Wednesday, April 15, 2015

No Wins, No Problem as Knicks’ Network Beckons Buyers: Real M&A

 More change in the digital media space afraid of technology dismemberment. Aivars Lode

By Alex Sherman 
    (Bloomberg) -- Watching the New York Knicks is a form of
punishment these days. That may not stop Comcast Corp. or
Twenty-First Century Fox Inc. from spending billions for the
rights to show you their games.
    Madison Square Garden Co. Chairman James Dolan is forging
ahead with a plan to split the $6.4 billion company into two
pieces: the sports franchises and entertainment venues on one
side, and the regional sports television networks on the other.
Those networks, MSG Network and MSG+, may become instant
acquisition targets, said Brandon Ross, an analyst for BTIG in
New York.
    Comcast and Fox are repositories for regional sports
networks, or RSNs, and would relish more sports programming in
New York, the largest U.S. television market, Ross said. For
Comcast, it would be the next logical move after acquiring Time
Warner Cable Inc., which owns two RSNs in another big market,
Los Angeles.
    “Fox has already said they want to strengthen their
portfolio of RSNs, and I definitely believe Comcast is going to
be a potential buyer, especially with its pending Time Warner
Cable deal,” Ross said in a phone interview.
    The media assets may be worth about $4 billion, based on
estimates from BTIG and other research firms.
    Barry Watkins, a spokesman for New York-based MSG, declined
to comment. MSG shares closed Wednesday at $83.88 and are up
11.5 percent so far this year.
    MSG and MSG+ air live games and related content for the
National Basketball Association’s Knicks and the National Hockey
League’s New York Rangers and Islanders, New Jersey Devils and
Buffalo Sabres.
    MSG charged pay-TV providers $3.49 per subscriber per month
this year, according to estimates from research firm SNL Kagan.
MSG+ charged $2.98. The average regional sports network charges
$2.66, implying a higher value for New York’s sports teams --
even as the Knicks struggle through the current season with the
NBA’s worst record.
    Fox, which owns almost two dozen regional sports networks
across the U.S., may be the more aggressive bidder for MSG after
raising its ownership stake in the YES Network, which airs New
York Yankees games, to 80 percent last year, Ross said. There
are marketing and operational synergies by owning two large RSNs
in the same area. Fox can also use the broadcast rights from the
New York-area teams to add live programming to its national
sports network, FS1, he said.
    Comcast would also be a natural fit for MSG if regulators
approve its $45 billion Time Warner Cable acquisition, said Amy
Yong, a New York-based analyst for Macquarie Group Ltd. Comcast
owns regional sports networks in many areas of the U.S. where it
also offers cable service, including San Francisco, Boston,
Philadelphia and Chicago. Comcast also already owns a minority
stake in SNY, which airs New York Mets games.
    The largest U.S. cable provider will additionally acquire
Time Warner Cable’s two Los Angeles regional sports networks,
which broadcast Lakers basketball and Dodgers baseball games, if
a deal goes through.
    “If Comcast were to buy MSG after Time Warner Cable, it
would build a pretty strong New York and L.A. presence, which is
pretty complementary,” Yong said. “It makes sense from that
    Like most tax-free spinoffs, there could be a waiting
period post-closing of anywhere from six months to two years
before an acquirer can bid.
    Still, the Dolan family may want to sell the networks
sooner rather than later. The networks are exposed in a changing
television landscape, where consumers now have access to
skinnier video bundles for as little as $20 a month that don’t
include regional sports networks.
    “The Dolans will probably want to do everything in their
power to do so, given everything that’s going on in the broader
video market,” BTIG’s Ross said.

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