Fox CFO "Really Optimistic" About U.S. Pay TV Subscriber Outlook

John Nallen

Senior executive vp and chief financial officer

Rupert’s top financial exec since 2004, he will be an important adviser to the sons.

John Nallen at an investor conference also lauds the strong early performance of 'Logan,' discusses the planned deal to take full ownership of Sky and how Nat Geo is the company's one truly global brand.

21st Century Fox is optimistic that the U.S. pay TV industry can return to subscriber growth, CFO John Nallen told an investor conference Tuesday.

Speaking at Deutsche Bank's 25th Annual Media & Telecom Conference in Palm Beach, Fla., in a session, which was webcast, he said: “For the first time in any of these meetings I can say I am incredibly optimistic, because there are nine big-cap companies that are chasing the pay TV market now, between Sony, Dish, AT&T, Amazon, Google, the four big media companies, including ourselves, behind Hulu. That’s a lot of capital that’s being pointed to an industry that people were concerned about.”

Some existing pay TV subscribers will move from traditional pay TV to these new services, but the new offers could also bring back some consumers who have abandoned pay TV, he argued, saying: “The optimism is really can they attract people that have left the system into these core bundles?”

Given that Fox's networks are available "in every one" of the new digital services, Nallen said: “It’s a really exciting time for us.… I’m really optimistic about where [pay TV subscriber] volume is headed in the U.S.”

So could U.S. pay TV return to subscriber growth this year or next? "It's going to be hard," Nallen replied. "You may, but I'm not sure it's for the right reason yet. Because likely what will happen initially is, and we won't know this for a year or two, you’ll have a lot of samplers, people who have a core bundle who will want to try out the DirecTV Now package, the Hulu package, the Google package."

Some consumers will then drop one of the two packages after a period of trial, he argued. "So in that case, we actually do have volume growth, but it's temporary," said Nallen. But he said the traditional pay TV operators will have to improve their services amid the new players, which should help the broader market. Overall, he concluded: “Optimism is where we are right now. There is hope for [pay TV] volume increases.” 

Asked when Hulu will launch its virtual pay TV bundle, the Fox CFO said he would leave that to Hulu, but added it would be "relatively soon.” Highlighting that he has seen parts of the service, he said: “It’s exciting, it’s innovative.... It will be pretty exciting for a consumer."

But he also emphasized that Fox expects that for now, "the core of our affiliate consumer revenue will come through a bundled package" as is currently the case. 

Nallen on Tuesday also lauded the strong opening performance of Logan, saying it had Fox's third-largest international opening ever behind the first X-Men movie and Avatar. But he warned that the back half of the year faces tough comparisons due to the year-ago success of Deadpool and The Martian.

Fox on Friday formally notified European Union authorities of its 11.7 billion pounds ($14.4 billion) bid for the remaining 61 percent of European pay TV giant Sky, which it doesn't yet own, kicking off the regulatory review process.

Asked about the benefits of the planned deal, Nallen said Tuesday that it has several strategic advantages, including helping to simplify the company and its holdings, clarifying its capital focus, diversifying revenue, adding a business that adds to Fox's earnings and bringing it a "center of excellence" in direct-to-home and consumer expertise. And, he said, Fox is looking to buy "one of the top European brands."  

Under EU rules, the European Commission now has about a month to decide if the deal would "significantly" reduce competition. Analysts have highlighted that the EU would have allowed News Corp., which later split into News Corp and Fox, to take full control of Sky in 2011. But the company back then pulled its offer amid the phone-hacking scandal.

The EU filing also kicked off the regulatory process in the U.K., where culture secretary Karen Bradley has 10 working days to decide whether Fox's bid for Sky should be subject to a public interest test, focused on the deal's effect on media plurality, by communications regulator Ofcom. That possible review is expected to look at Murdoch's control, via News Corp, of such British newspapers as The Times and The Sun. Bradley on Friday said she was "minded" to recommend a review.

Asked about Nat Geo, Nallen told the conference that the company is excited about its upside after recent changes. "The programming at Nat Geo had really disconnected itself from the brand," he explained. But now the focus is back on adventure, exploration, science and other key parts of the brand promise.

And he said that Nat Geo is the most global brand in the Fox TV portfolio. “It’s really our only global brand," Nallen said. "Fox is slightly differently in different parts of the world." He concluded: "We’re planning to do much more with Nat Geo. It’s just a fabulous brand. It's been under [exploited] and it's really under valued.”