What Murdoch really gets out of Time Warner (and it's not Westeros)
Why does Rupert Murdoch want to buy Time Warner? It's not for HBO -- he might just want to take on a little American network called ESPN. Crikey business writers Paddy Manning and Glenn Dyer explain.
The recent US$80 billion bid by 21st Century Fox for Time Warner proves content is everything, but it’s not just the next Game of Thrones and Harry Potter that Rupert Murdoch is after.
Most commentary on the audacious bid has focused on Murdoch’s grab for content from Time Warner’s HBO cable TV network — perhaps the most successful in the world — and the Warner Bros movie studio in Hollywood. But sports programming is another key prong to the Murdoch strategy. Fox runs the most successful TV network in the US but has trailed competitors like Disney’s ESPN in sports programming in the vast north American market. ESPN is considered the most valuable media property in the world — the network broadcasts more than half of all live sports seen in the US — with profit margins approaching 50%.
Sport content is live and piracy-free — unlike Game of Thrones, for example, which was the most heavily pirated series ever. Fox Sports 1, a 24-hour, national sports channel modelled on Sky Sport in the UK and Fox Sports in Australia, is launching next month after a billion-dollar investment. Currently Fox has rights to some US Major League Baseball games in 2014, broadcasts hugely popular college basketball and football, and has a strong regional presence. A combination with Time Warner would give Fox access to crucial broadcasting rights over American football, baseball, basketball, golf, soccer, boxing and some minor sports, which are held across HBO Sports and Turner Sports.
Fox is looking to grab these sports rights from Time Warner to give its Fox Sports immediate heft to take on ESPN — a business it has never been able to replicate. Some think that’s the real reason for Murdoch’s move on Time Warner — the best content in a fragmenting media world is that which assembles mass audiences, and sport is the best there is, as we see with American NFL games, culminating in the Super Bowl each year. On top of that there’s the months and months of baseball in the US, basketball, soccer and ice hockey. All generate bigger audiences each week than many other forms of content (drama, comedy, films). Sports rights are expensive, but so then are the costs of advertising on them. If Fox grabbed control of the sports rights in Time Warner, it would become as big as — if not larger than — ESPN, and over time, just as profitable.
Of course the strategy has risks for Murdoch, too. The major league sports are hugely powerful in the US, generally divvying up rights between competing networks so that none get too dominant, and are increasingly broadcasting online — a trend Fox knows well, having bought half of the Yankee Entertainment and Sports Network in December.
Analysts warn sports contracts should not be counted as assets, and if Murdoch is forced to lift his Time Warner bid to the mooted US$100 billion to $110 billion, which is being speculated, he will be in grave danger of overpaying.