Fox's Chase Carey Says 'American Idol' Is 'Winding Down,' Talks 2013 Film Disappointments

"American Idol"

On a Thursday earnings call, after news of lower quarterly profits, the 21st Century Fox CEO address reality ratings losses, FXX's big "Simpsons" gamble and the continued push into sports.

21st Century Fox CEO Chase Carey says that his broadcast network's decision to do away with the traditional pilot season should improve results. “We can’t be bound by rules established in a three-network world,” he announced during a Thursday earnings call.

Carey, joined on the call by COO James Murdoch, also address the struggles of reality shows The X Factor and American Idol and 2013's box office disappointments -- all of which were key drivers in 21st Century Fox's lower quarterly profits reported earlier in the day.

The Secret Life of Walter Mitty,The Counselor and Walking With Dinosaurs all underperformed expectations, Fox reported, causing the movie division to to suffer compared to its success with Taken 2 and the home video release of Ice Age: Continental Drift the year prior. The result was that income (OIBDA) from movies declined to $337 million from $424 million in the comparable quarter of 2012.

Both predicted an uptick in movie revenue this year with the release of Rio 2, Dawn Of The Planet Of The Apes and X-Men: Days Of Future Past.

Quarterly revenue for the filmed entertainment segment was helped by the syndication of Modern Family, higher revenues from Homeland and higher SVOD revenue led by The Killing. It increased $153 million (7 percent) to $2.48 billion.

There were no specifics on how badly the underperformance of X Factor, which included disappointing ad revenue, hurt the company. Carey did say that American Idol results are expected to continue to drift downward, although he noted it still garners ratings that most shows would envy. He added that American Idol is going through “a transition,” and is no longer the big driver of the entire network. “We know American Idol is winding down,” said Carey, adding that ratings have “fallen faster than we hoped."

Overall TV revenues fell to $218 million from $245 a year earlier despite a 6 percent increase in revenue -- in part because of those lower entertainment show ratings and less political advertising on Fox News Channel. Investments in sports rights and new scripted programming also brought down profits even as revenue from the NFL and Major League Baseball improved.

There was also optimism about some upcoming event series - especially the revival of 24 and Gracepoint, the ten-hour murder mystery that is a remake of the British series Broadchurch.

Cable networks were a bright spot even with significant investments in the launch of Fox Sports 1, FXX and other sports networks around the world. Cable network revenues were up 14 percent, driven by higher affiliate fees and to a lesser extent improved advertising revenue. Carey was very bullish on the future of affiliate revenues, predicting it will be a more important driver of profits in the future than advertising.

While the launch of FXX was a costly investment, it is expected to pay off, especially with the addition of The Simpsons to the line up later this year. Carey said The Simpsons will become the face of the FXX network and an important part of the brand, not just on cable but also on an array of digital platforms.

While Fox may have paid a premium price to get The Simpsons for FXX, said Carey, but the company is in a position to maximize that value by exploiting rights across numerous platforms and in many different ways. “Our rights enable us to do things in digital [with The Simpsons],” said Carey, “to create a digital experience that adds value and a whole new dimension.”

Carey said that FXX will require more investment in the short term but looking ahead two or three years, Fox expects it to be a major profit contributor.

Some of Fox’s biggest investments in the past year have been in sports channels and rights worldwide. Carey said it is now proven that live TV sports, especially the NFL, have great value and will continue to be important. He said they feel they have enough rights for Fox Sports 1 new but will remain opportunistic as other rights come up. Carey was vague about Fox’s interest in rights to NBA games, the next big package coming to market, but seemed to indicate that they can live without pro hoops if the price is too high.

Asked about reports that Liberty Media is kicking the tires on buying Formula One racing – the company not the TV rights – Carey said that is not a big concern. He noted they currently have extensive and long-term deals for Formula One racing in many parts of the world; and that acquiring the company requires more resources and management than just acquiring the TV rights, which is all that interests Fox.

Fox launched six new Star Sports channels last year, including a 24-hour channel in India about cricket that is in the Hindi language which was characterized as a big success. The earnings worldwide were hurt by the strength of the dollar against other currencies and other currency fulgurations. Fox had expected to take a $100 million loss as a result but it actually turned out to have cost more over $150 million.

International revenue and profits from direct broadcast satellite services in Europe were down to OIBDA of $30 million compared to $55 million the prior year. This was blamed in part on the cost of acquiring a controlling stake in Sky Deutschland in Jan. 2013. That off set improved results form Sky Italia.

However, James Murdoch said they remain aggressive in Germany -- a large and important market, even with the threat of Netflix coming in over the top of existing cable providers. As it is, the inclusion of Sky Deutschland did raise revenues by $605 million and the Germany service had an increase of 138,000 subscribers during the second quarter.

Carey was asked about the threat from Aereo, a U.S. over the top service that takes signals out of the air, packages them and resells them in a growing number of cities. Fox and other broadcasters have sued over what they allege is a copyright violation but so far lower courts have not been sympathetic. Carey noted the case is now going to the U.S. Supreme Court and added they are “cautiously optimistic” that the court will agree Aereo is a “deliberate illegal theft of our copyrights.”

Fox is continuing to buy back its own shares as part of a previously announced $4 billion repurchase program. So far they have acquired $2.3 billion of their shares and they are on course to acquire the rest by this July. Despite the many problems, Carey said he has “never been more excited about 21st Century Fox."