18 key quotes from 21CF’s fiscal Q2 2018 earnings call: New ‘Fox,’ Thursday Night Football, value of concentrated audiences


Yesterday, 21st Century Fox announced its fiscal Q2 2018 financial results. Afterward, the company held an earnings call featuring Executive Chairman Lachlan Murdoch, CEO James Murdoch and CFO John Nallen. It was an opportunity for 21CF to discuss a wide range of topics, including the transaction to create the new “Fox” and merge remaining assets with Disney, FOX Sports’ five-year agreement with the NFL to broadcast Thursday Night Football, the value of concentrated audiences, and more.

Here are some key comments from Lachlan and James:

On the transactions to create the new “Fox” and merge remaining businesses with Disney: “We firmly believe these transactions will unlock the full value of our iconic brands and better position all of our businesses to compete in a rapidly evolving media and entertainment landscape. But until the Disney deal closes sometime next year, we remain wholly focused on executing against the same growth strategies that made these transactions possible in the first place.” – Lachlan

On 21CF’s strategy and customer experience: “Our programming, from scripted to nonfiction, sports and news continues to differentiate and fortify [our] brands. And our customers’ experience continues to improve as well. Our strategy of making our content more available, not less, is paying dividends, and we’re driving more flexibility, more access both in and outside the home, and a better advertising experience across the board. IP delivery of entertainment is driving a better environment for the business, and we are making strides.” – James

On the new “Fox” and retransmission revenue: “[We] see a great potential to increase our retransmission revenue quite aggressively for two reasons: One, obviously, some of the focus, investment and support for the new NFL Thursday night package. But also…being a more focused company with fewer channels in our bundle, we’ll be able to drive our retrans for the stations quite aggressively.” – Lachlan

On the value of concentrated audiences: “I think the value of a concentrated audience is very high. Even if the absolute number of viewers may be a little bit lower as the fragmentation impacts, the scarcity value of those events is tremendous. And advertisers remain very attracted to that.” – James

On the importance of live sport: “Live sport has never been more important than it is today. This is why we are energized and excited about our recent agreement with the NFL to make FOX Sports the official home of Thursday Night Football for the next five years. NFL programming is hands-down the most powerful in all of media. And if you look at our decades-long relationship with the league, I think you’ll agree, having the most important sports rights over a longer term has always served us well.” – Lachlan

On bidding against digital competitors for sports rights: “It doesn’t really matter who’s bidding. People have to make economic choices around the value of these rights, the value of these products. So we like our ability to compete across the board with these brands…but it’s never a question of all or nothing. You have to make choices and sometimes, you don’t think something is worth as much as somebody else does, and you steer the business in a different direction.” – James

On joining FOX’s Sunday NFL package with Thursday night games: “This concentration affords us great monetization opportunities, including through our new expanded digital rights, and creates a clear runway to further grow the value of our broadcast business, all key goals as we think about setting up the new ‘Fox’ for the future.” – Lachlan

On Thursday Night Football and the scarcity of large audiences: “I think when you look at the licensing that the NFL has undertaken with expanding Thursday night…we think the right answer there is actually to concentrate that audience and to have FOX really be the clear leader in NFL broadcasting with a product as powerful as it is. So we think that’s pretty attractive to have the extra night of football, and it’s a powerful platform for the network, both in terms of other promotions and promoting other nights and other programs. But in general, the scarcity value of large audiences coming together around national events continues to rise. We really want FOX to be the home of that kind of compelling product.” – James

On the strength of FOX Sports: “Broadly, this past fall, FOX Sports dominated viewership with 34 percent more live sports viewing than its next closest competitor. It achieved the goal it set at last year’s upfront to be the No. 1 network in total football viewing and owned the fall. For calendar year 2017, FOX Sports delivered a 21 percent gain over calendar 2016. FOX Sports enters 2018 as the leader in the most valuable type of programming, the leader in America’s most popular sport and the dominant brand during the most valuable time of the year.” – Lachlan

On the promise of the streaming environment: “[Having a] nonlinear, data-driven advertising platform sitting underneath [a linear sports broadcast] and being able to monetize that audience is hugely attractive. And we see that starting to bear fruit, but it’s still not an enormous part of the audience that’s consuming a linear product on digital streaming platforms. [As] that grows, we think that the yields from a minute-by-minute, customer-by-customer basis will continue to improve. We certainly see that, for example, in the Hulu streams, where we just have dramatically better monetization on Hulu owned-and-operated apps than we do, for example, on the traditional MVPD distribution, which is something that is encouraging in terms of leveling off and equalizing those over the next number of years, which we think is very possible.” – James

On the strength of Fox News Channel and Fox Business Network: “Fox News closed calendar 2017 with its highest-rated year ever, its second consecutive year as the most watched network on basic cable. Primetime changes drove growth in audience share across all key demographics. Likewise, Fox Business achieved its highest-rated year ever in both total day and business day, beating CNBC in business day viewership.” – Lachlan

On the strength of FOX Broadcasting Company: “FOX Broadcasting has four of the top five new dramas of the season as well as two of the top three new comedies. In addition, our midseason is off to a promising start with the brilliant ‘9-1-1,’ a clear standout. Cut-through entertainment programming has always been a critical part of FBC’s lineup, and that will not change with the new ‘Fox.’” – Lachlan

On DMVPD growth: “As of today, we are approaching 4 million digital MVPD subscribers, even if we’re still in the very early innings. Many of these services have yet to roll out distribution and marketing to important cities throughout the U.S. The growing subscriber contributions from these new entrants, which reflects 50 percent sequential growth from the September to December quarters, offset declines in the traditional distribution marketplace, maintaining our domestic subscriber levels. Our affiliate Hulu recently announced strong growth as well, crossing 17 million subscribers and, notably, adding more U.S. subscribers than Netflix in both of the last two quarters. Along with strong first-half results, Sky recently announced streaming plans for key markets in Europe, developing cost-efficient platforms to extend the Sky Q and streaming businesses without the need of a satellite dish, driving growth opportunities in both existing and new markets.” – James

On the strength of 21CF’s film studio: “At our film studio, the great work of our colleagues and creative partners was recognized with industry-leading 27 Academy Award nominations. This is on top of more Golden Globe wins than any of our peers, showing the breadth and reach of our creative prowess, fueled by ‘The Shape of Water,’ ‘Three Billboards’ and ‘The Greatest Showman.’ And we have a great slate this calendar year, with ‘Deadpool 2’ set for release in May, ‘Alita: Battle Angel’ in the summer and the next installment of the X-Men franchises, ‘Dark Phoenix,’ set for later in the year.” – Lachlan

On DMVPD competition and innovation: “We’ve been talking for two years about increased competition from digital MVPDs starting to generate real growth in the marketplace, and competition always creates growth and innovation. That’s why we believe in it, and we’ve enabled a lot of these new competitors to really get into the market. When we talk about licensing our product in a way that makes our content and our brands more available and not less, it’s all about enabling that competition. So we’re really seeing that come through now, and you’re seeing it overall in the market.” – James

On strengthening FOX’s momentum: “We think that consolidating Thursday Night Football under one network as opposed to two gives us a great opportunity to actually grow the ratings of Thursday Night Football. And we’ve already seen good momentum behind the network. I think we finished January as the No. 1 network in television. We’re the only network with growth of about 15 percent growth in January. We liked our fall launches and our midseason… So we actually feel we’ve got momentum, and the addition of Thursday Night Football will strengthen that as well.” – Lachlan

On operating 21CF between now and the close of the Disney transaction: “Until we get there, we’re very much operating this business at a high velocity and in a mode around building each business and each brand as best we can as we would have anyway. So I think ahead of closing, you have to operate on a business as usual basis and you have to try to make the right decisions for each business and each brand there.” – James

On the proposed Sky acquisition: “With the recent publication of provisional findings by the U.K. Competition and Markets Authority, we’ll continue to engage constructively with the CMA to address their concerns ahead of their May 1 final report. We anticipate regulatory approval for our proposed Sky transaction by the end of June, as we’ve said earlier.” – James