Q2 2024 Earnings Summary
- Strong Affiliate Fee Growth: FOX achieved affiliate fee revenue growth despite industry-wide subscriber declines. The Television segment grew by 10%, and the Cable segment returned to growth, demonstrating the strength of FOX's brands and programming. This growth is expected to continue as rate increases have made up for subscriber declines.
- Robust Advertising Outlook: FOX reported solid advertising performance, particularly in sports. The NFL season was strong, and there was a 63% growth in TubiTV, FOX's streaming service. Upcoming events like the DAYTONA 500 and the MLB season have positive momentum with advertisers, indicating continued advertising revenue growth.
- New Market Opportunities with Sports JV: FOX's participation in the new sports joint venture opens up a significant opportunity to reach an estimated 60 million households currently not in the traditional pay-TV bundle, potentially driving incremental subscribers and revenues without significantly impacting existing pay-TV relationships.
- Declining Advertising Revenues: FOX Corporation reported a 23% decline in cable advertising revenues at FOX News Media, impacted by a softer direct response marketplace, lower comparative ratings, and higher levels of preemptions due to global events.
- Industry Subscriber Declines: The company acknowledged subscriber declines running at approximately 8%, which could adversely affect their affiliate fee revenues despite rate increases.
- Potential Risks from New Sports Joint Venture: Analysts expressed concerns that the new sports platform could negatively impact the traditional pay-TV bundle, which is crucial for FOX's distribution and revenues.
-
New Sports Streaming Service
Q: What's the opportunity and risks with the new sports platform?
A: Lachlan Murdoch described the opportunity as huge, targeting approximately 60 million U.S. households who are "cord-nevers" not currently in the pay-TV ecosystem. He believes risks to FOX News are very low since the new service focuses on a different market segment and won't undermine the traditional bundle. -
Impact on Pay-TV Bundle
Q: Will the sports platform affect the pay-TV bundle?
A: Murdoch is confident it won't significantly affect the traditional pay-TV bundle, emphasizing they wouldn't launch it if it posed a substantial risk. They've conducted extensive sensitivity analysis and remain strong supporters of the bundle, aiming to access a new market without undermining existing partnerships. -
Affiliate Revenue Sustainability
Q: Is affiliate revenue growth sustainable despite cord-cutting?
A: Despite an underlying 8% subscriber decline due to cord-cutting, FOX has achieved rate increases making up for declines. Murdoch believes they can maintain similar growth due to the strength of their brands and programming. -
Advertising Trends
Q: What's the outlook for advertising revenue?
A: FOX saw a solid NFL season and a 63% growth in Tubi. Scatter pricing is above upfront pricing, and FOX News ratings are improving. They expect a strong political advertising cycle, though local stations face tough comparisons due to last year's Super Bowl revenue of around $50 million. -
Sports Sublicensing Income
Q: Is sports sublicensing income recurring?
A: CFO Steve Tomsic indicated the sublicensing income from college sports and international soccer is somewhat of a one-off and won't repeat at the same level in future quarters. The benefit can be gauged by the increase in Cable Other revenues year-over-year. -
Approach to Sports Rights
Q: Will the Netflix-WWE deal affect your sports rights strategy?
A: Murdoch stated there's no impact from the Netflix-WWE deal on FOX's approach. They will continue to aggressively compete for sports rights, with no changes to their strategy. -
Openness to Ad Partners
Q: Will you partner with other ad platforms on the new service?
A: Currently, FOX is not considering adding ad partners. The service's 14 linear networks provide substantial content, and existing advertising from linear networks will flow into the service, increasing reach. -
Cash Contribution to Sports JV
Q: What is FOX's cash contribution to the sports joint venture?
A: It's too early to provide forecasts, but FOX expects the venture to be accretive, with affiliate fees collected outweighing funding needs.
Research analysts covering Fox.