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With Walt Disney set to close its acquisition of large parts of 21st Century Fox just after midnight New York time on Wednesday, the spin-off of Fox Corporation that houses the Murdoch family’s remaining assets, including the Fox News Channel and Fox broadcast network, is being completed Tuesday morning.
The official debut of the new company comes amid both bullishness and some skepticism on Wall Street and marks a new phase for the slimmed-down Murdoch empire, where Fox News will be an even larger financial contributor. It also marks the last step in the rise of Lachlan Murdoch to the top of his father’s company.
The 47-year-old serves as the chairman and CEO of the company (after having been executive co-chairman of 21st Century Fox with his father), with Rupert Murdoch becoming co-chairman. Younger Murdoch son James, who was CEO of 21st Century Fox, does not have an executive role at Fox Corp. and is expected to focus on an investment fund he launched this year.
Lachlan Murdoch will be the top executive overseeing the new Fox portfolio that is focused on sports, news and entertainment, including the Fox Broadcasting Network, Fox News, the Fox Business Network and Fox Sports. But he will have experienced executives running key parts of the company. John Nallen, who has been serving as 21st Century CFO, is the COO of the new Fox. Suzanne Scott continues as CEO of Fox News and Fox Business Network, and Jack Abernethy remains CEO of the Fox Television Stations unit.
“Fox will be a bold and transformational media company, delivering high-quality programming to loyal and engaged audiences across the country,” Lachlan Murdoch said earlier this year.
In a regulatory filing, 21st Century Fox said that the assets making up the new Fox took in $10 billion in revenue in fiscal 2017 and generated $1.5 billion in net income.
Importantly, Fox News will be the financial crown jewel. MoffettNathanson analyst Michael Nathanson in a recent report put the new company’s cable networks earnings before interest, taxes, depreciation and amortization for the fiscal year ended in June 2018 at $2.3 billion on revenue of $5 billion, compared to broadcast EBITDA of $379 million on $5.1 billion in revenue.
Therefore, the analyst estimates that the cable assets of the new Fox will account for 86 percent of EBITDA for the entire company, with 90 percent of that coming by way of the Fox News brand, which includes Fox Business Network.
Pivotal Research analyst Brian Wieser, who rates Fox Corp. a “hold,” notes that in the third quarter the new company’s cable affiliate fee revenue rose a robust 13 percent, but ad revenue rose a more modest 6 percent. He says the results “strongly suggest that Fox News is not experiencing a noticeable downturn” in advertising.
It remains to be seen, though, if a progressive effort to dissuade advertisers from buying time on Tucker Carlson’s primetime show over remarks he made on a shock-jock radio show a decade ago will have any impact in the current quarter.
It comes as no surprise that Murdoch has defended Fox News from critics, saying late last year that they don’t really watch the network, instead “picking up pieces from Twitter and social media and elsewhere.” Asked if President Donald Trump loves Fox News, he said back then: “I think he dislikes us less than everyone else.”
The fact that former White House communications director Hope Hicks is the new Fox’s communications lead does not mean any special relationship to Trump, he also said, arguing there was “no connection to the White House.”
Nevertheless, Trump is mostly supportive of Fox News and its advertisers, and he tweeted recently that “Fox must stay strong and fight back with vigor.” The tweet relates to Carlson and Jeanine Pirro, whose criticism of Rep. Ilhan Omar have been called Islamophobic by Media Matters for America and other activists.
“Stop working soooo hard on being politically correct, which will only bring you down, and continue to fight for our Country,” Trump said. “Be strong & prosper, be weak & die!”
Speaking to advertisers at an upfront presentation on March 13, Fox News president of ad sales Marianne Gambelli stressed that Carlson, along with Sean Hannity and Laura Ingraham, “consistently deliver the highest-rated shows on television,” according to a transcript obtained by The Hollywood Reporter.
“Our audience chooses our opinion programming because they trust the hosts and the content — making it a safe environment for your brand messaging,” Gambelli told the advertisers.
On Monday, Fox News added a bit more political diversity to the network by hiring former Democratic National Committee chair Donna Brazile as a contributor, and she made her first appearance the same day on The Daily Briefing with Dana Perino.
Beyond keeping Fox News a driving force, the new company must focus on FS1 and FS2 to keep pace with Disney’s ESPN, and executives will work hard to make the Fox broadcast network a destination. Fox Entertainment CEO Charlie Collier, who previously ran AMC, recently told The Hollywood Reporter that he has one mandate from his new bosses, which is “to win.“
“It will certainly include baseball, wrestling and football,” he said when asked about the Fox schedule a year from now. “It is a bit of a fool’s errand to run at football and think you can move that audience over to entertainment programming. What you can do is expose them to things that hopefully attract them to hopefully put on their entertainment viewer mindset and come to them.”
Buckingham Research Group analyst Matthew Harrigan has a “buy” rating on the stock with a $54 price target, lauding “generally good numbers for the businesses” and an earnings outlook that looks “healthy.”
Nathanson recently launched his coverage with a “buy” rating and price target of $51. “The slimmed-down combination of Fox News with the Fox Broadcasting Network creates an unrivaled pair of must-have live sports and news content that will drive strong, industry-leading top line growth for years to come,” he said.
“In addition, we believe that Fox Television’s Profit & Loss [statement] is set up for multi-year improvement in EBITDA due to continued strong retrans growth and cost reductions in entertainment programming,” said Nathanson.
Macquarie Capital analyst Tim Nollen has had a “neutral” rating on Fox’s stock ahead of the spin-off. “While we have valued the [New Fox] stub asset [portion of 21st Century Fox] at $42 on the new share count…we are conscious too of the new company’s higher risk profile and wonder what the stock response will be to the spin,” he said.
Steve Birenberg, founder of Northlake Capital Management, called new Fox undervalued, though not by much.
“Fox News might be the best cable network out there, so it is worth a premium,” he said. “The broadcasting business is focused on sports and news and other live events with less primetime entertainment programming. That is a positive.” He adds: “As much I hate Fox News, they are lucky to be overly reliant on it. No [pay TV distributor] would dare to drop them.”
Fox’s stock went slightly higher in the first trading minutes on Tuesday before dropping. As of 10:15 a.m. ET, Fox’s Class A shares were down 2.5 percent at $40.66, while the Class B shares were down 2.3 percent at $39.91.
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