Will Fox Soccer Become FX2? A Brief Run Through Network Rebranding

According to an article in today's LA Times, Fox is considering rebranding its Fox Soccer Channel to be an entertainment service similar to its FX. In fact, it might be called FX2.

This change would be on the heels of the long-rumored conversion of Speed Channel to a more direct competitor to ESPN with the name Fox Sports 1.

I have not researched this issue that fully, but it seems that the conversion of the format of cable programming channels has accelerated in the last decade. (I've got a running list of significant name changes going here).

Channels changing formats is a symptom of the greater leverage programmers have vis a vis distributors. When cable was a monopoly business (which ended in part when DBS entered the market in the early nineties and accelerated when DBS got the right to provide local broadcast signals in 1999)  there were few in-genre competitors to the top cable services. Distributors (and subscribers) got services like BET, American Movie Classics, HGTV, Food and History instead of another sports or news or general entertainment network. The most important concept that distributors wanted in a new channel was to expand the variety of their offerings. Since basic cable prices were going up, saying that you were offering a channel providing something new and different was a good story and especially valued was a channel that could bring in new subscribers. That's why we got Speed and Golf and Outdoor Life and Tennis instead of another general multi-sports service just like ESPN.

It didn't have to be this way. ABC, CBS and NBC were (and still are) virtual clones of each other offering the same kind of programs (sports, news, kids, entertainment) at the same times (weekends, after dinner, Saturday mornings and prime time). Cable programming could have developed upon those lines -- with more USAs and TBSs, but the niche channel approach was much better for the system (meaning the multiple system operators, the distributors who called the shots).

Channels with original programming in their own niches could control their costs -- CNN created its own programs, ESPN wasn't bidding against anyone else for the rights to secondary sports events, Discovery wasn't bidding against a lot of others for documentaries, the off-network "movies of the week" ended up on Lifetime. Channels with their own niche also had an easy time promoting their programming -- each channel offered a dependable destination for a certain kind of programming -- the program guide was not as necessary for cable services as it was for broadcasters. For the distribution system as a whole, the worst thing would be to have lots of channels that were bidding against each other for the same kinds of programming with the winner presenting a bill to the distributor for the cost of the high bid. In other words, exactly the situation they face now with top sports rights.

Update (28 Jan 13): Per Deadline, the conversion of Fox Soccer will be part of a plan to split FX's programming across two channels with drama on the flagship FX network and comedies on the new channel to be dubbed FXX. This echoes the split of Turner's entertainment networks into comedies (TBS) and dramas (TNT).

The Problem with "Just Drop the Channels"

Glenn Britt, the CEO of Time Warner Cable, announced his strategy to deal with rising programming costs at the UBS conference on Monday -- simply drop the poorly viewed channels.

If it were only so easy.

The fact is that the vast majority of the cable operator's programming dollars are going to a handful, or so, of major programming companies which bundle their channels together in one form or another.

CNBC is an interesting, relatively thinly-viewed niche service (how many outside of the 1% are interested in financial news?). However, if Time Warner Cable were to drop CNBC over its costs, it might have a "challenge" getting a favorable renewal on the other channels in the NBC Universal portfolio (to name a few: USA, Syfy, E!, Bravo, Oxygen, Style, NBC Sports Network, The Weather Channel, Golf and regional sports networks in Chicago, New England, Philadelphia and the Bay Area and the NBC and Telemundo affiliates in New York, Los Angeles, Chicago and a handful of other major markets).

ESPN Classic is an interesting, relatively thinly-viewed niche service (how many outside of serious, older sports fans are interested in replays of events?). However, if Time Warner Cable were to drop ESPN Classic over its costs, it might have a "challenge" getting a favorable renewal on the other channels in the ESPN/Disney portfolio (to name a few: Disney Channel, ESPN, ABC Family, ESPN2, Disney XD, Disney Jr., ESPN U, ESPN News and the ABC affiliates in New York, Los Angeles, Chicago and a handful of other major markets).

Fox Soccer Channel is an interesting, relatively thinly-viewed niche service (how many soccer fans are there in the US?). However, if Time Warner Cable were to drop Fox Soccer Channel over its costs, it might have a "challenge" getting a favorable renewal on the other channels in the Fox portfolio (to name a few: Fox News, FX, and regional sports networks in Los Angeles, Detroit and Houston and the Fox affiliates in New York, Los Angeles and Chicago and a few handfuls of other markets).

See a pattern here?

The other major cable programming companies account for almost all of the rest of the license fees paid by cable operators.

• Time Warner: HBO, CNN, TBS, TNT, Cartoon, TruTV, Cinemax, TCM, Headline News
• CBS: Showtime, CBS Sports Network, CBS and CW affiliates in many markets
• Discovery Communications: Discovery, TLC, Animal Planet, Investigation Discovery, OWN
• A&E Networks: History, A&E, Lifetime, Lifetime Movie Network, Bio
• Scripps Networks: HGTV, Food, DIY, Cooking, Travel, Great American Country
• AMC Networks: AMC, WE, IFC, Sundance

Which channels are not part of the major programming companies: Starz, Hallmark, Bloomberg, NFL Network, MLB Network, Tennis Channel, and it moves down from there.

The sad fact for Time Warner Cable is that there is precious little programming expense with the independent channels that can be dropped without having an impact on the deal for another channel, a fact of which I am 100% certain he is aware. I should note that Time Warner Cable recently agreed to a deal to carry the NFL Network, so clearly that's not (a) part of the problem that Glenn Britt is describing or (b) leaving TWC anytime soon.

The ecosystem of programming is paid for by fees paid by the distributor (what the cable networks call license fees) and fees paid by advertisers (advertising, naturally). It seems only logical that the way for the distributors to pay less for programming is if they can help the networks get more money from advertisers. The usual way this is done is by getting a break on the license fee for one channel by agreeing to a broad roll out a new service, but there are other possible options as well (involving shifts of advertising inventory, use of dynamic ad insertion).

Time Warner CEO Jeff Bewkes (Glenn Britt's former boss when TWC was a subsidiary of Time Warner Inc.) noted later at the same conference, the pay-TV system is robust and can take the price hikes: "Other than the concentrated viewing and cost of sports, the rest of the bundle is a better value than ever." The programmers's proposed solution is to raise license fees and add value to the subscription via TV Everywhere. There is a logic to that approach and it is consistent with the higher-fees-more-value history of cable programming. Until the system breaks -- material declines in multichannel penetration would be a symptom -- it is hard to imagine the managers changing the playbook.

The lingering question to me is why was Glenn Britt staking out this public position?

• a PR salvo to lay some groundwork for future short-term channel drops during heated negotiations?
• a cry to regulators to get involved?
• something else?