During his session at the Goldman Sachs Communacopia 2017 conference on Wednesday, Sept. 13, 21st Century Fox Executive Chairman Lachlan Murdoch sat down with Goldman Sachs analyst Drew Borst to discuss a wide range of topics, including 21CF’s response to the UK’s Secretary of State’s referring 21CF’s cash offer for Sky plc to the Competition and Markets Authority, the need to address theatrical windows and the strength of FOX Sports.
Here are some key quotes from the session, which is available for replay:
On 21CF’s offer for Sky plc: “We strongly feel we’ll close that transaction by the middle of next year… We’re disappointed that it’s taken six months to come to this point to be referred to the CMA, especially as the independent regulator media, Ofcom, has both agreed that we can get through the plurality arguments with certain concessions that we’ve made and that there’s no grounds. And in fact, the Secretary of State, in her own words, said that the Ofcom, her regulator, was unequivocal in saying there were no grounds for referrals on broadcast standards. Having said that, as we’re likely to be referred, we like to be referred as soon as possible. And then we start a clock that starts to tick so we can close by the middle of next year.”
On theatrical windows: “The way we sell our films into theatrical is that there’s roughly a 45-day window. [First], you spend way too much making the film in the first place, and then you spend tens and tens of millions of dollars marketing that film. You go into a 45-day theatrical window, and then there’s a blackout for another 45 days where the consumer can’t access that content anywhere no matter what they’re willing to pay or do until you come into a video-on-demand window after that 45 days… A lot of piracy happens in that 45 days, and then you start to be available on video-on-demand. That’s a highly inefficient system, particularly the blackout period, where you’re not monetizing the film at all and where [pirating is] the only way people are able to access that content. And so that system has to change, and I think it will change sooner rather than later.”
On going direct to consumer: “Make no mistake: Everyone will go direct-to-consumer. I don’t think there’s any major media company on the planet that ultimately won’t have a direct-to-consumer product launched in short to medium term.”
On 21CF’s nonexclusive model for content and maintaining per-subscriber fees: “Our fundamental belief is that the consumer, the viewer of our shows, should be able to access our shows on our channels everywhere, and that exclusivity makes a poor experience for the consumer. So for a few years, we’ve been moving to a model that’s nonexclusive. We’re happy to have our product distributed on as many platforms as possible in a way that ultimately benefits the consumer first. In order to do that, it’s important that we at least maintain the level of per-subscriber monetization that we do in the traditional universe. And in every single case [in a digital MVPD service], we have maintained higher per-subscription fees than we have in the traditional world.”
On stacking in a nonlinear world: “When a viewer customer is watching [one of our valued channel brands] in an increasingly nonlinear world and, increasingly, an SVODs sort of world, the shows that have informed that brand and built that brand should be stacked within that service. [So if people are trying to find ‘American Crime Story,’ ‘American Horror Story’ and ‘Taboo’ they should ultimately go first to FX] to find the show, not a third-party provider that happened to buy it at some stage along its life cycle.”
On growth in DMVPD subscribers: “What’s not included in these numbers is really the dramatic growth that we expect for the DMVPD subscribers. I think you’ve got to build that in. The market has become incredibly more competitive, which, again, is ultimately better for the consumer. It’s the first minutes of sort of the lifespan of view. I think…everyone will start to compete harder. [Hulu has] had one of their best months [in August], both in their DMVPD service and in their SVOD service, in terms of new subscribers. So it’s a growing competitive world. It’s great for consumers.”
On driving digital ad revenue: “[Slightly more than 50 percent] of people watching any one of our shows are not watching it in a live, linear format. They’re watching it on some digital platform. They’re often watching it delayed. So the more we can engage with those viewers, understand who they are, understand the segments that they’re in, what their interests are – we can absolutely drive that digital revenue even further.”
On the strength of TV ad pricing: “We had a strong upfront. We’re very happy with it. Scatter pricing remains significantly above the upfront pricing, which is always a positive.”
On Star’s IPL rights and its outlook: “We strongly believe and we would not have bid for the IPL at that price without being absolutely confident that we can still hit our $1 billion EBITDA target by calendar 2020.”
On the strength of FOX Sports and regional sports networks: “We are very confident we’ll be able to sustain our profits in our sports business… Most of our sports contracts have multiyear extensions on them. And in fact, with some of our local sports, the RSNs, we’ve been able to negotiate recently either flat or modest price escalation for various sports teams and their rights. So we feel very confident about the sports business. In fact, I think FOX Sports was the only sports cable channel in the United States to have a ratings growth over the summer. It’s a tremendous business. It’s where people want to watch sports, and it’s why all of our sports channels and RSNs are built into every DMVPD that’s launched.”
On the film industry’s slow summer and the outlook for next summer: “There weren’t enough movies that people felt that they…had to go see in a theater as opposed to waiting for it to come out on another platform. [If] you to look at the family animation [films] from this summer…the gross was $488 million, which is down 50 percent [from] the [four] top animated family films, gross, the summer before. And that actually makes up for about 90 percent of the drop in box office from last summer to this summer… What that means is that, fundamentally, the films weren’t good enough as an industry this summer. I think next summer…you’ve got six or seven huge films coming out… It’ll be a big summer next year. And when you compare year-on-year…you can mark my words, you’ll see a tremendous uplift.”
