Can anyone stop Rupert Murdoch?
Walt Disney Co. is certainly holding its own on many fronts, and the battles between Disney and Murdoch's Fox Group Inc. broadcasting empire have taken on the character of a road-show bidding war.
In the Los Angeles area, Disney and Fox are now officially cross-town rivals, each with a Major League Baseball team (Disney controls the Angels, Fox owns the Dodgers). But the battles that really count on the bottom line are mostly over television rights and access to cable viewers.
The two have already tangled over cable rights for Fox's regional sports network, Fox Sports West 2. (Fox last year filed an antitrust suit charging Disney was conspiring to keep the network off local cable systems. The case was later settled.)
A new conflict may now be brewing over Fox's moves to buy minority interests in the Lakers and Kings, and to keep the teams from moving to the regional ESPN network, which Disney is preparing to launch this October.
These are local episodes of a national story. Fox and Disney have been bidding up the rights to sports programming, from college football to stock-car racing, all over the country. And Fox has assembled a sports network that's now within shooting range of matching the reach of Disney's ESPN.
What has brought these two together into the ring? Mainly, the economic reality of a consolidating media industry. Mergers (including Disney's 1996 purchase of Capital Cities/ABC) have narrowed the field to a handful of big, powerful players. The few that are left to compete are bound to collide often.
By all outward signs, this is not a personal grudge match far different than the bitter and very public spat between Murdoch and CNN founder Ted Turner. If Murdoch and Disney's Chairman and CEO Michael Eisner dislike each other, they're keeping their feelings private.
A Disney spokesman said his employer does not comment on its rivalry with Fox.
Chase Carey, chairman and chief executive of Fox Television, did comment, but characterized the rivalry as merely business.
"We compete with a lot of different people at different places and at a lot of different times," Carey said. "Obviously we have had issues (with Disney), but there are many players out there that we compete with. It is a huge playing field of competitors and probably there will be more of them and the competition will increase when you get to the Microsofts and the telephone companies, which are consolidating."
But as for Fox's primary rivals today: "Clearly it would be Time Warner and Disney that have a number of operations which we compete with but at the same time we do business with," Carey said.
Indeed, competitive emotions at Fox and Disney run strong, says former CBS Sports President Neal Pilson, who has dealt with both sides in his current role as a consultant to sports organizations. It's a "Coke vs. Pepsi" type of rivalry, Pilson says: "It certainly is an intense level of competition. It's felt by all the executives of the companies."
Like many memorable match-ups, this rivalry is also a study in contrasts. But the two media giants share an overriding goal to get their product seen by as many TV viewers as possible.
Analyst John Mansell of Paul Kagan Associates calls it a "competition for eyeballs," involving cable, satellite TV and broadcast networks. "There's a direct rivalry," between the two, he said, "wherever regional sports rights are going to come up for renewal."
But in other ways, Disney and Fox couldn't be less alike.
Fox has no Mickey Mouse or other cultural icon on its side (unless you count Bart Simpson). It's also a relative newcomer; Australian-born Murdoch is an American citizen, but his company News Corp. is still based in Sydney.
News Corp.'s resources are not unlimited. It has overloaded on debt in the past and has had to unload assets to stay liquid. But it has plenty of cash on hand when a choice property turns up. Earlier this year it paid the highest price ever for a professional baseball team when it bought the Dodgers for $311 million.
That kind of flexibility could stem from the fact that Murdoch is News Corp.'s largest shareholder. Meanwhile, Eisner is a very minor shareholder in Disney, and he has experienced significant opposition from major shareholders.
"I think Eisner is much more concerned about what (Wall Street) is saying and what shareholders are saying than is Rupert Murdoch," Pilson said. "Sometimes it seems that companies that are competing with Fox are competing in straitjackets."
So who's winning?
In sheer number of households reached by sports networks, Disney's ESPN is still in the lead. But analyst Mansell, who puts Fox's penetration at 56 million to 57 million households against "somewhat north of" 70 million households for ESPN, says most of the viewers that Fox doesn't reach are in rural regions, away from the big professional sports markets. He says Fox expects to have those areas covered in the next two to three years.
Pilson says Disney is ahead of Fox in national sports programming, but he's impressed by Fox's "unwired network" of regional sports channels. Fox, he says, can sell commercial units to national advertisers on these local networks that get high ratings from televising games of local teams. The Fox channels may not reach as many homes as a true national network, but Pilson says they make up for this with their ability to show more of the games that fans actually want to see.
Disney has a head start in Southern California. The Pond in Anaheim, home of Disney's Mighty Ducks hockey team, has been in operation for several years, and the remodeling the Angels' Anaheim Stadium, now called Edison Field, was just finished.
Murdoch, with his purchase of the Dodgers and his moves to buy stakes in the Kings and Lakers, is playing catch-up. Fox is only in the preliminary stages of a proposed upgrade of Dodger Stadium, and actual construction could be months or even a year or more away.
Meanwhile on Wall Street, "both companies have gained ground over the past year," said Cowen & Co. analyst Gary Farber. Disney's share price over that period has risen about 50 percent, News Corp.'s about 40 percent. Over the longer term, Disney also has been the more consistent performer and a better deal for shareholders. News Corp. stock is only about 20 percent above its price of three years ago; Disney's shares have more than doubled in value in that time.
Matthew Raabe, who follows both companies for Collins & Co., says Eisner clearly beats the competition in achieving a return to investors. And whatever happens in the Disney-Fox rivalries in cable, network TV, movies and other areas where the two compete, there are still some arenas, like theme parks, where their paths haven't crossed at least not yet.
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