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Cable Gains Power 21st Century Fox Earnings Despite Declines in Film, Broadcast TV

An 11% gain in cable affiliate revenue drove 21st Century Fox’s bottom line for the quarter ended Sept. 30 even as the filmed entertainment and broadcast TV segments posted year-over-year profit declines.

Fox hit Wall Street’s expectations in delivering adjusted earnings of 49 cents per share for its fiscal 2018 first quarter. Revenue was up 8% for the quarter to $7 billion while operating income hit $1.79 billion, flat versus the year-ago quarter.

Lachlan Murdoch, Fox’s executive co-chairman, opened the Wednesday’s earnings call with investors by asserting that they would not comment on the bombshell report on Monday that Fox has held discussions with Disney about selling its film and TV studios and cable networks. Fox CEO James Murdoch reinforced that message, but when pressed by analysts both Murdochs emphasized the company’s commitment to long-term growth and execution of the core film and TV businesses.

“We’ve really simplified our operating model to a great set of brands and assets we really like,” CEO James Murdoch said. “We see a real trajectory of good performance.” Lachlan Murdoch added: “Historically we have always been asset builders. We will continue to do so.”

Lachlan Murdoch addressed the question of whether Fox had enough reach and muscle to compete in an increasingly global and cross-platform media market as the deep-pocketed tech giants move in.

“There’s been a lot of talk about the growing importance of scale,” he said. “Fox has the required scale to continue to execute on our growth strategy and deliver increased returns to shareholders.”

The Murdochs also reiterated their confidence that the company’s pending takeover of European satcaster Sky will be completed by June 2018. The regulatory review in the U.K. has been prolonged amid scrutiny of the recent sexual harassment scandals at the Fox News unit and concern about the level of market power that Murdoch-owned entities wield.

The 10% revenue gain logged in cable was also strong enough to offset an 11% increase in programming costs for the unit, mostly driven by the higher volume of sports events carried on its domestic and international networks. The cable unit, paced by Fox News, generated $4.19 billion in revenue and operating income of $1.5 billion, up 9% from the year-ago quarter.

Fox said it has garnered almost 3 million new subscribers for its cable channels from the new breed of digital MVPDs including Hulu (in which Fox has a stake) and YouTube. The cable affiliate revenue gains for the quarter came from pre-existing contractual rate increases, Fox CFO John Nallen said. But the momentum for the Hulu Live service and others bodes well for the future.

Fox’s broadcast TV unit saw a 36% decline in operating income to $122 million, in part because of the tough year-over-year comps against last year’s presidential election-fueled ad market at its local TV stations. A higher number of college and NFL football games on the Fox broadcast network also drove up costs.

The filmed entertainment unit also faced tough year-over-year comps with operating income dropping 18% to $256 million. Fox cited the pay TV gains delivered in the year-ago quarter from theatrical hits “X-Men: Days of Future Past” and “The Martian.” The declines on the movie side were enough to offset gains from domestic syndication licensing of vintage Fox animated series “Futurama.”

During the call, the Murdochs emphasized that Fox is reaping the rewards of its focus on high-end content and standout TV brands a la FX and National Geographic TV. The subtext was clear: there’s no need for a fire sale here.

“We are singularly and intently focused on delivering on our strategic plan,” Lachlan Murdoch said. “Our businesses and brands are stronger than ever.”

(Pictured: Fox News’ Sean Hannity)

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