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James Murdoch Talks Future of Advertising, Content Distribution and Fox Transition

The media biz needs to focus on innovation in advertising and content distribution. That was the message from 21st Century Fox CEO James Murdoch, who opened the Paley Center for Media’s International Council Summit on Thursday with wide-ranging conversation with Discovery Communications CEO David Zaslav.

“What we haven’t seen enough of is advertising innovations and new products,” Murdoch said. Netflix and other digital upstarts have made inroads with viewers because they offer a more compelling platform. Traditional TV needs to experiment with new ways to present sponsor messages.

The present concern about the health of TV advertising “assumes the status quo of how we sell advertising today will stay the same,” Murdoch said. “There are lots of creative ways to go about it. I don’t think it’s right for the video business to give up on advertising in any way … but it has to evolve more rapidly and innovate.”

Murdoch cited a deal that Fox has struck with Pepsi to integrate the soft drink into the network’s smash hit “Empire” by having the storyline involve one of the key characters become a celebrity spokesman for the company.

The deal came about through a collaboration with the show’s creative team — right down to featuring “Empire” co-creator Lee Daniels playing the director of the Pepsi commercial that will star Jamal Lyon, played by Jussie Smollett.

The Pepsi integration should work especially well for the brand because “Empire” is among the most time-shifted shows in TV. Viewers won’t time-shift through Pepsi in the storyline. “It pushes the narrative forward,” he said.

Streaming services offer the best platform for experimentation. “That’s where ad innovation will really work,” he said. “I think you can do a great job there creating new ad products that will propel the business forward. That’s where I see the future of video advertising going.”

He cited Hulu’s increasing use of spots that give viewers the option to watch one longer commercial at the start of a program in exchange for interruption-free viewing. Murdoch noted that he chose that option himself the night before while watching an episode of “Seinfeld.”

Hulu’s decision to offer an ad-free subscription option at a higher monthly price ($11.99 vs. $7.99) is another means of offering viewers more choice. Those users who choose the lower-cost service “complain less about the advertising” because they have been given the option, he said. In linear TV, “probably the ad loads have been too high in a lot of places,” Murdoch added.

On the incredibly complex issue of content distribution, Murdoch emphasized that he sees the distinction between types of screens — linear TV, tablets, smartphones — fading over time. That’s why it behooves media companies to focus on making content available as much as possible.

“The retailing of audiovisual entertainment is being separated from the infrastructure” of distribution, he said. “We need to make things available in the best possible way for consumers so they don’t have to worry about the way we’re windowing the product.”

He gave a nod to Netflix for accomplishing “something really incredible — they’ve introduced competition into the marketplace with a service people really like.”

Prompted by Zaslav, Murdoch said there were clear shortcomings with the way traditional MVPDs are making programming available via authenticated apps that are often clunky and hard to use.

“Cable and satellite companies haven’t really innovated enough over the last 20 years. That’s why you have this explosion of new entrants,” he said. “It’s one of the reasons people give up and say ‘This is too complicated. I’ll just watch Netflix and Hulu.’ ”

Fox has learned a lot about the potential of OTT and direct-to-consumer services through its experience in the U.K. and and other global markets with products such as the SkyGo, he added.

But he’s also skeptical that the traditional MVPD bundle is going to disappear in favor of a purely a la carte OTT distribution environment. He sees a middle ground emerging between a skinny bundle with only a handful of channels and the whole-hog 200-plus channel services that are driving up monthly bills.

“Bundling has become this bad word … but it’s economics 101. It drives prices down and drives consumption up,” he said. “I think we’re going to see a re-bundling where smaller bundles emerge — things that are really inclusive of (TV) brands that really matter.”

Amid all the discussion about finding new roads in the age of disruption, the act that the media business is entering a new era was subtly reinforced at the session by the fact that both Murdoch and Zaslav took the stage in jeans and sneakers (topped by blue blazers).

Among other topics touched on during the Q&A:

  • Murdoch said the leadership transition at 21st Century Fox with his rise to CEO and his brother Lachlan’s move to chairman in July has been “pretty smooth.” But he admitted that there’s “that little bit of extra pressure” now that he’s CEO. “I didn’t think I would notice it that much..On the first day standing at my desk I remember thinking ‘Now here we go.’ ”
  • He’s not a fan of “binge” viewing. “I prefer calling it marathons. That way you’ve accomplished something at the end. Whereas a binge is something you feel guilty about — I don’t think you should feel guilty about it.”
  • The acceleration of Hulu in the past 18 months holds a lot of promise for its partners. Asked if it will continue to expand internationally, Murdoch said “more likely than not.”
  • Murdoch like most CEOs yearns for a uniform currency that would allow Fox to more seamlessly sell ads in shows across platforms. But it’s going to take leadership by media companies to solve the conundrum. “The industry in general is definitely not there. I don’t think we’re going to see some broad consensus emerge spontaneously,” he said. “Companies are going to have to lead the way. … We are having a much more transparent and active dialogue (with marketers) about this today than we did a year ago.”
  • Fox loves being in the big league sports business around the world. But budget-busting rights fees are forcing them to be selective. “We invest a ton in spots. … But you have to make tough choices about what are the sports that are really going to matter and what are the things you just can’t afford to have. That’s hard.”

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