Has Fox Fumbled? A Case

In early 1994, Fox Broadcasting Company agreed to pay $1.58 billion for the television rights to the next four reasons of the National Football Conference (NFC), home to powerhouse teams such as the Dallas Cowboys and the Washington Redskins. In addition, Fox hired sports commentator John Madden, in a four year, $32 million deal that more than doubled what Madden had been earnings at CBS. In addition, it included a high priced contract for Madden’s CBS co-commentator, Pat Summerall. Fox also hired away legendary quarterback Terry Bradshaw by offering him more than twice his CBS salary.

Many in the television industry gleefully surmised that the previously up-and-coming fourth network was on its way down. They believed Fox had made a drastic error in buying NFC rights for an amount that CBS, the next highest bidder considered to be at least 25 percent more than it was worth. They saw the generous contracts Madden, Summerall, and Bradshaw as compounding the error. Industry analysts projected that Fox would lose hundreds of millions of dollars the duration of the contract. Clearly, Rupert Murdoch, chairman of News Corporation, Fox’s parent company, had made a mistake.

Or had he?
Looking beyond the financial bottom line of the football deal itself reveals numerous other benefits. There are so many more things that play into our plan, pointed out Fox’s Chairperson, Lucie Salhany. We’re just seven years old and this will really out us on the map. It will increase our affiliates, increase our ability to promote our other programs to a new audiences, and draw new advertisers. After the announcement [that Fox had won the NFC broadcast rights], our phones started ringing immediately.

The move also left CBS without football for the first time since the network began broadcasting in 1956. With CBS potentially weakened, Fox is now positioned as a serious challenger to the “big three” –CBS, ABC, and NBC – and the ratings balance of power is threatened. The only way to justify the current investment in NFL football [by Fox] is to see what it does for the overall Fox Network, asserted Christopher Dixon, media analysts at Paine Webber. Sunday afternoon football can provide a promotional base and give Fox much credibility in the eyes of the public and even more important with advertisers.

A side from transforming Fox from an upstart into a contender, Sunday afternoon NFC games will also support Fox’s other programming. Fox commentators will be able to give plugs for the Sunday evening line up following the games, just as CBS commentators did. Murder, She Wrote and 60 Minutes benefited enormously from being slotted after football and being promoted during the games. The impact promises to be even more dramatic for Fox, which, through the football deal, will be attracting many new viewers to the network. Viewers who tune in to Fox for football become familiar with its schedule and not just for Sunday night. They will become accustomed to switching to Fox more frequently. Said Stacey Marks Bronner, general manager of Chicago’s WFLD, a UHF station. The hardest problem is not being a habit. So now we are going to be a habit.

Thus the NFC deal falls in line with Fox’s strategy objective of expanding its audience. Fox executives expect football to draw older viewers, expanding Fox’s typical demographic from males aged 18-34 to males aged 18-45. Fox has already demonstrated that young viewers comprise a profitable niche, but Salhany admitted, the network’s goal has always been to capture the audience of 18 to 49 year olds. Our average viewer is a 28 year old male, Salhany revealed. We want to take that up to a 30 year old and get more women in there. We just don’t want so much dependence on a very fickle audience, young teens.

Football also makes Fox more appealing to a host of new advertisers, particularly since seven of the nine Fox owned stations fall in NFC markets. The stations will be able to tap sports advertisers for the first time, noted Jessica Reif, an analyst with Oppenheimer and Co. Moreover, the expanded demographic will make many potential advertisers, such as mass market retailers and auto makers more interested in the station that they have traditionally ignored. Of the top twenty prime time advertisers, six spent less than 5 percent of their budgets on Fox in 1993. NFC football will help to change that. What Fox is doing is creating more valuable inventory than they previously had, said Dixon.

Fox has certainly come a long way since it was launched in 1987. Network revenue for 1993 reached a gross figure near $650 million with operating profit estimated at $76 million of the year ending in June. They’ve successfully created market, but that success makes them look more and more like the other networks, said analyst Dennis McAlpine of Josephthal Lyons and Ross. They’ve become a player added a former Fox executive, but now they have something to lose.

In the end, says Murdoch, buying the NFC rights provided a cheap way to buy a network. Its plan for the future, Salhany explained. It takes the network to another level. It is good for the network, our stations, and our affiliates.