With UFC and FOX execs hinting at potential changes, what might the future hold?

If recent comments from UFC President Dana White and FOX Sports Media Group's Co-President and COO Eric Shanks are any indication there may be big changes in store for how the UFC is presented on television.

"With some of the things we're talking about with Dana and Lorenzo [Fertitta] this relationship is going to look different over the next two years [to] three years and it's only going to get bigger," revealed Shanks. "[We're] going to get much more economic support from the advertiser base behind it and when that happens this thing is going to be one of the top sports in the US on television."

White was no less optimistic. "We're working on a lot of new things right now," the outspoken UFC President hinted. "We're going to shake up the industry again."

While the changes Shanks alluded to remain as closely guarded a secret as how Zuffa plan to "shake up the industry," there are hints out there that may give us some clues.

Perhaps the most portentous clue is the rumor FOX plan to convert their racing themed Speed network into an all sports network called FOX Sports 1 in an attempt to compete with ESPN. With broadcast deals already in place for major properties like the NFL, MLB, NASCAR, college basketball, college football, and the UFC it would appear FOX have a very good chance of building a highly successful network.

Obviously the UFC are going to be a big part of the FOX Sports 1 battle plan, but what will this mean in the long term? While there is certainly a lot to be optimistic about here, it's also important to keep in mind that sometimes, to steal a phrase from the Notorious B.I.G, more shows mean more problems.

It's ostensibly a win/win for both parties if FOX's plan is to abandon the idea of building its still rather obscure Fuel TV property around the UFC and all current Fuel programing is transferred to FOX Sports 1. The new network would provide these shows with far more exposure than they currently receive on Fuel. Despite one year of largely UFC themed programing designed to grow the network, Fuel is currently available in a mere 37 million homes whereas Speed is in 82 million - a number sure to grow rapidly with a change to FOX Sports 1 considering the numerous mainstream sports properties under the FOX umbrella.

Of course an increase in potential viewers carries with it an increase in expectations as far as ratings are concerned. UFC on Fuel cards are usually heavy on up and coming prospects and journeymen with little in the way of established stars. This is a fine strategy for a low penetration network like Fuel, but with a move to FOX Sports 1 the problem for the UFC would be coming up with enough stars to headline roughly fourteen pay per views a year, four shows on FOX, at least two Ultimate Fighter finales, and twelve shows spread out between FOX Sports 1 and FX (assuming FOX doesn't move all UFC programing on FX to its new sports themed network). Factor in the injury epidemic that shows no signs of slowing down as we head into 2013 and it's hard to see how the UFC finds the headline talent to effectively main event 32 shows a year without the buffer of at least some of these cards airing on the low-pressure Fuel. If 2011 taught us anything it's that when a company has a finite roster of stars but an increasing schedule of shows, something's got to give. So far, that something has been ratings.

What's even scarier is if FOX and the UFC plan to continue doing six shows a year on Fuel in addition to running shows on FOX Sports 1. This would put them somewhere near 40 shows in a calender year, which would not only exacerbate the logistical problems they already face in serving both their broadcast and pay per view masters, it would run the risk of seriously burning out an already eroding audience.

Dana White likes to say that there's no such thing as audience burnout when it comes to MMA but so far the facts don't seem to bear out his theory.

Ultimate Fighter ratings - once the UFC's flagship series - are in the toilet since the move to FX. The UFC on FX series has also underperformed with an average rating of 1.24 million viewers for 2012 compared to the average 1.95 million who tuned into into watch the analogous Ultimate Fight Night series on Spike TV in 2011. What's more, the ratings trend hasn't been encouraging for the UFC on FOX shows either, with the last two specials pulling in a mere 2.4 million viewers - down almost 50 percent from the first regular card back in January. Perhaps most distressing for the UFC's bottom line though is the following number: according to data compiled by MMA Blue Book, pay per view buys are down from a total of 6.5 million last year to 5.3 million total so far in 2012.

Of course the obvious caveats here are that 2011 didn't suffer from a cancelled card featuring a top draw like this year's UFC 151 debacle, and there is still one more big PPV left in this calender year. The problem with both of these excuses though is there's absolutely no way UFC 155 is going to draw the 1,205,000 buys needed to match last year's number all by itself, and the cancellation of UFC 151 was an indictment against a roster spread thin by too many shows.

There is a silver lining for the UFC when comparing 2011's PPV buys to 2012: the average number of buys so far this year is at 440,000 whereas last year was at 405,312. Of course there is also an argument to be made that these figures actually support the idea that less can be more when it comes to promoting MMA since the UFC ran 16 shows in 2011 but is on course to do 13 this year (excluding the cancelled UFC 151).

What puts the decline in PPV buys in sharper contrast though is if you compare the amount of total buys per year from 2009 until now. In 2009 the UFC did 8 million buys and in 2010 they did a staggering 9.2 million. Obviously there are extenuating factors at work here like the retirement of PPV juggernaut Brock Lesnar, but the gulf between 9.2 million two years ago and 5.3 million with only one show left to go here at the end of 2012 doesn't exactly resemble the picture White often paints of a sport growing in popularity. It would take a foolhardy attempt to look at life through the eyes of an ostrich in order to ignore the uncomfortable fact that these declines in television ratings and pay per view buys have coincided with an increase in the number of shows the UFC puts on per year.

Shanks and White attribute the less than stellar numbers the UFC is pulling in on FX and FOX to growing pains both sides expected going into the relationship. That very well could be the case, but the UFC need to be careful that increasing the number of shows on free TV doesn't end up affecting their pay per view business.

Some have suggested that the UFC may eventually become a mainstream sports property that could subsist on ad revenue and television rights fees alone. Even if that may one day be the case, the fact of the matter is the UFC's current contract with FOX runs for another six years and the reported $90 to $100 million a year they are receiving from their television partner isn't enough to keep them in the black given the current scale of their business.

Simply put, the UFC's biggest source of revenue is far and away pay per view. If we estimate a 50/50 split between Zuffa and PPV providers at an average of $50 per buy - i.e. the median between the standard and high definition versions of each show - then the UFC made roughly $162.1 million on PPV in 2011. By the same standard they look to make around $144.5 million in 2012 if we estimate around 500,000 buys for the upcoming UFC 155.

While $90 to $100 million a year in television rights fees is certainly nothing to sneeze at, depending upon which figure you go with this amounts to somewhere between 44 percent to 38 percent less than what the UFC made on PPV in 2011. At the risk of stating the obvious, the UFC simply isn't in the same universe as an organization like the NFL which rakes in an estimated $1.9 billion a year in TV rights fees alone; they need to maintain a robust pay per view business in order to thrive.

In the past White has speculated there may be a day coming when the UFC moves beyond PPV but as he admitted that day is a long ways away. His theory is that television is going to increasingly move away from traditional broadcast methods towards the internet, which would potentially be a huge opportunity for the UFC to grow their business.

Of course, the flip side to this theory is a migration away from traditional television towards internet based distribution of programing brings with it an increased risk of online piracy. If people are going to be watching UFC cards on the internet anyway, what is to stop a number of them for streaming these shows for free rather than paying for the exact same product? As we've seen with the downsizing of the music industry since the proliferation of the internet over the past decade and change, a sizable percentage of the population have no qualms about stealing intellectual property online. The fact that an entire generation of young people have grown up in a "point, click, get for free" environment should be enough to give the UFC pause when they think about transitioning to internet based distribution of pay per view.

Whatever changes may be in store for how the UFC presents its television product over the coming years, one thing is certain: they certainly have their work cut out for them. In the short term they need to find a way to strike the delicate balance between putting enough big fights on television to appease FOX without eroding the pay per view audience that is the backbone of their business. Years from now they may face the even bigger challenge of continuing to successfully monetize their product in a changing environment where the masses expect online entertainment free of charge. There may be a number of potential pratfalls for the company along the way, but there's also the potential for unprecedented profit and growth.

As the UFC and FOX move into year two of their relationship in 2013 chances are we'll get a better idea of just where the future of the industry is headed. If past is indeed precedent, it's certainly going to be an interesting ride.

Follow me on Twitter @BorchardtMMA

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