Fox Fiscal 2017 Mid-Year Review: Growth In Cable Network Advertising, Relatively Weak Studio Performance

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21st Century Fox (NYSE:FOX) has had a fairly solid first half of fiscal 2017 (fiscal year ends June 2017) so far, with the company beating earnings per share estimates in both quarters but missing revenue estimates in the second quarter. In the first six months of fiscal 2017, the media company’s total revenue increased 5% year-over-year (y-0-y) to $14.2 billion, driven by higher affiliate fees and advertising revenues, along with higher content revenue related to subscription video-on-demand (SVOD) from television production. However, this revenue growth was partially offset by lower entertainment ratings at the Fox Broadcasting Company.

Fox’s selling, general and administrative (SG&A) expenses decreased 4% y-o-y for the six months due to lower compensation expense. From a bottom line perspective, the company’s net income grew 24% y-o-y to $1.6 billion in the same period, translating into earnings of 91 cents per share. The company’s stock has increased about 10% year-to-date (YTD).

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Cable Networks Boosted Mid Year Results

Fox’s Cable Network Programming revenues increased 9% y-o-y to $7.8 billion in the first two quarters of fiscal 2017, primarily due to higher affiliate fees, advertising and content revenues. The growth in affiliate fee revenue was attributable to higher average rates per subscriber across most channels, and the increases in advertising revenue were led by two additional games and higher ratings of the World Series and higher ratings at Fox News. Additionally, the segment’s operating income before depreciation and amortization (OIBDA) increased 6% y-o-y during the same period, due to the revenue increases noted above, partially offset by increased expenses.

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Fox News has been the highlight for the company amidst the intense Presidential election coverage in the first half of fiscal 2017. In fact, Fox News was the most-watched basic cable network in the September and December quarter, and delivered year-over-year improvement in the key age 25-54 demographic.

Mixed Results For Studio Operations

Fox’s Filmed Entertainment revenues increased 1% y-o-y  to $4.2 billion in the first two quarters of fiscal 2017, primarily due to higher SVOD revenue from television productions led by the licensing of Homeland, partially offset by lower worldwide theatrical and home entertainment revenues. However, the segment’s OIBDA increased 55% y-o-y in the same period, driven by lower marketing costs due to the number and mix of theatrical releases in the current period compared to the prior year.

20th Century Fox collected $488 million at the U.S. box office during the September and December quarters combined, compared to $660 million during the same period in the prior year. 

Television Benefits From Political Advertising

In the six months ended December 2016, Fox’s Television revenues grew 7% y-o-y, while its OIBDA increased 19%. The segment benefited from higher political advertising and double-digit re-transmission consent revenue growth. In addition, the company’s stations generated incremental revenues from permitting the use of some spectrum in one of its markets. However, the segment’s revenue growth was partially offset by higher sports and entertainment programming expenses at the network, as well as higher promotion costs from the launch of new series.

Update On Sky Acquisition

In an effort to consolidate television programming and distribution under one roof, Fox agreed to acquire full control of Sky Plc for $14.1 billion in December 2016. Sky, which is Europe’s top pay-TV company, provides services to 21.8 million customers across the U.K., Ireland, Italy, Austria and Germany. [1] With this deal, Fox aims to connect its global content business with Sky’s direct-to-consumer capabilities, forming a powerful distribution platform in Europe for pay-TV and internet. Although the deal has received approval from the European Commission’s competition authorities, it is still awaiting U.K. media regulator approval.

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Notes:
  1. 21st Century Fox Agrees to Buy Sky, Bloomberg, December 2016 []