21st Century Fox's headquarters in New York.

There’s been a lot written about the Fox-Disney sale and about the remaining “New Fox” (which is the broadcast network, their remaining news and sports cable channels, their content development unit SideCar, and their stakes in other projects), especially as it relates to “New Fox” further boosting the company’s focus on sports. And on some levels, there’s some obvious logic there; as Fox Sports EVP/head of strategy Michael Mulvihill regularly points out, sports broadcasts are doing way better in viewership than the rest of TV these days, and Fox has a lot of the top ones. But evaluating that strategy’s overall success or failure is about more than just the viewers it brings in; it’s also about the costs needed to acquire those viewers and the benefits from having them. And media analyst Doug Creutz of Cowen & Co. is skeptical of how well this will work for Fox in the long term, as Dade Hayes writes at Deadline:

Investors haven’t appeared to be terribly keen on the “New Fox” story in recent months. Shares have been under water since March, though they have steadily gained ground since October. On Thursday, the stock had gained 1% in mid-day trading at $36.57, still below the nearly $42 level where it began trading earlier this year.

Creutz has a 12-month price target of $32. In a note to clients, he wrote that the company’s stock is already fully valued. He cited its “high level of exposure to deteriorating basic cable subscriber trends, the lack of owned content with long-term value, and the lack of a meaningful OTT strategy.”

…The push into sports, which has also been manifest in a new deal with the WWE and a recent extension of Major League Baseball rights, also carries risk in Creutz’s view.

“Any economic gains are likely to be short-term in nature, as the leagues are likely to recapture any value creation in the next round of rights negotiations, particularly with large internet-facing companies likely to join the competition for rights,” he wrote.

Cruetz makes some good points here. It’s important to remember that while viewership numbers receive a lot of ink (including from us), the costs to produce programming are not equal. That’s long been a factor on the entertainment side, where a less-expensive show with fewer viewers may get renewed while a show with high cast costs and special effects budgets may get cancelled. And that matters in sports too; if Fox is drawing a ton of viewers for their NFL or MLB coverage, but is spending most of what they reap in advertising on rights fees and production costs, that isn’t necessarily great for them. (This has been discussed before with rising rights fees, but it’s something that’s worth bringing up again, especially with how much of Fox’s focus has now shifted to sports.)

Cruetz also makes the point that Fox’s shift away from entertainment programming may make it harder for them to capitalize off indirect benefits from having all those viewers, namely running promos for their other content. That was often the logic NBC used to justify losing money on Olympics broadcasts, saying it was worth it because of the promotion it gave their other content. (For the record, NBC claimed they made “over $250 million” on the 2016 Rio Olympics despite low ratings and an incredible amount of in-house ads to promote that other content, so even that seems to be working out okay now.)

Fox still has some non-sports properties they can promote, like The Masked Singer. And they can certainly promote their other sports content in hopes of garnering further viewers (and better ad rates) there. And this shift also means that we get fewer awkward Joe Buck ad reads for soon-to-be-cancelled Fox shows. But given how much of their overall focus is on sports, their overall sports content needs to do all right on the bottom line.

And Fox’s need for sports to be profitable overall may put them at a bidding disadvantage if other companies are able to use sports content as more of a loss-leader. For example, Disney is willing to spend a whole lot on sports rights that they can put on ESPN+ these days, as they’re currently more focused on building up that service’s subscription base than having it make a standalone profit. DAZN could maybe say the same. And Amazon spends a lot on, say, Thursday Night Football streaming, which they bundle with their Prime membership service and can also use to target merchandise to viewers.

That’s also where the “lack of a meaningful OTT strategy” Creutz notes comes in. Disney/ABC/ESPN and CBS both have OTT packages they can promote and incorporate, as does TNT/TBS parent WarnerMedia (with B/R Live and HBO Max), and NBC has their NBC Sports Gold options and is launching an entertainment streaming service (Peacock). Not every broadcaster necessarily needs to go big into OTT streaming (we’re already facing a lot of streaming overload), and there isn’t necessarily a logical way for the slimmed-down “New Fox” to get into that space. (for the record, they do have BTN+, but that’s very limited), but it’s worth keeping in mind that Fox is different from many of their competitors in that regard as well.

And on the sports side, Fox doesn’t have a wider OTT service for them to put less-prominent rights on, split costs with, or promote. (They do have some more specialized channels like Fox Soccer Plus, but that’s not quite the same.) Of course, maybe some of these streaming services will struggle and shut down, and maybe Fox will do just fine without launching one. But, for the moment, this is a significant distinction between them and many of their rights competitors.

Of course, some of what Cruetz writes there can be debated, and that’s especially true when it comes to “large internet-facing companies likely to join the competition for rights.” Tech companies have been quite reluctant to make big splashes on exclusive live rights so far, and Facebook, Twitter and Netflix have all said they don’t foresee doing that in a major way. Yes, the likes of DAZN will be “joining the competition” for at least some rights, the likes of Google/YouTube and Amazon/Twitch have picked up some small rights so far (and could maybe make a play for more), and there’s always the possibility of other players coming in. But at the moment, big exclusive-rights bids from tech companies feel like more of a league desire than a reality.

However, especially when it comes to the most prominent rights, there could well be bidding wars even without tech involvement. That’s particularly true considering top sports’ viewership strength relative to the rest of TV. And there have been plenty of predictions that rights fees will only keep rising.

Overall, this isn’t necessarily an utter doom-and-gloom prediction for Fox. This is one analyst (albeit a veteran one who’s been tracking Fox for a long while), and it’s a neutral rating rather than a sell (even if his target price is below where it is currently). But Creutz raises quite a few valid points about the challenges ahead for the “New Fox” strategy, and some of those maybe haven’t received as much discussion to date as they should have, especially when it comes to rights costs. (And on that front, it’s notable that ESPN has regularly received massive criticism from media analysts on that front, and that they have much more income from per-subscriber cable channel fees than Fox does.) Viewership wins are great, but if the programming you need to get those viewers is incredibly expensive (and if it’s not easy for you to use that to improve the viewership of your other content), that’s maybe not as much of a win as it might seem.

[Deadline]

About Andrew Bucholtz

Andrew Bucholtz is a staff writer for Awful Announcing.