21st Century Fox September Quarter results

Lachlan Murdoch on Fox strategy: “We have been asset builders and will continue”

Twenty-First Century Fox has reported financial results for the three months ended September 30, 2017. (All amounts US$)

Shareholders and media hoping for commentary from Fox regarding recent reports of talks between Disney and Fox had their hopes dashed at the start of the conference call today. Lachlan Murdoch said at the start of the call the company would stand by its long-held policy of not commenting on press speculation regarding company activity. “We will not be responding at all to questions or comments regarding recent press speculation.”

Acknowledging he didn’t expect a comment on reports of a Disney acquisition of Fox assets, one analyst asked if there has been any change in company strategy and if Fox was still a collector of media assets.

James Murdoch replied: “We are not a collector, we are an operator. What we try to do is build a business that can have pace, velocity and can deliver value over the long term. We have taken a lot of steps to change our portfolio over the years – simplifying our mix of assets and investing in core brands and selling assets that weren’t going to change our lives. For example the Russian outdoor business we exited a number of years ago.

“We have simplified our operating model – we have got a great set of brands and a great set of assets we really like and you can see from the quarterly results a real trajectory of good performance. It is never easy and we are focused on operating these businesses as best we can with an incredible management team.”

Lachlan Murdoch added: “Historically we have been asset builders whether it be Sky, STAR, Fox News or the Fox Network, we operate the businesses to build and to grow. We will continue to do so.”

The company reported total quarterly revenues of $7 billion, a $496 million, or 8%, increase from the $6.51b of revenues reported in the prior year quarter.

The increase reflects revenue growth reported across all operating segments, led by higher affiliate revenues at both the Cable Network Programming and Television segments and higher content revenues at the Filmed Entertainment segment.

Commenting on the results, executive chairmen Rupert and Lachlan Murdoch said:

“The company’s double-digit gains in affiliate revenues demonstrate our strength in the dynamic global market for distinctive video brands and content, across both established distributors and new entrants. We delivered top-line growth at all of our businesses, backed by stand-out storytelling, sports and news, as well as a product focus that will drive greater consumption and compelling opportunities for financial returns on our content investment. Our solid first quarter performance puts us on track to achieve our overall financial and operational objectives for this fiscal year.”

Cable Network Programming

Cable Network Programming quarterly segment OIBDA (operating income before depreciation and amortisation) increased 9% to $1.51 billion, driven by a 10% revenue increase on higher affiliate and advertising revenues partially offset by an 11% increase in expenses. The increase in expenses was primarily due to higher global sports programming costs reflecting the inaugural broadcasts of Big Ten college football at FS1 and Argentine Football Association matches at Fox Networks Group International (“FNG International”) as well as contractual rights increases for Major League Baseball at the domestic sports channels and higher CONMEBOL (South American Football Confederation) soccer rights at FNG International.

Domestic affiliate revenue increased 11% driven by contractual rate increases across all of our domestic brands. Domestic advertising revenue increased 3% over the prior year period led by growth at the domestic sports channels. Domestic OIBDA contributions increased 11% over the prior year quarter driven by higher contributions from Fox News, FX Networks and the regional sports networks.

International affiliate revenue increased 11% driven by rate and subscriber growth at both FNG International and STAR India. International advertising revenue increased 10% led by double digit growth at STAR India and continued growth at FNG International. International OIBDA contributions were similar to the prior year quarter as higher contributions at STAR India were offset by lower contributions at FNG International where higher entertainment and sports programming costs more than offset the higher reported revenues.

Television

Television reported quarterly segment OIBDA of $122m, a decrease of 36% compared to the prior year quarter. Quarterly segment revenues were 3% higher than the corresponding period in the prior year due to higher retransmission consent revenue and higher FOX Broadcast Network sports advertising revenues being partially offset by lower cyclical political advertising revenues at the TV stations. The decrease in segment OIBDA was primarily driven by higher contractual sports programming costs at the FOX Broadcast Network, including a higher volume of college football and National Football League games broadcast in the current year quarter, that more than offset the higher revenues.

Filmed Entertainment

Filmed Entertainment generated quarterly segment OIBDA of $256m, a $55m decrease from the $311m reported in the prior year quarter. The OIBDA decrease in the current quarter was driven by lower film studio results primarily due to lower worldwide TV contributions reflecting last year’s pay TV licensing of X-Men: Days of Future Past and the free TV licensing of The Martian with no comparable titles licensed in the current quarter. The film studio decline more than offset higher television production contributions from higher domestic syndication revenues that include the licensing of Futurama. Quarterly segment revenues increased $56m to $1.96b, primarily reflecting higher syndication revenue from television productions partially offset by lower film studio pay and free tv licensing revenues.

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