At his morning session at the UBS 44th Annual Global Media and Communications Conference today, 21st Century Fox CEO James Murdoch had a wide-spanning conversation with UBS Securities analyst Doug Mitchelson. During the hour-long discussion, James took the opportunity to talk about the trajectory of the business, transitioning to being more focused on streaming, challenges of going direct-to-consumer, FOX News’ post-election prospects and more.
Here are some key quotes from the session, which is available for replay:
On the transition to becoming more of a streaming business: “The streaming environment is a better environment for consumers in terms of user experience for scripted programming, and also really a better business environment for us in terms of monetization. So we’re very focused on the capability there. And we see that trajectory very, very clearly as we see much more connectivity around the world and higher speeds, even in India with the hotstar business today: well over 100 million downloads, very high dwell times. I think we did over 4 billion minutes viewed in the last month’s measured of just scripted programming – that’s excluding sports. So we feel very good about how the streaming environment is developing.”
On the appeal of the streaming business: “I think the streaming business is still one that we’re leaning into very hard because we think it’s a better business than the passive linear queue of products that we’ve put down the classic channel model, which I don’t think really makes a lot of sense for customers. And clearly, from a viewing perspective, customers are telling us that…on the scripted and movies side, it seems to make a lot of sense to really move heavier into the streaming environment.”
On targeting ads at live vs. streaming customers: “I do think that from a consumption basis, there’s no logical reason why a live viewer viewing something five years old…you might be watching ‘Seinfeld’ episodes on Hulu – there’s absolutely no reason why that stream on a targeted basis shouldn’t be more valuable than if somebody else who’s maybe less attractive for a particular product is watching something live.”
On capital allocation discipline: “As we said when we walked away from [the Time Warner] deal: When we think about capital allocation, it’s really about what’s the best thing for our shareholders; let’s not get too concerned about empire building, let’s not go and pay a big premium, let’s not go out there and just grow for scale or get scale for scale’s sake. That’s something that we’re not really that interested in. And in fact, I would urge you as shareholders to also look at the things that we haven’t done. So we’ve passed on a lot of opportunities that we felt were too expensive for our shareholders and for the company… And we want to be very, very disciplined when we think about capital allocation and we think about where are we investing shareholders’ capital going forward in a way that’s going to make the most difference for the business in terms of our capabilities, in terms of the way we serve our customers and our audience, and in the way that we ultimately grow the business at a greater velocity.”
On thinking differently about audiences: “There’s a lot going on there where we’re starting to understand from an instrumentation basis where we want the business to be cannibalized, and how we shift audiences from one thing to another. So if we have a bad month in cable VOD, for example, on the X1 platform, frankly, that’s not necessarily bad, because if we lose…3X of viewing there and gain 1X on Hulu, it’s a much better trade for us. So we have to think very differently about the audience, about how we measure it, how we instrument it, and then how we manage the business and how we market to which platform there.”
On the challenges of the direct-to-consumer business: “We have a lot of experience in the direct-to-consumer business. It’s super-hard managing churn. It’s super-hard managing your customer base. Your customer has different expectations of you at some point when they’ve given you their credit card and all that stuff. So I think we have to be a little bit careful that we don’t fragment the business too much. But certainly at some point, I think customers might have the option to do that. Right now, we’re very focused on the capability, the advanced ad capability, and growing the business through third-party MVPDs, including Hulu or DIRECTV NOW and others that we think are going to make a big impact.”
On the third bidder: “We can empower our new platforms’ customers to price their own time and value their own time in new ways and become sort of a third bidder in the environment. If you value your time more than Coca-Cola does, why wouldn’t you buy it out and have ad-free experiences? So there’s a lot of capability there that can be done in an easy way; that’s very exciting.”
On the post-election prospects of FOX News: “I think that FOX News’ prospects for 2017 are really strong… The fundamental thing there is how do we make sure that the network is as lively as it can be, really delivering for its customers, and continuing to be relevant? I think the news coverage has been very strong through the election and I think America has been introduced to a bunch of new news talent that some might not have seen before from a news gathering and reporting point of view, from Bret Baier and Chris Wallace, for example, and these guys out there who are doing a great job. So we feel very good about it.”
On the leadership transition at FOX News: “I think we did a good job, frankly, being decisive and doing what we needed to do in terms of affecting that transition with a matter of urgency. And the reason is there’s a good bench of people. You have the Executive Chairman of the company [Rupert Murdoch] stepping in and doing it. [To have someone who is] uniquely credible and authentic and a founder of that business step back in and roll his sleeves up I think was a great thing to keep the show on the road. And I think it’s going really well.”
On share buybacks: “We do have a new authority to buy back shares. We’re still working through the old authority and we have been buying back shares. But at the same time, I think we want to be cognizant of the fact that we’re kind of at that range in terms of target [leverage ratio], and we have to think about what the opportunities are that are out there. That’s not to say that we’re elephant hunting; it’s not to say that we have this long shopping list of things to do, but it’s just to say that we’re going to be looking at that capital allocation piece in real time. And the company and the board is going to make those decisions on an annual basis and more frequently than that as we see what sort of opportunities might emerge.”
On a bright future for STAR India’s mobile entertainment product, hotstar: “The growth in high-speed connectivity on mobile networks in India has really just exploded with Jio’s launch there. And we expect flat-rate data to become really the norm for a lot of these guys to be able to compete in the marketplace. And that really opens up huge opportunities for hotstar because it really frees people from having to connect to the Wi-Fi at an internet café or at home, etc., and really consume more data on the move… [It] means that even hotstar today, which is at over 100,000 downloads, 4 billion minutes (the last time it was up 80 percent month-on-month) is really just at the very, very beginning of what it’s capable of doing. And that’s really about using content to create a platform that you can then monetize in a variety of ways. So we’re focused very much on volume there right now, but I think as you see the business grow over the next three or four years, the monetization of that digital platform will be very high.”
