Every student of Economics 101 knows that competition drives down prices. But that's not so in the perverse world of cable sports, where new bidders are driving up the cost of rights because of the limited pool of desirable games.
Rupert Murdoch's plan to compete head to head against the powerful ESPN sports empire by linking together an assembly of regional channels is perhaps the clearest case in point.
Cable operators say his News Corp.'s aggressive bidding to establish Fox Sports has already translated into higher costs for customers. And a counterattack in select regions--including Southern California--by ESPN and its owner, Walt Disney Co., could escalate cable prices.
ESPN would not comment on its strategy, but sources at the company say that Disney Chairman Michael Eisner is asking tough questions about why the network missed the opportunity to expand into regional sports before Fox began driving up prices with its big push in 1995. Disney bought ESPN last year as part of ABC Inc.
While it is too late for Disney to effectively block Fox Sports, especially after losing a bid in June for New York's marquee regional sports channel, ESPN is setting off bidding wars in the few remaining regions up for grabs, with Florida as the latest battlefront.
"Eisner is pulling his hair out," said an ESPN executive. "A network of regional channels would have been the perfect complement to ESPN. It would have given us local footage and saved enormously on production costs. At this point, the regional war is lost, but we can at least steal one or two networks or be a burr in [Murdoch's] saddle by making Rupert pay more."
That's what happened in Detroit on Wednesday, when Fox Sports agreed to buy cable rights to the Tigers baseball and Pistons basketball games from Washington Post Co., effectively putting the newspaper giant's Pass Sports channel out of business. An ESPN source said Fox Sports, which will air the games on a new network called Fox Sports Detroit, outbid Disney by 30%. Fox viewed the market as important because it is home to the nation's biggest advertising spender, the auto industry.
Still, Disney's strategy of making Fox Sports pay higher rates could pressure News Corp. While ESPN is the world's most profitable cable network and stands to make more money this year than NBC (analysts estimate profit at $600 million), many regional networks are barely breaking even because of the soaring cost of sports rights.
