21st Century Fox’s Q3 results: Strong revenues ahead of Disney deal

Lachlan Murdoch on what’s hot: Cable networks, Fox News, Greatest Showman

21st Century Fox has released its results for Q3 with brothers Lachlan and James Murdoch hosting an analysts call following the release of the financials.

At the start of the conference call, Lachlan Murdoch said, as is company practice, they would not be commenting on market speculation as he alluded to reports of a Comcast bid for the entertainment assets Disney is planning on acquiring.

The brothers did comment that any offers would of course be evaluated and the board of directors was well aware of its fiduciary duty to all shareholders.

Lachlan highlighted some of the best performing assets and content over the quarter:

• Earnings at the cable networks with 16% growth
• Fox News had its best quarter earnings ever
• Strong performance from the film studios, in particular Three Billboards and The Greatest Showman. He also mentioned next week’s release of Deadpool 2

With work progressing on the Disney transaction, Lachlan said the board hoped to be ready to ask for shareholder approval of the “New Fox” during the US summer.

Frances McDormand in Three Billboards Outside Ebbing, Missouri

In a statement on the results, executive chairmen Rupert and Lachlan Murdoch said:

“We continue to make operational and financial progress against near-term objectives as we also work to close our strategic transactions. Our cable segment delivered its highest earnings ever in our fiscal third quarter, propelled by sustained double-digit gains in domestic affiliate revenues. Creatively, we are firing on all cylinders. Our stand-out programming continues to drive up the value of our video brands to distributors, as well as build our direct relationship with consumers, as we’re demonstrating with the successful inaugural season of Indian Premiere League on Star Sports and Hotstar platforms. Our film studio delivered box-office and awards momentum that we expect to continue with the upcoming release of Deadpool 2.”

Operational Highlights

Cable Network Programming

Cable Network Programming quarterly segment OIBDA increased 16% compared to the prior year quarter to $1.68 billion, driven by a 10% revenue increase on higher affiliate, syndication and advertising revenues partially offset by a 6% increase in expenses. The increase in expenses was primarily due to the first year of sublicensed Big Ten rights and higher sports and entertainment programming costs at Fox Networks Group International (“FNG International”), partially offset by lower sports programming costs at STAR India (“STAR”) due to a shift in timing of cricket matches.

Domestic affiliate revenue increased 10% driven by contractual rate increases across all of our domestic brands and domestic advertising revenue increased 3% from the prior year period due to higher pricing at Fox News. Domestic OIBDA contributions increased 15% over the prior year quarter reflecting strong growth across all of our domestic brands.

International affiliate revenue increased 14% driven by rate and subscriber growth at both FNG International and STAR. International advertising revenue declined 1% as strong growth at FNG International was offset by the negative impact of a shift in timing of cricket matches at STAR. International OIBDA contributions were 23% higher than the prior year quarter as STAR’s contributions more than doubled but were partially offset by lower contributions at FNG International, where higher costs more than offset the higher reported revenues.

Television

Television reported quarterly segment OIBDA of $78 million, a decrease of $112 million compared to the prior year quarter. The decline principally reflects the absence of advertising revenue and OIBDA generated from the broadcast of the Super Bowl in the prior year quarter. Additionally, this quarter’s results reflect revenue and OIBDA declines from lower National Football League (NFL) post-season ratings and three fewer NFL broadcasts in the current quarter versus the prior year quarter that more than offset double-digit retransmission consent revenue growth and improved entertainment OIBDA contributions.

Filmed Entertainment

Filmed Entertainment generated quarterly segment OIBDA of $286 million, a 23% decrease from the $373 million reported in the prior year quarter. The OIBDA decline reflects lower contributions from the television production business due to higher deficits related to more new drama series delivered during the quarter and the absence of revenues from the prior year subscription-video-on-demand licensing of The People v. O.J. Simpson: American Crime Story.

Additionally, during the quarter, the Company incurred costs supporting FoxNext Games’s successful inaugural mobile game release, Marvel Strike Force.

Quarterly segment revenues of $2.24 billion were similar to a year ago as higher theatrical revenues at the film studio reflecting the successful worldwide theatrical performances of The Greatest Showman, The Shape of Water and Maze Runner: The Death Cure were offset by lower worldwide syndication revenues at the television production business.

20th Century Fox’s films led the industry in awards season, both in terms of nominations and wins. Our films earned an industry-leading 6 Academy Awards, including Best Picture for The Shape of Water, and 7 Golden Globe Awards, following 27 nominations in both instances, the most of any studio.

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