How Is Fox Sports Australia Trending For News Corp?

News Corp‘s (NASDAQ:NWSA) cable networks business has been trending well over the past two years. It consists of Fox Sports Australia, which is focused on live national and international sports events and provides the sports programming to the Australian market. Fox Sports is expanding in Australia and recently secured rights to broadcast Formula 1 racing in a 5-year deal. ^[1] The network will also benefit from its ongoing coverage of ICC Cricket World Cup in Australia and New Zealand alongside Nine Network. It must be noted that cricket is immensely popular sports in some of  Asian countries including, India and Australia.

The recent World Cup clash between India and Pakistan was watched by more than 1 billion people across the globe. ^[2] Star Sports, which is owned by 21st Century Fox (NASDAQ:FOX) has the tournament broadcast rights in India. However, News Corp stated that the cricket programming and earlier telecast of Asian Cup will lead to higher programming costs in the current quarter. ^[3] We are eager to learn how the tournament ratings trend in the coming weeks in Australia. Higher viewership can help Fox Sports expand its subscriber base and also aid the advertisement pricing and boost the segment revenues in the current quarter. However, it must also be noted that the broadcast of the Asian Cup in January failed to attract higher viewership in Australia. For instance, only 331,000 viewers tuned into live final of Australia and South Korea. This compares with 972,000 viewers that tuned into Channel Seven the same evening to watch the Australian Open women’s final. ^[4]

News Corp consolidated the Fox Sports Australia business after buying CMH’s 25% stake in the network in November 2012. The cable networks segment revenues for Fiscal 2013 were $324 million and $491 million in Fiscal 2014. However, Fox Sports Australia’s standalone revenues declined 5% in Fiscal 2014 primarily due to the adverse impact of foreign currency fluctuations. ^[5] We expect the segment revenues to grow in the coming years and be north of $750 million by the end of our forecast period. An estimated EBITDA margin of 33% will translate into EBITDA of over $250 million, representing around 17% of the company wide EBITDA. Much of this growth will be driven by higher subscription prices and pay-TV penetration in Australia. It must be noted that currently only 30% of the Australian households have a pay-TV connection and this is expected to improve in the long run to around 70%, according to Telstra. ^[4] Cable networks such as Fox Sports will benefit from this improvement. However, there are certain risks associated with this business, primarily the sports rights protection for free-to-air TV networks in Australia. This limits the audience for Fox Sports and at the same time can continue to put pressure on pay-TV penetration in the region. Both of these factors can slowdown the cable networks growth as well as put pressure on ad pricing.

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1. Formula 1 Australian TV rights to be shared by Ten, Fox Sports, Foxtel in five-year deal from 2015, Daily Telegraph, Feb 13, 2015 [↩]
2. India beat Pakistan by 76 runs as estimated one billion viewers tune in to World Cup clash, The Telegraph, Feb 15, 2015 [↩]
3. News (NWSA) Q2 2015 Results – Earnings Call Transcript, Seeking Alpha, Feb 5, 2015 [↩]
4. Asian Cup fails to fire on TV, The Roar, Feb 7, 2015 [↩] [↩]
5. News Corporation’s SEC Filings [↩]