One Strike and Fox Could Be Out

Fox Broadcasting Co. executives could get trapped in a squeeze play if Major League Baseball players go on strike this summer.

Fox uses the playoffs and the World Series as a monthlong billboard to hype the network’s slate of new fall shows. Even though Fox ultimately loses money on baseball, postseason play has delivered some of the network’s highest ratings and, along with professional football, helped thrust Fox into TV’s big leagues.

“With baseball comes a unique set of opportunities and a unique set of challenges,” said Sandy Grushow, chairman of Fox Television Entertainment Group.

Last season, Fox’s broadcasts of the World Series drew an average of 24.5 million viewers--more than twice the audience of Fox’s most popular programs. Fox took advantage of the platform to reach male viewers, particularly younger men who are more likely to tune in to “The Simpsons” or “24.” The network jammed the airwaves with promotions and teasers for its shows. Fox even turned the backstop behind home plate into a computer-generated billboard, superimposing images of network icons such as “Ally McBeal.”

Not only does baseball help Fox draw millions of October viewers who otherwise might watch “Frasier” on NBC or “Everybody Loves Raymond” on CBS, it also allows the network to reserve its arsenal of new shows for the all-important November sweeps when station ratings are measured. The sport also helps the network postpone the introduction of midseason shows to replace those that falter right out of the gate.

“Baseball is like ‘program-helper,’ ” Grushow said.

But there are programming downsides. Baseball forces the network to roll out its fall lineup in hiccups. Fox introduces a few new episodes during the final weeks of September to stay competitive with NBC, CBS and ABC but must shelve those series and hold off the rest of its new shows until the World Series ends in late October or early November. By that time, many viewers have warmed to new shows on other networks.

Fox executives say they’re not expecting the current labor negotiations to end in a strike, but the network isn’t taking any chances. Executives have been working on contingency plans for more than a month, but they won’t divulge details.

“It starts with a personal visit to [Major League Baseball Commissioner] Bud Selig’s house,” Grushow joked.

But privately, Fox executives worry that baseball’s labor troubles have the potential to cancel or delay the World Series, prompting a repeat of the problems the network faced last year.

Executives attribute the network’s lackluster ratings to the delay of the World Series after the Sept. 11 terrorist attacks. The baseball season stretched into October and the World Series wrapped up in November. That left Fox struggling to find momentum for its new shows during the critical November sweeps, when competition among networks is the most intense.

The uncertainty also is causing jitters because Fox is buying advertisements on cable TV, radio, billboards and magazines for shows that might end up debuting sooner--or later--than planned. In the event of a work stoppage, Fox would be forced to shuffle its ad buys or purchase new ads at higher spot prices.

“The notion that we may not know until September is difficult,” Grushow said.

Some question whether the benefits of baseball are worth the hassles.

Although Fox executives believe that baseball provides a powerful promotional platform, that doesn’t always translate into higher ratings for the network’s regular-season programs. Postseason baseball ratings increased 26% last year while ratings for the network fell 4% over the course of the season, according to Leland Westerfield, a media analyst with UBS Warburg.

“Baseball is a franchise for Fox, but it’s not one that is profitable,” Westerfield said.

Fox negotiated its deal with Major League Baseball in 2000, during a supercharged ad market fueled by heavy political spending on the presidential and congressional races. It beat out NBC and ABC by agreeing to pay $2.5 billion over six years for broadcast rights. The contract gives Fox exclusive rights to broadcast the Saturday afternoon national “Game of the Week” from June through September, and all postseason games.

The deal was reached before the advertising market weakened, stalling anticipated rate increases.

This year, the network’s parent company, News Corp., disclosed it probably would lose $225 million on baseball through 2006, when its contract with Major League Baseball expires. That amount did not include any financial ramifications of a players’ strike.

Fox is losing money on all its marquee sports deals, including more than $387 million for professional football and nearly $300 million for NASCAR auto racing.

Fox has protections built into its Major League Baseball contract to cover a work stoppage.

The deal allows Fox to get credit for fees it already has paid for games that are not played, credit for out-of-pocket expenses and credit for lost profit.

Fox could recoup as much as $300 million for games not played this year and out-of-pocket expenses, such as studio and production equipment amortization, a source familiar with the deal said.

In addition, Fox could receive as much as $230 million in subsequent years if a strike prompted fans to turn away from baseball, impairing Fox’s future ratings or ability to achieve advertising revenue goals. An arbitrator would have to decide how much Fox could recoup from the league.

In fact, Fox might lose less money on baseball if the postseason were canceled. That would save Fox production costs, and the company would get a credit from the league of about $257 million for games not played.

Fox executives would not say whether a strike would benefit the company financially, but Anthony J. Vinciquerra, president and chief executive of Fox Networks Group, made the company’s position clear: “We do not want a strike.”

So far this year, more viewers are watching baseball on Fox. Ratings are up nearly 10% for the “Game of the Week,” with nearly 3.7 million viewers tuned in to the Saturday games, according to Nielsen Media Research.

The postseason could generate as much as $300 million in ad revenue for Fox, analysts say. The network has sold 50% to 70% of the available commercial time for this year’s playoffs and World Series, Fox ad executives said. But sales have slowed.

“While these rain clouds are hanging over us, advertisers are a little hesitant to place money in the games,” Vinciquerra said. And if the postseason is canceled “we’d have to figure out what we’d do with the advertising money already committed to baseball.”

Fox executives say they would steer baseball advertisers to the network’s football broadcasts.

But the rates and ratings are not the same because most of the baseball playoff games are in prime time.

And there would be no guarantee the money would stay at Fox, said Bill Cella, chairman of Magna Global USA, which negotiates network time on behalf of advertisers.

“If the games go away, the advertisers will follow the ratings and the [target audience] to other networks,” Cella said. “There would be a lot of money thrown up in the air.”