Fox, We Hardly Knew Ye

There are several principles that always ring true in the world of business, and these principles transcend time, cultures, and trends. One of those key principles is this: things are always changing. No matter how prestigious or ostensibly powerful something may seem, if it can’t keep up with the times, it simply gets lost to the times. But, another interesting tidbit about business is that one always needs to expect the unexpected. So, for many in the media industry, it was an unexpected shock when, in November, it was reported that media mogul Rupert Murdoch approached Disney, then later Comcast and Verizon about selling off much of the assets contained within the massive media empire of 21st Century Fox. The company, which contains the Fox film library, also contains assets related to FX, FXX, National Geographic, and more. If this deal were to occur with one of these companies, it would leave 21st Century Fox with its broadcasting company, its affiliate stations, Fox News, the Fox sports networks, and various networks in other countries such as STAR in India and a portion of Sky broadcasting. So, why would this media mogul want to sell such a massive portion of one of Hollywood’s most historic film conglomerates? Is it a sign that, perhaps, this media empire cannot keep up with technological change like other titans can, or is there an ulterior motive at hand?

Well, it is important to put the company’s market position into perspective when discussing what one may define as a success or failure. Over the past couple of years, 21st Century Fox has seen a trend in its annual earnings in which overall revenue has increased, but these increases are mainly attributed to the fees charged to local Fox affiliates as well as advertising fees on cable networks. Fox’s original content has actually seen revenues decline over the last couple of years. [1] If these issues are ostensibly correlated, it becomes somewhat easier to pinpoint why the company is considering such a deal, but revenue fluctuations happen in many companies at many different points. It would be irresponsible to point the proverbial finger directly at some small year-to-year trends on the company’s 10-K. As such, it also becomes important to bring a company like Disney into this discussion for a couple of reasons. For one thing, Disney does own a majority of the market share in several key Fox markets like television and film. [2] However, it also has a lot to do with Disney’s attempts to hold onto its market prestige by establishing intentions to create its own direct-to-consumer streaming service using its own film and television content, which both separates it from services like Netflix and Amazon while, somewhat ironically, adopting those companies’ respective technologies as PBR’s own Ronny Rineer pointed out in October.

Of course, this article is not about that particular matter, but it does concern itself with understanding the fact that, in a rapidly changing entertainment landscape, it is important for each conglomerate to establish itself in the new or cutting-edge technology or else risk falling behind in the market. Based on the words of management, it would be fair to assume that Fox already knows this. Following the release of the company’s earnings in August, it stated that it was optimistic about how “skinny-bundled” streaming services would affect the company’s business and was considering the possibility of launching its own streaming site. [3] But, these “projections” run a little deeper than some positive analysis in a news article. In the entertainment industry, direct-to-consumer models are a topic of conversation of which even Fox cannot escape from. In a September Goldman Sachs conference, Fox executive Lachlan Murdoch was questioned directly about said services and then answered in a way that one might or might not consider to be antagonistic to the company’s involvement in the issue.

While L. Murdoch acknowledged that there was a possibility that all companies would go direct-to-consumer at some point, he maintained that, at that point, it was more beneficial to continue utilizing a multiple-content provider model because exclusivity models have the potential to hurt the consumer. Within that discussion, there was the revelation that Fox had made a deal to give most of its FX library to Comcast for a $5.99 a month premium service for customers — perhaps a hint of things to come but also an act in alignment with Fox’s supposed line of thinking as it pertains to opening up its library to multiple content providers. Murdoch also stated that, of all the assets within Fox, STAR was the one most likely to grow, as it had a $1 billion EBITDA target by 2020. [4] Now, if this was not mentioned before, it is very much worth mentioning now because STAR was not part of the reported list of potential sales items. It should also be mentioned that the Fox broadcasting network and its profitable affiliates are also not a reported part of this “fire sale”. So, do the Murdoch’s really believe that Fox’s film and TV properties have little growing room? Is STAR really going to be the prestigious media property of the future that replaces an entity that has produced the likes of The Simpsons, Titanic, and a robust number of Marvel films…or is something else at work?

Another important factor in this conversation is that 21st Century Fox is not the only key building block of the Murdoch empire. The second key conglomerate in this pool is News Corp, which mainly owns news and publishing assets such as the Dow Jones firm, the Wall Street Journal, MarketWatch, HarperCollins, the New York Post, the UK tabloid The Sun, realtor.com., and many other news industries within the U.S., UK, Australia, and other countries. Until 2013, News Corp and Fox were one entity until it was decided that the two would split.

It is thought by some that Rupert Murdoch’s true interest and passion lies with news-based products and services. If this were to be the case, then the selling off of this great media empire could just be the case of a man who knows where he wants to focus his long-term investments and let the consequences fall as they may. [5] It also makes a lot of sense when one considers how much of a grasp companies have on their respective markets. Look at it this way: Disney may own ABC News but News Corp owns everything you see above — as well as all of the digital advertising rights that come with them. It doesn’t look like Disney will dominate this field in the near future, and Murdoch, one might surmise, already knows this story by heart. Of course, one may have ideas as to what the Murdochs may want to do next, but caution must always be exercised in weighing such claims.

It also needs to be said that even if News Corp is truly Murdoch’s pride and joy, even it is not a spectacular golden goose that always lays golden eggs for its shareholders. Over the past few years, News Corp’s global earnings have declined as well, and those declines have a few key areas in common: lower print advertising revenue, foreign currency fluctuations, and declines in the newspaper and publishing business. Yet, the company has seen recent successes with sites such as realtor.com and also with increases in digital subscription revenues and upticks in its real estate investments. [6][7] It does need to be said, also, that the company attributes some of its increased losses and expenses to various acquisitions for its news and information services division. [8]

There is something to be said here about what one may describe as a media empire. A vast asset pool filled with local affiliates and means of absorbing advertising revenue may not necessarily be the sexiest asset group one has ever seen, but perhaps Rupert Murdoch is no longer concerned with being hip and modern. In today’s increasingly competitive day and age, perhaps Murdoch and others at Fox are just acutely aware of the means by which the company is most likely to thrive in the long term.

21st Century Fox’s film and TV assets have suffered some losses over the last few years, but so has News Corp, and Murdoch does not appear to be so keen on slimming that down, at least for now. It is difficult to predict with reasonable probability what actions Murdoch will take next. However, given the actions that have already been witnessed, there might be some key ideas to take away from these developments. I’ve already proposed that a change in media habits and the subsequent growth of new and existing powers like Disney and Netflix, respectively, might have led Murdoch to reevaluate Fox’s long-term viability.

However, it is a brave new world for online applications as well. News Corp has seen upticks in its online subscription revenues, and for someone like Murdoch, whose conglomerate owns assets like MarketWatch and The Wall Street Journal, it opens up a plethora of possibilities. Of course, Murdoch also has to contend with reality in regard to News Corp’s current state. Print revenues are down and foreign currency fluctuations have also gotten in the company’s way. So, in theory, it means that one has a viable company that needs some patience and restructuring to keep its long-term viability. When framed from this light, it becomes completely understandable as to why Murdoch is taking News Corp via the fork in this metaphorical road and is, as a result, choosing to slim Fox down to assets that are either growing or making a consistent profit.

In the end, as one can probably surmise, this potential merger posts a lot of implications for the world of media, and, despite the analyses present in this article, there could still be a lot of factors that have not yet been brought to light. As a singular writer, I cannot pretend that I know either the true intentions or business mindset of Murdoch, his family, or his executives. However, what this scenario provides is an interesting look at how changing trends can alter the landscape of power in the blink of an eye. When the dust settles, only one thing will be certain, and that is the fact that the changing times wait for no one, not even Rupert Murdoch.

 

[1] https://www.sec.gov/Archives/edgar/data/1308161/000156459017017693/fox-10k_20170630.htm

 

[2] https://csimarket.com/stocks/competitionSEG2.php?code=DIS

 

[3] https://www.reuters.com/article/us-fox-results/twenty-first-century-fox-revenue-misses-profit-tops-estimates-idUSKBN1AP2H3

 

[4] https://www.21cf.com/sites/default/files/uploaded/investors/presentations/goldmansachsconf-lkm-transcript-sept2017-corrected_0.pdf

 

[5] http://www.vulture.com/2017/11/21st-century-fox-rupert-murdoch-broadcast-tv.html

 

[6] https://www.theguardian.com/media/2017/aug/11/news-corp-posts-817m-loss-after-falls-in-value-of-newspaper-and-pay-tv-assets

 

[7] https://www.theguardian.com/media/2016/aug/09/news-corp-posts-28-decline-in-global-earnings-despite-real-estate-boost

 

[8] http://investors.newscorp.com/secfiling.cfm?filingID=1193125-17-257248&CIK=1564708

 

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