13 key quotes from John Nallen at Goldman Sachs Communacopia 2018


21CF’s Senior EVP and CFO and COO for new “Fox” on Thursday Night Football, strength of ad market, value of WWE, Fox Nation

During his session at the 2018 Goldman Sachs Communacopia Conference on Thursday, Sept. 13, John Nallen, Senior Executive Vice President and Chief Financial Officer for 21st Century Fox and Chief Operating Officer for new “Fox,” sat down with Goldman Sachs analyst Andrew Borst to discuss a wide range of topics. During their conversation, John had the opportunity to talk about a strong starting position for new “Fox,” the company’s investment in Thursday Night Football, the unique value WWE brings, how Fox Nation will be different from Fox News Channel and more.

Here are some key quotes from the session, which is available for replay:

On the scale new “Fox” on Day One: “Here you are starting a business – launching, in essence, an IPO of this company with the No. 1 brand in news in America; I’d argue the No. 1 sports platform in America; the biggest station group of Fox; a cash flow engine that’s generating substantial not only…pretax cash flow, but because of some of the benefits we get from the transaction, net-net cash flow. So I think it’s a company that’s got great opportunities. It’s got scale. I mean, we can’t go buy another news organization to make us No. 1. We are No. 1.”

On how to think about the investment in Thursday Night Football: “The NFL is an important asset of new ‘Fox.’ The NFL last year accounted for 70 of the top 100 programs in the United States. With Thursday Night [Football], new ‘Fox’ will have half of those. So there’s a scarcity value to Thursday Night Football… [Beginning next year, we’ll have] Thursday, full Friday with WWE; Saturday, college; Sunday, pro. For us, it’s just a great flow of product and a great series of products to be able to offer to advertisers.”

On the strength of the national advertising market: “We had a good upfront… Healthy pricing increases, good volume for us – and particularly now that we have all the Thursday Night inventory that we’re adding to packages that we have. So on a national side, advertising…wasn’t just healthy for the upfront. It remains healthy. Scatter pricing is up mid-teens for us, above the recent upfront, which is not so far in the rearview mirror. So…live product continues to be where the demand is.”

On the local advertising market: “To get an audience the size that we can deliver, that’s what a lot of brand marketers are after… It’s a very healthy environment on the local side. The political races – I mean, you only have to be here in New York, put on evening television to know how healthy the advertising is. But 16 of our 17 markets have House or Senate races up. A similar number have gubernatorial races. And not only this cycle, [but] when we get in nationally into the next cycle, two years from now, those local businesses are really popping from a revenue standpoint.”

On a key benefit of new “Fox’s” pivot into live programming: “It’s the benefit of new ‘Fox’ that its focus is to be a leader in live programming… You’re going to get to a point in some weeks when Thursday Night Football is on for the season where FOX Broadcast network only has to program six hours a week on entertainment programming: Monday, Tuesday, Wednesday, assuming Sunday is covered by the animation block. So new ‘Fox’ really pivots hard into live programming, both on the news side and then on the sports side.”

On Sunday NFL packages staying on broadcast TV: “So this is a personal view not informed by discussion. I think that the Sunday package is sacrosanct for the NFL from a broadcast standpoint – that for the NFL to reach its audience, principally middle America and many of those football teams, broadcast television is the platform that they’ll be on. Whether they slice up some digital pieces of it, I think they probably can experiment with that like what they’re doing on Thursday. But I don’t see, personally, a world where the Sunday packages are not on broadcast television.”

On the WWE’s distinct value proposition: “The difference between WWE and any other sport that we have is it’s a 50- to 52-week-a-year sport with no repeats. It’s a new novella every week going on, a new event. So for us to have that kind of appointment programming for that audience every week of the year is really a unique opportunity for us at the broadcast network… At the heart of it was the unique opportunity to have programming that resonates with a great range of consumers to be inside of us and to be able, once again, as we go to affiliates over this three-year period, to talk about the portfolio that Fox has.”

On the growing importance of e-sports: “When I look at new ‘Fox,’ we’re focused on the live, major national product sports that we have: baseball, NASCAR, football, WWE. E-sports is an adjacency… It’s a place, because we’re so big in national sports, that we just have to understand and have to participate in somehow. But the depth of how we participate is still to be determined. So the partnership, the investment in the first part in Caffeine and the partnership in the programming studio is just a step toward that. It’s not a major investment in the context of 21CF or new ‘Fox.’ But it’s a recognition that e-sports are a very important part of the sports ecosystem, and increasingly, sports betting is an important part of the sports ecosystem as legalization flows its way through the states here. So we’ll dabble in it for now.”

On Fox News as the cash-flow engine for new “Fox”: “The beauty of Fox News as a business is that, different than the sports business that anybody has, including us, is the cost base of that business doesn’t move all that much. It moves a bit – breaking news, you’ve got new talent deals – it moves, but not like when you sign a new Thursday Night [Football] deal or sign a renewal of a Sunday package. So therefore, the revenue increase converts really well into EBITDA and into free cash flow. So it’s the cash-flow engine of new ‘Fox.’”

On Fox Nation’s differentiation from the linear channel: “It will be an over-the-top streaming product, independent and adjacent to the linear channel. So you’re not going to get a simultaneous broadcast on Fox Nation of what you’re watching on any one of the cable or satellite operators. It’s independent, really focused initially for the true, big Fox News fan. We know there’s a market for that. And its product will be different than what’s being offered on the linear channel – more in-depth interviews that couldn’t go within the segments on the primetime show… It’ll be a different lineup entirely on Fox Nation than what’s on Fox News currently. So I see that it’s just a completely adjacent package… We’re thinking late fall, pre-election [is when] Fox Nation will launch and be available.”

On new “Fox’s” direct-to-consumer strategy: “So I’d say this is where I’m a bit of a contrarian to, and have been, to most everyone… You have to ask yourself the question, it’s in search of what? What market problem are you trying to solve by investing substantial amount of money in the technology and then in the billing systems and everything else that goes along with it? I’m not sure there’s a big problem right now that’s unsolved at the moment… We will all offer, at some point, our products direct-to-consumer. But hopefully, you and I can sit on this day out five years from now, and I will tell you at that point that we’re still getting the overwhelming majority of our revenue, for our channels, through bundles.”

On life without a TV production studio: “We won’t have a studio stapled to us. We have no intent initially to go acquire a television studio. There’s a countervailing view that it’s liberating, that new ‘Fox’ now has the opportunity to acquire a product to hear from everybody to come and knock on our door for the 6 or 8 hours a week that we are open for programming. And even today, we have hit programming that’s not ours… So Fox will be open for business and the market already knows that, because we’ve been the recipients of a lot of pitches already from third-party producers on how they can partner with us at the network. So the paradigm completely shifts in new ‘Fox,’ where you’re focused on the broadcaster, and the profitability of the broadcaster.”

On new “Fox’s” interest in expanding its TV station footprint: “Yes, we would like to increase the footprint of the Fox station group to a maximum level. We like getting further distribution, creating a bigger platform of our own distribution across the nation. It helps us with retrans discussions, helps us with advertising. As far as looking at our filters for looking at stations…we’ve always looked first for NFC markets.”