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Fox Film Flounders Ahead Of Disney Deal

Had the Disney deal not been done, analysts on seeing 21st Century Fox’s 4th quarter report would have been questioning whether the Murdochs family could afford to keep their underperforming film and TV assets and still survive the growing competition in the media, especially video.

But the 4th quarter figures from Fox made clear why the $US58 billion asset sale was done to Disney - Fox and the family do not need the Fox film studio and cable and the production assets (which have hit the wall so far as revenues and profits are concerned) to remain an immensely profitable and influential media company, even in the new landscape increasingly dominated by Amazon, Netflix, Apple and Facebook and Google.

In a simple statement the Fox result tells us that Fox News is a gold mine. That is inferred from the results and comments from directors that Fox News made “a higher contribution” in the quarter - one of the few positives in what was a pretty weak set of numbers.

And the details in the Fox report the report raises the question if Disney is over paying for the Fox assets it is buying at around $US58 billion.

The report shows that Fox saw revenue and profit gains carried from cable, against falls in broadcast TV and the film studio. Second quarter profit from continuing operations more than doubled to $US1.84 billion, thanks to a tax benefit of $US1.34 billion (it’s no wonder Rupert Murdoch and Donald Trump have been besties - but has Murdoch’s “fucking moron’ quote in Michael Wolff’s book, Fire and Fury, split the relationship?)

Fox News Channel (FNC) is not broken out in the company’s cable segment (Fx and Fox Sports are lumped into this segment along with Fox Business and FNC), but analysts saw it is responsible for the growth in revenue and earnings from higher ad revenues and carriage fees. The absolute dominance of the cable business and especially FNC emerges from the profit line in the report (the Murdoch’s favourite, but non-standard operating income before depreciation and amortization or OIBDA).

Revenue for the cable business rose 11% to more than $US4.4 billion in the quarter, while TV revenues fell 5.8% to $US1.81 billion and the Filmed Entertainment (Fox Studios) revenues fell just 1% to $US2.25 billion.

But profit (as measured by the favourite method, and by accepted accounting measures) told the real story: Cable programming saw a 2.6% rise in earnings to $US1.365 billion, but TV’s earnings collapsed, falling 85% to just $US56 million, while the Filmed Entertainment business saw its earnings plunge 66% to just $US131 million.

The cable business saw domestic affiliate revenue rise 12% due to rate increases across all brands; domestic ad revenue fell 3% on lower ratings (and a lower volume of original series). International affiliate revenue rose 13% with rate and subscriber growth both at FNG International and STAR. Fox News revenues and earnings are growing, but the other cable channels (which are going in the sale) reportedly are under pressure from declining subscriber numbers and rising costs. Fox is also keeping its two main Fox Sports channels which FNC can help subsidise for a bit longer.

But Fox broadcast TV meanwhile not only saw lower ad revenues and declining NFL/baseball ratings but was hit by higher sports programming costs, which included a higher volume of college/NFL football games in the quarter. ABC (owned by Disney) and NBC (owned by Comcast) also saw weak December quarter figures, and the profitability at the film studio dropped thanks to higher costs that from more movie releases (marketing especially), which ate away at the rise in box office revenues.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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