‘Fantastic Four’ Failure Takes Bite Out of Fox’s Earnings

The failure of films like “The Fantastic Four” knocked the wind out of 21st Century Fox’s quarterly earnings.

Revenues at the company behind 20th Century Fox and Fox broadcasting slid 6% to $6.08 billion, while profits hit $678 million, down from more than $1 billion in the year ago quarter. Earnings per share of 38 cents also fell, declining by a penny.

Profits were in line with Wall Street’s projections, although revenues missed the mark. Analysts were expecting the conglomerate to report earnings per-share of 37 cents and revenue of $6.42 billion.

“Fantastic Four” was intended to reboot the comic book series and inspire a new set of sequels, but bad reviews and reports of on-set clashes between the studio and director Josh Trank doomed the project. It grossed less than $170 million worldwide, and stands to lose more than $80 million for the studio.

Other films released during the three months ending in September, such as “Paper Towns” and “Maze Runner: The Scorch Trials,” couldn’t compensate for the flop. The unit was also negatively impacted by the absence of earnings from Shine, which Fox combined into a new joint venture with Apollo’s Endemol and Core Media. The production company’s revenues are no longer consolidated into the film division’s results. All told, revenues at Fox’s filmed entertainment unit dipped $691 million to $1.79 billion, while operating income fell $309 million to $149 million.

Timing worked against the division in other ways. “The Martian” is a major hit for the company, grossing $430 million globally, but advertising costs were included in this quarter’s report, despite the fact that the film opened in October, after the earnings period had ended.

It’s also a time of generational change at Fox. Last summer, Rupert Murdoch elevated his sons James and Lachlan to top management roles. Lachlan has been named executive chairman alongside his father, while James will serve as CEO.

The earnings results of Fox and its media and entertainment brethren like CBS and Time Warner, both of which reported quarterly numbers this week, are being closely monitored. Three months ago, lower ad sales and ratings drops prompted a stock sell=off across the sector as investors grew concerned that viewers were cutting the cable cord in favor of digital forms of entertainment. The cable bundle, which allows companies like Fox to charge providers hefty retransmission fees for their channels, has been good to the business and an important source of profits. Its destruction could be catastrophic.

Like many media companies, Fox has tried to harness digital platforms to its advantage. It owns a stake on Hulu and offers up shows like “Scream Queens” on the service. In a call with analysts following the earnings release, James Murdoch acknowledged that it can be difficult to balance growing digital businesses with protecting the core components of Fox’s revenue streams, its broadcast and cable unit. In particular, he admitted that Fox’s willingness to participate in an ad-free Hulu program, which allows customers to stream shows without interruption provided they interact with a sponsorship message at the beginning of an episode, was the subject of internal debate. He still seemed to side with experimentation.

“We have to be disruptors if we’re going to grow,” he said.

The good news for Fox was that the fiscal picture at its cable and television segments brightened. The company’s broadcast arm saw operating income climb 13% to $196 million thanks to lower programming expenses. There was a 5% decline in advertising revenues due to a shorter run of National Football League broadcasts and fewer political spots.

Advertising did improve at Fox’s cable network programming unit, propelling the segment’s operating income up 26% to $1.31 billion. Revenue for the unit rose 7% to $3.46 billion.

Still, investors didn’t seem too impressed with the results. Shares of Fox fell 1.59% to $31.00 in pre-market trading.

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