English Entertainment
De-mon contributes to lower international ad revenue at 21st Century Fox
BENGALURU: Rupert Murdoch’s 21st Century Fox (TFC-Fox) reported five per cent decline in net income attributable to TFC-Fox stockholders (net income) for the quarter ending 31 March 2017 (Q3-17, current quarter) as compared to the corresponding periods of the previous fiscal. The company’s Q3-17 net income was $799 million as compared to $841 million in Q3-16. As reported by us earlier, (21st Century Fox outlook on Star bullish despite $30 million DeMon Hit), TFC-Fox CFO John Nallen, in conversation with analysts had admitted that Star too ‘got affected’ from last quarter to first quarter of 2017 to the extent of $30 million.
Demonetisation in India partially contributed to the drop in revenue in Q3-17 going by some statements in TFC-Fox’s earnings release for Q3-17. The company’s press release says: “International advertising revenue decreased 18 percent from lower advertising revenues at Star India due to the absence of the prior year broadcast of the ICC Cricket World Twenty20 matches and the effect of the Indian government demonetization initiatives on the general advertising market. Quarterly OIBDA at the international cable channels increased 44 percent from the prior year quarter primarily reflecting lower sports programming costs at STAR India and higher contributions from Fox Networks Group International (FNGI).”
Advertising revenue in the current quarter increased 15.5 percent to $2,203 million from $1,907 million. Affiliate Fees in Q3-17 increased 7.5 percent to $3,160 million from $2,939 million in the corresponding year ago quarter. Content revenue in Q3-17 declined 9.2 percent to $2,078 million from $2,288 million in Q3-16. Other revenue increased 30.9 percent to $123 million from $94 million.
Overall TFC-Fox revenue in the current quarter increased 4.6 percent to $7,564 million as compared to $7,228 million in Q3-16. Total operating income before depreciation and amortisation (OIBDA) for the quarter increased 3 percent to $1,938 million from $1,881 million in the year ago quarter.
Commenting on the results, TFC-Fox executive chairmen Rupert and Lachlan Murdoch said, “We delivered a quarter marked by operational momentum and strong domestic affiliate fee growth. We continue to demonstrate our ability to capture opportunities to grow distribution of our domestic portfolio of video brands, whether through established MVPD partners or new digital entrants such as Hulu’s recently launched live television service. We made progress in the quarter against our key strategic priorities, exemplified by our creative successes across screens, from theatrical releases Logan and Hidden Figures to new FX debuts of Legion, Feud and Taboo. Our proposed combination with Sky, which was recently approved unconditionally by the European Commission, will advance another of our strategic priorities, driving innovation for customers. We remain confident the proposed transaction will be approved by the end of the calendar year following a thorough review process.”
Three segments contribute to TFC-Fox numbers: Cable Network Programming (Star India is a part of Cable Network Programming); Television; and Filmed Entertainment.
Cable Network Programming
Cable Network Programming quarterly segment OIBDA increased 5 percent to $1.45 billion and revenue increased 2 percent to $4.02 billion.
Expenses were consistent with the prior year quarter as higher entertainment programming and marketing costs at FX Networks and National Geographic Channels, higher National Association for Stock Car Auto Racing (NASCAR) rights costs at FOX Sports 1 (FS1) and higher National Basketball Association (NBA) rights costs at the regional sports networks (RSNs) wereoffset by lower sports rights costs at STAR India due to the absence of the prior year broadcast of the International Cricket Council (ICC) Cricket World Twenty20 matches.
Domestic affiliate revenue increased 8 percent reflecting continued contractual rate increases led by Fox News, FS1, the RSNs and FX Networks. Domestic advertising revenue was flat over the prior year period as the impact of higher ratings at Fox News and FS1 was offset by lower revenues at the National Geographic Partners businesses. Domestic OIBDA contributions were equal to the prior year quarter as higher contributions from Fox News were offset by lower contributions from FX Networks and National Geographic Channels.
International affiliate revenue increased 5 percent driven by local currency growth of 7 percent partially offset by negative currency impacts from the strengthened U.S. dollar. International advertising revenue decreased 18 percent from lower advertising revenues at Star India due to the absence of the prior year broadcast of the ICC Cricket World Twenty20 matches and the effect of the Indian government demonetization initiatives on the general advertising market. Quarterly OIBDA at the international cable channels increased 44 percent from the prior year quarter primarily reflecting lower sports programming costs at STAR India and higher contributions from Fox Networks Group International.
TELEVISION
Television reported quarterly segment OIBDA of $190 million, an increase of 52 percent as compared to the prior year quarter driven by 30 percent revenue growth reflecting increased advertising revenue and continued growth of retransmission consent revenues.
Quarterly advertising revenues grew 39 percent from the corresponding period of the prior year driven by the broadcast of Super Bowl LI and the inclusion of one additional National Football League divisional playoff game, partially offset by the impact from lower general entertainment ratings, led by the absence of American Idol, which concluded its final season in the prior year. The segment results also included higher sports programming costs associated with the broadcast of Super Bowl LI and the additional National Football League divisional playoff game.
FILMED ENTERTAINMENT
Filmed Entertainment generated quarterly segment OIBDA of $373 million, a $97 million decrease from the $470 million reported in the same period a year-ago. The OIBDA decrease in the current quarter was driven primarily by lower film studio contributions reflecting difficult comparisons to last year’s strong worldwide theatrical performance of Deadpool and the home entertainment performance of The Martian, partially offset by higher television production contributions from higher subscription video-on demand revenues led by the licensing of The People v. O.J. Simpson: American Crime Story and higher network revenue.
Quarterly segment revenues decreased $65 million to $2.26 billion, primarily reflecting lower worldwide theatrical and home entertainment revenues partially offset by higher television production revenues. Quarterly results also included the successful theatrical performances of both Logan and Hidden Figures, which have grossed approximately $600 million and $230 million in worldwide box office, respectively.
UK: The aerial is losing its grip. As broadband becomes the default way Britons watch television, the UK is edging towards a decisive, and divisive, question: should Freeview be switched off by 2034? The issue, highlighted in reporting by The Guardian, has exposed deep fault lines over access, affordability and the future of public service broadcasting.
For nearly 25 years, Freeview has delivered free-to-air television from the BBC, ITV, Channel 4 and Channel 5 to almost every corner of the country. Even now, it remains the UK’s largest TV platform, used in more than 16m homes and on around 10m main household sets. Yet the same broadcasters that built it are now pressing for its closure within eight years.
Their case rests on a structural shift in viewing. Smart TVs, superfast broadband and the Netflix-led streaming boom have pulled audiences online. Advertising economics have followed. By 2034, the number of homes using Freeview as their main TV set is forecast to fall from a peak of almost 12m in 2012 to fewer than 2m, making digital terrestrial television, or DTT, increasingly costly to sustain.
But critics say the rush to switch off risks abandoning those least able, or least willing, to move online.
“I don’t want to be choosing apps and making new accounts,” says Lynette, 80, from Kent. “It is time-consuming and irritating trying to work out where I want to be, to remember the sequence of clicks, with hieroglyphics instead of words. If I make a mistake I have to start again.”
Lynette is among nearly 100,000 people who have signed a “save Freeview” petition launched by campaign group Silver Voices. She fears the government is about to “take [Freeview] away from me and others who either don’t like, can’t afford, or can’t use online versions”.
Official figures underline the fault lines. A report commissioned by the Department for Culture, Media and Sport estimates that by 2035, 1.8m homes will still depend on Freeview. Ofcom’s analysis shows those households are more likely to be disabled, older, living alone, female, and based in the north of England, Wales, Scotland and Northern Ireland.
Freeview is owned by the public service broadcasters through Everyone TV, which also operates Freesat and the newer streaming platform Freely. After two years of review, DCMS is expected to set out its position soon, drawing on three options proposed by Ofcom: a costly upgrade of Freeview’s ageing technology; maintaining a bare-bones service with only core PSB channels; or a full switch-off during the 2030s.
The broadcasters have rallied behind the third option. They argue that 2034 is the logical cut-off, when transmission contracts with network operator Arqiva expire. By then, they say, the cost of broadcasting to a dwindling audience will far outweigh the returns from TV advertising.
Ofcom agrees a crunch point is approaching. In July, the regulator warned of a “tipping point” within the next few years, after which it will no longer be commercially viable for broadcasters to carry the costs of DTT.
Others see risks beyond economics. Questions remain over whether internet TV can reliably deliver emergency broadcasts, such as the daily Covid updates, in the way that universally available DTT can. The UK radio industry has also warned that an internet-only future for TV could push up distribution costs and force some radio stations off air if PSBs no longer share Arqiva’s mast network.
“It is a political hot potato,” says Dennis Reed, founder of Silver Voices, who says he has “dissociated” his organisation from the government’s stakeholder forum, which he believes is “heavily biased” towards streaming.
The Future TV Taskforce, representing the PSBs, counters that moving online could “close the digital divide once and for all”. “We want to be able to plan to ensure that no one is left behind,” a spokesperson says, adding that rising DTT costs could otherwise mean cuts to programme budgets.
The numbers show the scale of the challenge. Of the 1.8m Freeview-dependent homes projected for 2035, around 1.1m are expected to have broadband but not use it for TV. The remaining 700,000 are forecast to lack a broadband connection altogether.
Veterans of the analogue switch-off, completed in 2012 after 76 years, recall similar fears of “TV blackout chaos”. Around 6 per cent of households were labelled “digital refuseniks”, yet a targeted help scheme and a national campaign, fronted by a robot called Digit Al voiced by Matt Lucas, delivered a largely smooth transition.
This time, the BBC is less keen to foot the bill. Tim Davie, the outgoing director general, has said the corporation should not fund a comparable support programme for a Freeview switch-off.
Research for Sky by Oliver & Ohlbaum suggests that with early awareness campaigns and digital inclusion measures, only about 330,000 households would ultimately need hands-on help ahead of a 2034 shutdown.
Meanwhile, viewing habits continue to fragment. Audience body Barb says 7 per cent of UK households no longer own a TV set, choosing to watch on other devices. In December, YouTube overtook the BBC’s combined channels in total UK viewing across TVs, smartphones and tablets, albeit measured at a minimum of three minutes.
That shift may accelerate. YouTube has recently blocked Barb and its partner Kantar from accessing viewing session data, limiting transparency just as online platforms consolidate power.
“When the government chose British Satellite Broadcasting as the ‘winner’ in satellite TV it was Rupert Murdoch’s Sky instead that came out on top,” says a senior TV executive quoted by The Guardian. “There already is such an outsider ready to be the winner in the transition to internet TV; it is YouTube.”
Freeview’s future now hangs on a familiar British dilemma: modernise fast and risk exclusion, or protect universality and pay the price. Either way, the aerial’s days as king of the living room look numbered.
