English Entertainment
Q2-2016: 21st Century Fox reports flat revenue, operating income up 2.1%
BENGALURU: Rupert Murdoch’s 21st Century Fox Inc (Fox) reported almost flat YoY (down 0.7 per cent) adjusted revenue of $7,375 million in the quarter ended 31 December, 2015 (Q2-2016, current quarter) as compared to the $7,424 million in the corresponding prior year quarter.
Adjusted Operating Income (OIBDA) in the current quarter increased 2.1 per cent YoY at $1,730 million as compared to $1,695 million. The company says that the decline compared to last year’s adjusted revenues reflects higher affiliate and advertising revenues at the Cable Network Programming and Television segments that were more than offset by lower revenues generated at the Filmed Entertainment segment due to lower home entertainment revenues and the absence of revenues from Shine in the current quarter. The adverse impact of foreign exchange rates in the current quarter impacted adjusted revenue growth by $207 million, or three per cent in total.
According to Fox, the YoY increase in adjusted OIBDA compared to last year’s adjusted OIBDA primarily reflects eight per cent growth at the company’s Cable Network Programming segment partially offset by reduced contributions from the Filmed Entertainment segment. The adverse impact of foreign exchange rates impacted adjusted OIBDA growth by $109 million, or six per cent.
Commenting on the results, Fox executive chairmen Rupert and Lachlan Murdoch said, “During the quarter, our cable business continued to drive our growth, delivering sustained increases in domestic affiliate fees and gains in advertising revenue, underscoring the power of our global brands and distinctive programming. In addition, we are encouraged by progress at the Fox Broadcast Network, which delivered significant advertising gains from both our sports and entertainment programming. At our television production business, we deliberately invested in a higher number of new original series this quarter in support of the network’s new primetime schedule and in creating valuable long-term assets for the company. We continued with our top priority of delivering standout storytelling and are proud of our industry-leading Academy Award nominations as well as Golden Globe wins across both our film and television businesses.”
Cable Network Programming
Cable Network Programming quarterly segment OIBDA increased eight per cent to $1.25 billion, driven by a nine per cent revenue increase on strong affiliate revenue growth and higher advertising revenues partially offset by a 10 per cent increase in expenses. The increase in expenses was primarily due to the impact from the consolidation of newly acquired National Geographic Partners businesses as well as higher planned sports programming costs led by soccer, Major League Baseball and college football rights. Foreign exchange fluctuations, primarily in Latin America and Europe, adversely impacted segment OIBDA growth by five per cent.
Domestic affiliate revenue increased 10 per cent reflecting continued strong growth at FS1 and Fox News and sustained growth across all of the other domestic cable networks. Domestic advertising revenue grew three per cent over the prior year period reflecting solid growth at Fox News and the Regional Sports Networks, led by higher ratings for National Basketball Association games, partially offset by lower advertising revenues at FX Networks from lower ratings. Domestic OIBDA contributions increased seven per cent over the prior year led by higher contributions from Fox News and the domestic sports channels.
International affiliate revenue decreased one per cent as 11 per cent local currency growth at Star and the Fox International Channels (FIC) was more than offset by a 12 per cent adverse impact from the strengthened US dollar. Despite an 11 per cent adverse impact from the strengthened US dollar, international advertising revenue increased 15 per cent as the Star and FIC channels generated strong local currency growth. Quarterly OIBDA at the international cable channels increased eight per cent reflecting strong local currency growth partially offset by the adverse impact of the strengthened US dollar.
Television
Television generated quarterly segment OIBDA of $279 million, an $11 million decrease over the $290 million reported in the prior year quarter. Quarterly segment revenues were six per cent higher than the corresponding period in the prior year due to strong retransmission consent revenue growth and a four per cent increase in advertising revenues, primarily reflecting low double digit
advertising growth at the Fox Broadcast Network, which benefited from higher national pricing and increased audiences for both the National Football League and the new primetime schedule led by Empire, partially offset by lower cyclical political advertising revenues at the TV stations. The decrease in segment OIBDA was driven by higher contractual sports programming costs at the Fox Broadcast Network that more than offset the higher revenues.
Filmed Entertainment
Filmed Entertainment generated quarterly segment OIBDA of $302 million, a $34 million decrease from the $336 million reported in the same period a year-ago. Quarterly segment revenues decreased $392 million to $2.36 billion, primarily due to lower worldwide home entertainment revenues reflecting difficult comparisons to last year’s strong performance of X-Men: Days of Future Past and Dawn of the Planet of the Apes with this year’s home entertainment performance of Spy, the absence of revenue contributions from Shine and the adverse impact of the strengthened US dollar partially offset by higher television production network revenues. The OIBDA decline over the prior year primarily reflects lower contributions from the television production business due to higher deficits related to more new series delivered during the quarter and the absence of contributions from successful series that concluded in the prior year, including Sons of Anarchy, partially offset by higher film studio contributions driven by the worldwide theatrical performance of The Martian, which has grossed over $600 million in worldwide box office to date. Segment OIBDA comparisons were also adversely impacted by a 14 per cent negative impact from foreign exchange rate fluctuations.
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.
