During his session at the 45th Annual Global Media and Communications Conference hosted by UBS yesterday, 21st Century Fox CEO James Murdoch touched on a wide range of topics. In his 45-minute conversation with UBS analyst John Hodulik, James discussed affiliate revenue growth in the U.S., the benefits of growing VMVPD competition, investing in international markets, producing TV shows that are sold to other networks and more.
Here are some key quotes from the session, which is available for replay:
On the many benefits of focusing investment in core brands: “[That] investment in those brands has meant that we’re now present in all the new [VMVPD] entrants downstream that have been proliferating and growing really fast, and we’re seeing that come through in our affiliate numbers very strongly right now relative to some of our peers. We’re also seeing ad innovation get traction with respect to non-linear monetization, particularly on the entertainment broadcast side, which has been really powerful and is actually making up, on the broadcast entertainment side domestically, for the shortfall in monetization coming from declining ratings, because non-linear viewing continues to rise and, most importantly, our capability around monetizing that is getting better and better.”
On affiliate revenue growth in the U.S.: “We’ve had a pretty good run in terms of pricing, really driven from that decision we made a number of years ago to simplify that portfolio and invest in these core brands – in FOX Sports (including the RSNs) FX, National Geographic, Fox News and FOX Broadcasting Company. [We thought,] let’s not take a whole bunch of things to the market that are just filling up the dial, and we changed Fuel and Speed and other things like that into these larger kinds of core brand suites. That’s been really effective. I think it’s made the product and the brands more meaningful to customers; and our partners, the various distributors, both traditional and virtual MVPDs, have really recognized that and they understand the value that these brands bring to their customers not just in terms of total audience what is driving which is substantial, but also in real engagement and real passion around those brands.”
On the explosion of new VMVPD entrants: “So when we looked at that, we said this is going to be really great for the industry, if we can have the right brands there, and we can license in the right way… We actually look at it and think if we can get similar terms on these virtual MVPDs and really spur their growth and get them going, the monetization for us over the long term given packaging options, given ad innovation, etc., is much higher. When we look at the switch there that’s something that’s really attractive for us, and we’ve always seen when there are new entrants downstream that the overall kind of universe starts to grow… These core packages of popular programming, I think, are now moving it forward. So now volume is coming back.”
On the benefits of increasing VMVPD competition: “We think that that volume that they’re going to be able to achieve is good, but more importantly the competition that…they put into the marketplace will mean that the traditional MVPDs have to innovate faster and deliver a better user experience at better price points and [in] more innovative packaging. And that’s going to be very attractive.”
On going direct-to-consumer: “I think, unlike some of our peers, we’re a substantial direct-to-consumer operator, just not here in the U.S. – through the Sky businesses, through Hotstar in India, [through] Fox Plus in Latin America and other places like that. So I think we look at that business…the opportunity to innovate for customers when you have the whole kind of piece integrated is very attractive. And I think we’ve had good experiences with that, and customers have had good experiences with that.”
On National Geographic’s wide-ranging strength: “The team has done a great job investing in the kind of storytelling that I think really lives up to the brand. But also, since we combined all the commercial businesses of the National Geographic Society into one venture, it’s been very effective in terms of coordinating the digital experience there; it’s a huge digital footprint within Nat Geo, as well as on the print side, and that’s everything from cartography, to the magazine, to book publishing, etc. So those brands can all work as one for customers, and we think it’s a huge opportunity, really one of the great opportunities in our whole portfolio as we grow all those different lines of businesses.”
On the cost of sports rights: “We have to make choices and we have to decide where we want to invest in rights and where we want to step away from things… We’ve always been willing to walk away from things and willing to have a competitive marketplace there and have this package over here or that package of the competitor, and be able to go and go make a business.”
On monetizing sports rights: “I’d say the biggest advertising business in the world is Google, and they invested heavily in advertising on the World Series with us. And I think that tells you everything you need to know… These are really important platforms to reach customers on… Now, when you get into a streaming environment and you’re doing that over-the-top, you have all the benefits of targeting of data, of being able to change your messaging where you need to, combined with that enormous live reach. We think that’s a real net positive.”
On investing in Star and India: “We’ve been investing there for a long time. I mean, just see the scale in the marketplace, the transparency in the marketplace, the ability to go and innovate and be entrepreneurial in the marketplace – I mean, that is just unique in the world… We’ve been able to really put [together] an overall national and local business in India that is, we think, head and shoulders above any of our competitors. And then, we’re able to drive pricing from them. So we’ve been able to really make progress on affiliate fees there, working with the local cable operators and the DTH segment, in particular, to drive more transparency into the business, and collecting affiliate fees and understanding transparent subscriber numbers. And we’ve been able to really put together a great ad business, which continues to benefit from the overall growth in the economy and a lot of new people coming in.”
On acquiring Indian Premier League rights: “As I said before, no one set of rights is completely essential, the business is made up of much more than that, but certainly, in terms of putting something together that’s great for the fans and great for our audience there, the IPL is very special. And it’s probably the most exciting cricket competition in the world… We launched Hotstar as a subscription service internationally just this year…so it’s super early days, but as the IPL picks up, that is going to be great. And then, the other thing about the IPL is we have had some experience broadcasting it digitally. So we’ve been the digital rights holder in India for a little while on Hotstar, which is our mobile video platform there and that’s been a real driver for usage. And between the entertainment and the sports products on Hotstar, we’ll view, on some days, over 1 billion minutes a day. That’s something that’s really important from an engagement perspective for us and for our ad business there.”
On strength in Latin America: “I think Latin America is something that maybe investors don’t focus on enough. What has happened down there, particularly with all the ups and downs, with currencies and other things like that, it’s been a little confusing, but…Latin America is our biggest, after India, international emerging market. And it’s really Brazil and Argentina are the two big kind of chunks of it. The FOX Sports business there…has been very effective. And it’s completely reset how we approach the business down there. So that’s actually going super well in the sports side, and then the entertainment [side] on the back of that.”
On TV production and selling shows to other networks: “What we try to do at [20th Century Fox Television] is be a great home for our creative partners to come and tell the stories that they want to tell. And sometimes, those stories are going to fit better on FOX or they’re going to be already in development with another network and it’s something that’s gone in there or fits better there. Some of that is brand, some of it is audience demographics, etc., some of it is the passion for the commissioning executives or the programming leadership, at those other places – it’s competitive to get on the air anywhere, and we’re really proud of the team there. I think to be able to have a TV studio where you can say to any writer, showrunner or a creator that, first of all, they’re not going to be totally captive to one network. They’re going to have a broad opportunity and we’re going to find the right home for their stories. But also to have evidence of that in the No. 1 show on ABC with ‘Modern Family,’ the No. 1 show on all TV with ‘This Is Us’ on NBC, the No. 1show on FOX, which is ‘Empire,’ and so on – we think that’s really attractive for creators and, ultimately, it’s a super competitive environment for the talent that’s out there.”
On Hulu’s strength: “What you have is a great product and fundamentally better user experience, and you have it at a meaningfully lower price point while still being able to include all the things that people most want to watch, and the brands that are most compelling and most engaging for them… It’s got the most popular programming in it. It packages it in a better way and it delivers it to a customer on the terms that the customer wants as opposed to [another’s] terms that they find cumbersome, and they’ve said so.”
On the proposed Sky acquisition: “The process is taking a little bit longer. Originally we had hoped that we would be closed by the end of the calendar year 2017; that’s gone into a second phase with the Competition and Markets Authority. We would expect before the end of the year that they’ll have a preliminary indication of the direction that they’re going in, and we fully anticipate…that we will close in the first half of the next calendar year.”
