Fox, Disney Talk Entertainment, Rely on Sports

NEW YORK ( TheStreet) -- The Fox Network unveiled its new dramas, comedies and "unscripted" (re: reality) shows for the fall and winter at Manhattan's Beacon Theatre this week, giving a packed house of advertising executives a glimpse of the new programming which its parent, News Corp. ( NWSA), has spent many millions to produce.

Fox is coming off a rough 12 months in which advertising and ratings dropped, and Kevin Reilly, head of its entertainment division, acknowledged that bit of reality by telling ad-buyers that this year will be different. Count on it, he said.

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The network's new shows include Sleepy Hollow, a drama based on Washington Irving's famous short stories that's part horror, part sci-fi, lighter fare such as Dads starring Seth Green and a wacky police comedy called Brooklyn Nine-Nine. Who knows what will work? Fox needs to find a cash-cow that can even approximate American Idol, a program that remains integral to News Corp. profits even as it has lost about 25% of its viewers this season.

Kevin Reilly said Fox doesn't just throw a lot of stuff against a wall to see what sticks but picking TV winners is at best an educated guess. Audiences are fickle. Finding hits among this latest jumble of drama and comedies requires spending a lot of money and a willingness to lose some of its absorbing duds.

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"We're making the biggest investment in original programming in our history," Reilly told the crowd. In short, Fox is making some big bets to find something that really works.

So what does work? After all, in this age of media fragmentation, even AOL ( AOL) is producing its own scripted content.

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Crosstown at the Best Buy Theatre in Times Square, ESPN, the sports colossus of Walt Disney ( DIS), gathered to trumpet its stable of contracts featuring Major League Baseball, professional and college basketball, college football, world soccer's FIFA, the X-Games and Monday Night Football. That's quite a list.

ESPN also unveiled a new show called NFL Insiders, which will run for an hour during the week as part of the network's effort to sell more advertising Monday through Friday. Using that buzziest of buzzwords, ESPN said it was ramping up its "social media" strategy with plans to send a steady stream of highlights over Twitter.

"Our competitive advantage starts with our long-term carriage agreements," ESPN President John Skipper told the audience, referencing the agreements with pay-TV operators who pay the Disney network more than any other channel on the dial. "Live sports rights represents the most valuable opportunity in media these days."

And doesn't Disney know it. ESPN was the main driver behind a 7.7% profit gain to $1.9 billion at Disney's media networks in the first quarter as sales jumped 5.6% to $4.96 billion. Contrast that with Disney's ABC network where profit tumbled 40% and you have an idea about the pressure on the big broadcasters which include CBS ( CBS) and Comcast 's ( CMCSA) NBC.

It's little wonder then that News Corp.'s Fox is planning to start its own 24-hour national sports channel, to be called Fox Sports 1. Fox wants to sell more advertising, but more importantly the network wants to tap into the much larger cable affiliate fees that popular channels get from pay-TV operators such as Time Warner Cable ( TWC) and Comcast.

Fox doesn't have the breadth of long-term deals to compete with ESPN but it does have the World Series and NFL Football.

Troy Aikman, the former Cowboys quarterback and star announcer and easily the most comfortable presenter at the Fox Upfront, talked up Fox's NFL schedule, emphasizing that its Game of the Week kickoff show has been the No. 1 rated show on television for 19 years. There's nothing fickle about football fans, or the eagerness of advertisers to sell their products during time-outs.

Broadly, though, television advertising is in the midst of a long trend downward. Ad sales at the networks -led by ABC, NBC, CBS and Fox - are expected to drop 2% this year to $16.9 billion, according to ZenithOptimedia, a division of Publicis Group SA. Ad sales at all television outlets including pay-TV channels are forecast to increase 2.8% in 2013 to reach $63.9 billion but that's a far slower pace than last year when the pie grew 7.1%.

ESPN gets an average of $5.54 per subscriber per month from pay-TV operators, whereas the broadcasters can expect to get $1 to $2 per subscriber in 2013 and 2014, Robin Flynn, an analyst at SNL Kagan, a consultancy based in Monterey, Calif. said in an e-mail. By comparison, Time Warner Inc.'s TNT network gets $1.24 while TBS brings in 59 cents per subscriber, Flynn said.

ESPN's preeminence and the value of sports programming has never been more important to large media companies. Sports remains the bedrock of the pay-TV bundle, requiring consumers to pay upwards of $50 per month just to get ESPN. It's the reason the networks are so worried about upstarts such as Aereo, the would-be television disruptor, and anxious to satisfy consumer demands for TV Anywhere.

Broadcasters like to claim they're the only place that still captures a really large national audience. But that's becoming less true. All sorts of cable-TV channels are producing hits. AMC Networks has done fine with Breaking Bad. But watching sports remains an integral part of the life of millions of U.S. households. There's nothing fickle about the sports viewer.

"One of the big rocks that preserve the status quo in television is sports," Michael McGuire, a media analyst at Gartner said in an interview from Redwood City, Calif. "People pay for premium packages because of sports. We're starting to see consumer choice exerting its influence on the incumbent TV industry, but when it comes to sports, the networks are holding firm to control that access."

So, Ichabod Crane or the NFL. Dads or the Final Four. The smart money is on sports.

Written by Leon Lazaroff in New York

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