Gains in Affiliate Fees Power Fox Corp. Earnings

Gains in affiliate fees and retransmission consent revenue drove Fox Corp.’s fiscal fourth quarter earnings, despite a downturn in advertising revenue and subscriber losses.

Fox Corp. on Wednesday reported revenue of $2.51 billion, up 5% from the year-ago quarter and pre-tax income of $656 million. Adjusted earnings per share came in at 62 cents a share, down 7% from the year-ago quarter. Both revenue and earnings per share came in slightly above analysts’ expectations. Net income for the quarter came in at $454 million, down from $471 million.

Fox’s fiscal fourth quarter marks its first full quarter as a standalone entity following the sale of most of 21st Century Fox’s assets to Disney, a deal that closed in March. Fox’s year-ago figures are estimates based on calculations as if the businesses had been operating autonomously within 21st Century Fox.

Affiliate fees are the bedrock of Fox Corp. Total affiliate revenue climbed 12% on a full-year basis. For the fourth quarter, revenue hit $1.4 billion, or more than half of the company’s total revenue in the quarter.

Fox chairman-CEO Lachlan Murdoch noted during a conference call with Wall Street analysts that the company has completed a number of MVPD renewal deals “without much clamor” and they have “reset television rates” that drove revenue growth. Across the Fox portfolio of television stations and Fox News and Fox Sports cable channels, Fox has seen about a 1% decline in net subscribers.

The Fox News and Fox Sports cable channels drive the lion’s share of earnings. Cable network earnings before interest, taxes, depreciation and amortization came in at $602 million, up from $578 million in the year-ago quarter. Fox’s Television segment, which includes its 28 O&O stations and the Fox Broadcast network, came in at $214 million, a big jump fueled by lower programming costs at the Fox broadcast network and lower sports rights costs. But advertising revenue sank 8% to $451 million as a result of the lack of political advertising compared to the 2018 election cycle and fewer FIFA World Cup matches soccer.

Murdoch talked up Fox’s success in the latest upfront market, calling it “one of the strongest we have seen in many years.” He said prices and volume were up across the board for entertainment, sports and news, and said it bodes well for Fox’s Feb. 2 telecast of the Super Bowl. The scatter sales market is also hot.

“Pleasingly the scatter market since the upfront has been even stronger and we are in scatter doing double-digit pricing premiums to what we sold in the upfront,” Murdoch said.

During the call, Fox chief financial officer Steve Tomsic said Fox also has momentum in digital advertising. For the full year, digital ad revenue hit about $500 million, or about 10% of the company’s total advertising haul.

Other highlights from the call:

Murdoch addressed Fox’s acquisition of a majority stake in Credible Labs, a digital consumer finance service for $265 million. He said the company sees a natural fit between Credible’s target audience and the older, educated homeowners that tend to watch local news on Fox’s O&Os and Fox News. “We’ve done a huge amount of research and due diligence” on the crossover potential between Fox’s TV audiences and Credible’s target audience,” he said.

Fox’s acquisition of animation production shop Bento Box Entertainment, unveiled Tuesday, was equally a “no-brainer,” in Murdoch’s view. “Animation has been the most stable programming on Fox, bar none,” he said. Bento Box is behind “Bob’s Burgers” and two upcoming Fox toon series: “Duncanville” and “The Great North.”

Fox News’ fledgling Fox Nation subscription service is growing at an encouraging rate, Murdoch said. He said conversions of trial users to paid subscribers has been strong. The goal is to “maintain that conversion rate while widening the funnel” of subscribers beyond the die-hard Fox News demo.

Murdoch again talked up the company’s bullish outlook on the growth of legal sports betting. The Fox Bet service is on track to debut just before the start of football season next month. “We see opportunities in sports wagering as a long-term value contributor to Fox,” he said.

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