missing links in a national strategy. “This is a new television sports model that marries the high passions that people have for their favorite home team with a very well-done national component,” said Joshua Sapan, chief executive of Rainbow Programming Holdings, the Cablevision programming arm that is Fox Sports’ new partner. “It is nowhere available on television.”

Fox executives said they expected their approach to increase the market for sports advertising rather than siphoning money from ESPN, but some advertisers are doubtful.

“This is not going to manufacture higher advertising budgets,” said John Lazarus, senior partner at BJK&E; Media Group in New York. He said he was happy to have new competition for ESPN, which he said charges premium advertising rates. “I would love to be able to say to ESPN, ‘Gee, you are a little too expensive.’ ”