How Is Fox Sports Network Subscription Trending?

+61.08%
Upside
27.00
Market
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Trefis
FOX: Fox Corp logo
FOX
Fox Corp

21st Century Fox‘s (NASDAQ:FOX) Fox Sports Network (FSN) operates as a combination of regional sports networks, where programming in different regions is customized to local tastes. Last year, it launched Fox Sports 1, which posted the largest year-to-year viewership increase of all national carriers of college football. However, it falls behind other networks such as NBCSN and ESPN in overall performance. In its first year, the network averaged 267,000 total viewers in prime time as compared to NBCSN’s 305,000 and 2.3 million for the mammoth ESPN. [1]

Recently, Chase Carey, President and COO of 21st Century Fox, stated that the network is going on the right path and the next task is to get the ratings up. [2] It will be interesting to see if the network can increase its viewership in the coming years and divert some of the advertising dollars from ESPN, which has been dominating the sports media for a very long time.

Fox Sports Network had 83 million subscribers in 2013 and it charged an estimated $2.61 monthly subscription fee, translating into revenues of $2.6 billion. The estimated EBITDA margin of 37% for media networks translates into EBITDA of over $950 million, representing 14% of 21st Century Fox’s overall EBITDA for 2013.

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FSN generates revenues primarily from subscription and advertisement. FSN subscription accounts for 12% of the company’s stock value, according to our estimates. The subscription revenues have been mixed over the past few years declining from $2.19 billion in 2007 to $2 billion in 2012 and then growing to $2.6 billion in 2013. This volatility can be attributed to the change in fee per subscriber and subscriber base. Average fee per subscriber has increased from $2.25 in 2007 to an estimated $2.61 in 2013. This growth was primarily driven by contractual price increases and appeal of Fox’s regional sports programming.

Contracts between content companies and pay-TV service providers include prescribed yearly increments for fee per subscriber. These contracts are long-term, spanning across several years. Moreover, FSN carries a local appeal to different regions. The network shows local games and is thus, quite important to sports enthusiasts. We believe these factors will continue to drive subscription fee growth in the coming years. We estimate fee per subscriber to be north of $3.30 by the end of our forecast period. However, we don’t expect much of change in the number of subscribers as the penetration is already above 80% in the U.S. pay-TV households.

We estimate advertising revenues for 21st Century Fox and not separately for its networks. Advertising accounts for approximately 25% of Fox’s overall revenues and a significant portion of that comes from Fox Broadcasting Network (also see – Poor Ratings Weigh Over Fox’s Broadcasting Operations).

We estimate revenues of $34.19 billion for 21st Century Fox in calendar year 2014 and EPS of $1.59. We maintain a $39 price estimate for Fox’s shares, which reflects 17% premium to the current market price of $34.

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Notes:
  1. One Year In, Fox Sports 1 Hasn’t Lived Up to the Hype, Advertising Age, Aug 18, 2014 []
  2. Carey: Fox Sports 1 On Growth Path, Multichannel, Sep 11, 2014 []