Cable Networks Power Earnings at 21st Century Fox -- Update

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11/09/2017 | 01:02 am
Lachlan Murdoch

By Maria Armental and Sarah Rabil

Twenty-First Century Fox Inc. said profit and revenue rose in the most recent quarter, as higher fees for its cable networks helped offset continued weakness at local TV stations and its film studio.

The results posted Wednesday come on the heels of the news that Fox recently held talks about selling a large part of its entertainment business to Walt Disney Co. Those assets included the Twentieth Century Fox studio, international distribution assets and some cable networks, The Wall Street Journal reported earlier this week.

The remaining Fox business, as discussed, would have been focused on broadcast television as well as news and sports cable channels such as Fox News. The talks hit an impasse over price and other key terms, though they could be restarted, according to people familiar with the matter.

Lachlan Murdoch, executive co-chairman of Fox, kicked off Wednesday's earnings call by saying executives wouldn't comment on the reports.

"Let me be very clear upfront that we have a longstanding policy of not commenting around corporate activity or transactions. We will continue to adhere to the policy, meaning that we will not be responding, at all, to questions or comments regarding recent press speculation," he said.

Lachlan Murdoch and his brother, James Murdoch, chief executive of Fox, emphasized that the company has the scale needed to compete in the current media landscape, particularly as Hulu and other streaming platforms sign up more subscribers and advertisers. The discussions with Disney included transferring Fox's stake in Hulu; Disney and Fox each owns 30% of the streaming service

"Fox has the required scale to continue to both execute on our growth strategy and deliver increased returns to shareholders," Lachlan said. "We are excited about all of our brands and the breadth of opportunities they continue to offer the company."

Wall Street Journal parent company News Corp and 21st Century Fox share common ownership.

Fox's cable networks unit, home to Fox News and the FS1 sports network, drove results for the company's September-ended fiscal first quarter with a 9% increase in operating income before depreciation and amortization, helping Fox post its first profit increase in three quarters.

Driving results in the cable segment was an 11% increase in domestic affiliate fee revenue -- the money collected from pay-TV distributors to carry Fox's channels. Advertising revenue rose 3% in the U.S. and 10% for international channels.

Fox said it maintained its domestic television subscriber levels, as growth from new streaming services and newer channels offset declines in the traditional pay-TV universe. James Murdoch said he expects the number of people paying for video services in the U.S. to actually grow, thanks to the entrance of new streaming services like Hulu Live.

Over all, Fox's fiscal first-quarter profit rose 4% to $855 million, or 46 cents a share. Excluding restructuring costs and other items, per-share profit from continuing operations fell to 49 cents from 51 cents a year earlier, but was in line with the projection from analysts surveyed by Thomson Reuters.

Revenue rose 7.6% to $7 billion, topping analysts' average estimate of $6.81 billion.

Operating profit at the filmed entertainment division, which includes the Twentieth Century Fox studio, fell 18% from a year earlier, as last year's results were boosted by licensing deals.

The television segment, which includes the Fox broadcast network and local TV stations, posted a 36% decline in operating profit. Higher costs for sports programming, including additional college football and National Football League games, more than offset higher revenue.

Fox's Class A shares closed Wednesday at $28.09 and were up 1.3% in after-hours trading. Before gaining this week on the reports about discussions with Disney, the stock had declined about 25% over the past three years.

On the call, an analyst asked about Wall Street's frustrations that Fox's stock hasn't reflected the company's growth and value, one factor that some analysts say may have contributed to the Murdoch family's potential willingness to sell assets.

"Look, all we can do is work with what we can control, which is operating these businesses and growing the businesses," Lachlan Murdoch responded. "That's what every single member of senior management is focused on."

The talks with Disney were said to include Fox's 30% stake in Hulu, which had an equity loss of $62 million as of Sept. 30, and Fox's 39% stake in U.K. pay-television giant Sky PLC, valued at $110 million at the end of the quarter. Fox's bid to buy the rest of Sky has been held up by a regulatory review in the U.K.

Fox reiterated on Wednesday that it continues to expect the Sky acquisition to close by mid-2018, absent further regulatory delays.

Fox News, which wasn't included in the talks with Disney, had another strong quarter, contributing to the revenue and profit expansion at the cable unit despite turmoil over accusations of sexual harassment and racial and gender discrimination that led to several high-level departures, including that of former chief executive Roger Ailes last year. Mr. Ailes, who died in May, and others accused denied the allegations. Fox has said it is cooperating with a federal probe related to the allegations.

Write to Maria Armental at and Sarah Rabil at

Corrections & Amplification

This article was corrected November 8, 2017 at 8:09 p.m. EST to attribute a quote to Lachlan Murdoch. The original version of this article incorrectly stated it was from James Murdoch.

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