13 key quotes from John Nallen at Deutsche Bank conference: Stacking rights, NFL programming, direct-to-consumer offering, Sky


During today’s Deutsche Bank 2017 Media & Telecom Conference in Palm Beach, Florida, 21st Century Fox Chief Financial Officer John Nallen had the opportunity to touch on a wide range of topics. In his conversation with Deutsche Bank analyst Bryan Kraft, John talked about how new bundles will spark innovation, stacking rights, the strength of NFL programming, the benefits of the proposed combination of 21CF and Sky, and more.

On 21CF’s five core brands: “[What] we did many years ago [was get] out of this small-brand business. We used to be in channels that, in this day and age really, just don’t matter to consumers… We got into a business domestically, at least, where there are five brands that we go to market with: Big FOX, FOX Sports, FOX News, Nat Geo and FX. It’s a simple proposition with a lot of investment behind it. It supports our pricing when we’re in with a bundle of products that are that strong.”

On the positive outlook for subscription volume: “I think for the first time in any of these meetings I can say I’m incredibly optimistic because, if you think about, there are nine big-cap companies that are chasing the paid TV market now. Between Sony, DISH, AT&T, Amazon, Google, the four big media companies, including ourselves, behind Hulu – that’s a lot of capital that’s being pointed to an industry that people were concerned about where growth was coming from.”

On how the emergence of new bundles will spark innovation: “The VMVPDs are going to spark each other, and it’s going to iterate back to the traditional cable and satellite because they’re going to have to react; they’re going to have to provide a product that’s responsive from a competitive standpoint to what the VMVPDs are now offering in the market.”

On stacking rights: “We’re very far along because we own so much of the programming on the FOX network and on FX. So, we really don’t have to go to anyone to go seek the right to provide full-season stacking because we have those rights. Nearly 80 percent of the programming on the FOX network is from our studio; 100 percent of FX is from our studio. And that volume at FOX will do nothing but increase, because right now as we look at pilots, 9 of the 10 pilots that FOX is looking at are from our studio… From a full-season stacking standpoint…we’re in a good position because we have such a big programming studio. This concept that [FX Networks and FX Productions CEO] John Landgraf coined of peak TV – we are the beneficiary on the studio side because we’re producing so much television.”

On the increased investment in FX: “FX has really become the premium, basic cable brand. I don’t think there’s much argument…in the consumer’s mind that FX stands out as top programming, original programming. So, we increased the amount of original series on FX where we’ll probably have 16 this year. Most recently, we had ‘Feud,’ ‘Legion,’ ‘Taboo’; we’ve got ‘Fargo’ and ‘Archer’ coming up. It’s the home of ‘American Crime Story,’ ‘American Horror Story’ – all of that programming is so attached to FX and the FX suite that investing in that made a lot of sense, because what it contributes to longer term is rises…in pricing for the FX network because it should command that kind of pricing. So, that was really about continuing to fortify what is really an elite network.”

On the increased investment in National Geographic: “We all agree that we had to reconnect the Nat Geo programming to the promise of the brand – adventure, exploration, science – and came out with some of the programming already: ‘The Story of God,’ ‘MARS,’ we have ‘Genius’ coming up shortly. But [we’re] getting behind Nat Geo because it’s really our only global brand. It’s everywhere… And there’s probably a little more investment to make. There’s three or four new series this year. We should be doing much more – we are planning to do much more with Nat Geo. It’s just a fabulous brand. It’s been underexploited and it’s really undervalued.”

On FOX’s NFL content: “The NFL package is just superb programming. We have it until the Super Bowl in 2023, so there’s a long period of time still ahead of us with this. From an advertising standpoint, it’s just fantastic to have that as part of the products we’re offering. And if you just look at the past year – the Thanksgiving game, Cowboys-Redskins, was the most viewed FOX regular-season telecast in history. The Super Bowl had over 110 million viewers. I mean, this is the kind of programming that we just don’t have available elsewhere. So, let’s see what next season brings.”

On offline viewing of programming: “The offline viewing of our programming in rank order is DVR, Hulu, apps and cable VOD being the least. Probably 8 percent of our viewing is on cable VOD. In the first one, DVR, we get very little data; we get none, virtually. But on Hulu and in our apps, we get a significant amount of data, which allows us to provide targeted advertising.”

On engagement advertising: “In the case of engagement advertising, we [tell] a consumer when they turn of the show: Spend a little more than 30 seconds engaging with this ad and the rest of it will be commercial free. Or, alternatively, you can sit here and watch, as you’re used to, all the commercial breaks. In January, two-thirds of the consumers that were offered that picked the engagement ad. We received as much, if not more money for that smaller ad than we would have received for the entire pods that were running in that show at that time, and we were able to give great data back to the advertiser. So, at the heart of all of these initiatives is data.”

On Hulu’s forthcoming OTT service and a direct-to-consumer offering: “It’s relatively soon that Hulu will enter the market… It will be pretty exciting for a consumer to see it. People have asked, ‘Then is the natural evolution to offer your own product outside of that system on a direct-to-consumer offering?’ And the answer is yes, but it’s never going to be the majority of activity or volume for our product. Our activity, and for as long as I can see, the core of our affiliate revenue, consumer revenue, will come through a bundled package – either the big traditional bundle or through the core bundles that are being offered.”

On the health of the market: “To finally see brand new entrants come in here…offering a retail, direct-to-consumer product to attract paid TV subscribers – we haven’t seen that. It’s the first new group of entrants we’ve seen in years, and now to see them coming almost one after the other says there must be something to this market when you have that many big-cap companies coming in here.”

On the strong momentum of Hotstar, Star India’s mobile streaming platform: “As of yesterday, Hotstar had 135 million downloads – the biggest app download in India’s history. By just version of usage, in January it had 8 billion minutes viewed on it – 10 times what it had six months earlier. So, just to talk about the momentum that this product has, it has become the second TV in the household. In an Indian household that only has one TV, this portable television that people have has allowed there to be a second TV… We produce 17,000 hours per year of our local Indian product, and that’s what drives the market, that’s what drives Star’s ratings, that’s what drives the minutes on Hotstar.”

On the benefits of the proposed combination of 21CF and Sky: “Here we are buying one of the top European brands – it’s one of the most well-known brands in the markets that it’s in. It provides us diversification… All of the sudden, we get direct-to-consumer revenue from 22 million households. That’s not in our portfolio right now. We get technology, we get a center of excellence around direct-to-consumer activity that we will deploy around the world. And then from a financial standpoint, it ticks all the boxes… So, the business that [21CF Executive Chairman] Rupert Murdoch founded, we’ve been at this for 20-some-odd years in this position, which we know is not the natural end state, and we’re looking forward to closing on it.”

To hear more of John’s discussion, listen to the recorded webcast.