Fox Sports 1 goes on the air tomorrow morning, but it was almost the softest opening ever: until yesterday, barely any cable provider or satellite service had agreed to carry it. Now there's good news and bad for the Fox brass—it'll be in almost every home, but it won't be particularly profitable.
Comcast had made a deal to carry Fox Sports 1 months ago, but they were about the only ones. Cablevision, Time Warner Cable, Cox, DirecTV, and Dish Network were holdouts, balking at the $0.80 per month subscriber fee Fox was demanding. (That fee is paid by the distributor to the channel, with the cost then passed on to you, the viewer.) But according to SportsBusiness Daily, with time running out, Fox caved: the subscriber fee for FS1 will be 23 cents.
(By comparison, the monthly subscriber fee for ESPN is $5.54. The fee for NBCSN is $0.33.)
That $0.23 figure is what those distributors currently pay for the Speed channel, which will go dark and be replaced by FS1 tomorrow. So this is obviously a blow for Fox—a ton of money is going into the new channel, but they won't immediately see a cent more from cable subscribers for it.
Fox has said it expects FS1 to be available in 90 million homes. The difference between the $0.80 they were asking for and the $0.23 they got equates to $615,600,000 less in revenues over the first year.
While the distributors had all the leverage (it would have been a disaster had Fox Sports 1 gone on the air with almost no Americans able to see it), some suspect Fox was just shooting for the moon with their asking price.
David Bank, an analyst for RBC Capital Markets, said that the Fox negotiators’ goal has been to push Speed’s subscriber fee of about 23 cents a month to $1 in four years or so. “I don’t think anybody expected Fox Sports 1 to get 80 cents immediately. There will be a predictable ramp-up to profitability. This is a phenomenal business.”
So instead, Fox will wait for its Speed contracts to expire, which will happen at various points over the next few years, before negotiating for fee increases. In those talks, Fox expects to have more leverage—it will bank on distributors' hesitance to take an existing channel off the air.
Still, in March SI's Richard Deitsch reported that most analysts expected FS1 to get between 75 cents and one dollar at launch. Our own sources said Fox was hoping for a compromise figure, somewhere well north of 23 cents. Call it a sign that, at least initially, distributors don't expect Fox Sports 1 to compete with ESPN, and they handicap it behind NBC Sports in the race for a distant second place.