It costs a lot of money to launch new cable channels. The executives at 21st Century Fox can certainly attest to this. In the first quarter of its fiscal year, 21st Century Fox took a hit in its net income in launching Fox Sports 1 and FXX, the two channels that replaced Speed and Fox Soccer Channel, respectively. Overall, the company's profits were lower in the first quarter as the new networks ate into the bottom line.
But there's no need to shed tears for Fox. The company still made money and thanks to Fox News, FX and a satellite pay channel in Germany (Germany!), the company saw higher-than-expected revenues.
According to 21st Century Fox's Chief Operating Officer, the launches of FS1 and FXX cost the company $50 million which is ¼ of the $200 million annual budget to operate both networks. With much of FXX's programming devoted to sitcom repeats (Mad About You, SportsNight, Parks and Recreation) and movies, a lot of that budget will be spent on Fox Sports 1.
In addition, Fox left a lot of money on the table when it agreed with DirecTV, Dish and Time Warner Cable to keep FS1's per subscriber fee at 23 cents rather than its desired 80 cents so it could reach 90 million homes. In order to reach the goal of 90 million homes, Fox agreed to take a hit at the beginning in hopes of getting higher fees down the line.
The bite in profits from Fox Sports 1 and FXX had to be expected. Fox Sports 1 is not projected to be a money maker from the outset and will continue to be a drain for at least the next few years. But overall, 21st Century Fox has to happy to have both FS1 and FXX off the ground and running. Time will tell when FS1 eventually become a profitable enterprise for the company.