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Disney's latest proposal to Fox is a big bet on local TV sports -- and ESPN

  • David Faber earlier reported that Disney's latest offer to Fox includes buying the Fox Regional Sports Networks.
  • Eric Jackson writes this means Disney is doubling down on ESPN and TV sports rights.
  • Even giant Fox has realized that scale matters, which spells hard times for smaller competitors.

Disclosure: Affiliates controlled by Eric Jackson have long positions in DIS and NFLX.

David Faber reported this morning on CNBC that 21st Century Fox is getting close to a deal with Disney to sell a prime set of assets worth $60 billion. A deal could be announced as early as next week, according to Faber.

When these discussions were first reported weeks ago, they were said to include the Fox movie studio, TV production business, cable assets like NatGeo and FX, Fox's stake in Hulu, as well as Fox's international assets like its stake in Sky and Star.

Not previously included: Fox's interests in broadcast (Fox), news (Fox News) and sports (FS1).

This morning, the details changed slightly but with big ramifications for the sports world. Faber said that Disney was now set to acquire the string of Fox Regional Sports Networks (RSNs). That means that all the Fox local sports networks could be rebranded as ESPN Dallas, ESPN Chicago, and ESPN Oklahoma City (for instance) in the future. They will deliver countless hours of local baseball, basketball, and hockey games as part of the ESPN family.

For Disney and ESPN, this move to grab the RSNs has a number of implications:

  • ESPN is unquestionably doubling down on live sports rights.
  • As ESPN prepares to launch its Over-The-Top (OTT) app ESPN+ in May, many critics were complaining that it was going to suffer from a paucity of interesting rights. Recall that ESPN is going to keep the most attractive games on its flagship ESPN cable channels for a long time. The OTT app was going to include additional sports that were additive to what you pay for ESPN in your cable bundle. Once this deal closes, you could envision ESPN including a lot of out-of-region games to the ESPN+ app to make it a much more compelling subscription product than it will be when it launches in May.
  • Disney is betting that local will continue to matter in sports. ESPN made a big push several years ago to create ESPN-branded cities with websites, radio stations, and video. These Fox RSNs give them blanket local coverage across the country, in addition to the national rights that will appear on ESPN and ABC.

I liked this proposed deal for Disney when it didn't include the RSNs. Disney will get the Avatar and X Men (and other Fox Marvel) franchises. They will get "The Simpsons" from Fox, as well as the FX and NatGeo content to make their entertainment OTT app more compelling. They will also get majority control of the Hulu OTT app which is the next most popular OTT app after Netflix and Amazon Prime Video.

They will also have a valuable set of international assets in Europe and India which will help to promote their new OTT offerings while still making money from the cable bundle in the short- to medium-term.

They will also drive out a lot of duplicate costs of running two sets of similar assets which are now under one Disney roof.

With the play to get the RSNs though, Disney is telegraphing that it is going to have the key sports you care about -- nationally and locally -- for a long time. If you want those games, you need to visit the Magic Kingdom, whether as a cable subscriber, an OTT subscriber, or both.

As the media world reshapes itself, one thing is clear: scale wins in this new world, whether we're talking about entertainment or sports.

Rupert Murdoch looked around and decided that he -- and Fox -- were too small to compete for your entertainment and sports OTT dollars in the future. He thinks he can win by selling now and teaming up with Disney (and taking/holding their stock) rather than going it on his own.

If Rupert Murdoch thinks this, what does it say to even smaller media companies trying to win in sports? The writing's on the wall.

Commentary by Eric Jackson, sign up for Eric's monthly Tech & Media Email. You can follow Eric on Twitter @ericjackson .

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