Fox Corp. COO: Local Ad Trends Moving "in the Right Direction"

John Nallen-Publicity-H 2019
Fox Corp.

The Fox Nation streaming service is looking to acquire entertainment and lifestyle content, John Nallen says at the Credit Suisse 22nd Annual Virtual Communications Conference.

Fox Corp. COO John Nallen provided an update on TV advertising trends amid the novel coronavirus pandemic, telling an investor conference on Tuesday that, despite continued weakness, local TV momentum was moving "in the right direction" thanks to the return of some key categories.

Speaking at the Credit Suisse 22nd Annual Virtual Communications Conference in a session that was webcast, he said that more than originally expected, subscribers to the firm's Fox Nation streaming service are also looking to it "as an adjacency on entertainment and lifestyle content," including movies and documentaries, rather than simply a news and opinion offering, Nallen said. "As a result, we are looking to acquire ... product that fits in entertainment and lifestyle to supplement what we have there and provide a more robust library."

"It's hard to say for anyone," he said when asked about the growth outlook for Fox's new fiscal year that will start mid-year, citing the "great deal of uncertainty and disruption" caused by the novel coronavirus pandemic. Nallen said Fox's business will be impacted in terms of sports schedule and the "pace of the economic recovery," and its impact on advertising revenue and subscribers. "Those are the big variables for us," the COO explained, adding that the biggest revenue effect for Fox is on local TV stations where business "turns off and on quickly," he explained.

Referring to a record U.S. retail sales gain for May, reported early in the day, he said "hopefully that bodes well for things to come."

The media conglomerate has been hit by a television advertising downturn as sports leagues have gone dark amid the novel coronavirus pandemic. On March 31, Fox said the virus impact could be "material" and noted "broadcast rights have been canceled or postponed and the production of certain entertainment content the company acquires has been suspended."

Fox has also forecast that local TV station advertising during the current quarter would be down 50 percent from the year-ago levels for an overall local TV and national news and entertainment ad revenue impact in the $200 million-$240 million range. Nallen said local TV has ended up trending down in the low 40 percent range, with June down 30 percent, meaning the overall revenue impact is looking to come in closer to the lower end of the previously provided range. "The trend is in the right direction," he said.

Nallen also said that the company is sold out of NASCAR advertising. And "September ad cancellations for us were manageable," with Fox seeing a return to the ad scatter market despite lower price levels than seen before the pandemic, but above 2019 upfront levels, he added. Overall, advertising will see "a flight to quality" amid the recent market disruption and everyone's focus on the way the sports schedule will shape up, the executive predicted, arguing that sports would be a key beneficiary of that. A firm schedule announcement from the NFL will be key to "robust" ad booking activity for Fox returning, Nallen said.

Asked about Fox's stage of talks with the NFL about a potential rights renewal, the COO said they were in the "very, very early stage." He didn't comment further. 

To deal with the coronavirus impact, Fox Corp. CEO Lachlan Murdoch announced he would forgo his salary and 700 employees at the company saw pay reductions. 

Asked about the opportunity for cost cuts at Fox, Nallen said it was established as an efficient organizations, but has launched a hiring freeze in addition to the pay cuts. Like most companies, "we have learned a lot ... and my sense it is going to play out over a year" as employees return to offices, Nallen said, suggesting possible changes to the use of staff and office space. 

With TV sports accounting for around 40 percent of its overall advertising revenues, Murdoch in May reported that the pro leagues shutdown had "so far" not greatly impacted that category as Fox's sports revenue is concentrated in the fall with Major League Baseball's post-season and the college and NFL's football seasons having their biggest audiences. "Whenever they are ready to start, we will be ready to produce and to broadcast," Murdoch told analysts about pro sport leagues resuming live games and events. 

Fox — which, after Rupert Murdoch agreed to sell most of 21st Century Fox to Walt Disney for $71 billion, last year became a stand-alone company mostly focused on news and sports — has made several acquisitions, including its purchase of advertising-supported streaming service Tubi TV for $440 million

Tubi gives Fox a streaming play at a time when Hollywood giants are all pushing into the streaming space. Disney+ launched in November, NBCUniversal's Peacock had its soft launch earlier this year, and HBO Max started last month. The free, ad-supported offering aligns with the company's focus on broadcast, sports and news. Fox also previously acquired Credible Labs and Bento Box, as well as invested $100 million in streaming startup Caffeine.

"Accretive M&A," investment in adjacent businesses and existing operations are all continued areas where Fox may put its money, Nallen told the conference on Tuesday.

Discussing the future of pay TV bundle, he said he was "not sure entertainment is as core" to it as in the past. He suggested consumers may in the future bring their personal entertainment favorites to a more focused bundle. Nallen said a Fox service bundle offered to consumers a la carte would not be a likely focus over the near term. 

"Rational investment" was his way of describing Fox's streaming strategy, suggesting the firm could deepen its engagement with consumers. He emphasized the company wouldn't compete in the big entertainment programming space. "That's just not where we are going to play," he said.

Fox News is doing "fantastic," with "superb" ratings and advertising holding up amid the pandemic, Nallen told the conference. The current "big news cycle" will, later this year, be followed by elections, making for a big year.