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News Corp. is seeing more growth upside at its cable networks unit and doesn’t see a major hole in its entertainment sector portfolio, deputy COO and chairman and CEO, international James Murdoch told an investor conference Monday.
The son of News Corp. boss Rupert Murdoch spoke at the Morgan Stanley Technology, Media and Telecom Conference in San Francisco in the event’s first keynote session, which was available via webcast. It was a rare appearance in front of investors since moving to the News Corp. headquarters in New York last year after being based in London. He recently also made an appearance on a News Corp. earnings conference call.
“For us the really exciting thing is the continued growth of our channels business on a global basis and domestic basis,” driven by investments in quality programming, as well as carriage fee and advertising growth, he said. “We are super-excited about the cable channels business generally,” citing the company’s global scale.
He also cited upside from the TV syndication pipeline for such shows as Modern Family, Glee and The Simpsons as a key financial opportunity for what will be known as the Fox Entertainment Group following the company split. Revenue from such syndication deals would “really flow through” to the company’s bottom line, he said.
With barriers to entry lower in the broadband age, Murdoch several times highlighted the need to differentiate networks with strong content. Overall, TV content is better than ever, new digital platforms are adding revenue opportunities, and industry changes are allowing for new models for the creation of series, including, possibly, more limited runs than traditional full seasons, he signaled.
He also faced a question about News Corp.’s asset mix given the company’s history of big acquisitions. “We don’t think there is a big missing chunk” in News Corp.’s entertainment business, he responded.
But he later emphasized that “we do want to get credit for minority investments” in businesses, such as U.K. pay TV giant BSkyB. “There is unfinished business there,” but no immediate deal plans, he said about such minority-owned businesses without detailing which ones could come into deal focus over time.
Asked about Comcast’s recent agreement to acquire full control of NBCUniversal, Murdoch said, “I wasn’t surprised,” adding that pay TV distributors “will want to invest in upstream assets,” meaning content businesses, in this day and age. He added: “It will be an important part of their portfolios,” raising questions for mid-sized firms about what they should do. “It will change a lot for the domestic industry over the next five years,” he predicted, without mentioning possible deal scenarios. He also said that small and independent TV network operators will continue to come under pressure in carriage fee negotiations, while companies with News Corp.’s scale will benefit.
While streaming video firm Netflix is a key deal partner for News Corp., the traditional pay TV system will remain key for years to come, he said. Innovation within the pay TV eco-system is important and changing the business though, he said. Faster innovation by big pay TV companies can help ensure continued growth, Murdoch added.
Discussing sports rights deals, Murdoch said “our appetite for sports investments is driven by economic sense…you have to find the balance.”
For example, in the case of a failed deal with the LA Dodgers, “at the prices it went to, we felt it was too rich for us,” Murdoch explained. But he touted the company’s recent deal with the YES Network as a smart investment.
In terms of English Premier League soccer league deals, some of News Corp.’s businesses paid for rights in some markets, but not in others. Citing the power of live sports, Murdoch cited a big double-digit ratings increase for this year’s Daytona 500 race as an example of how things can play out well in sports.
“In our view, Mr. Murdoch did a really good job of describing News Corp.’s sports strategy as offensive rather than defensive, which we think some investors have assumed,” said Wells Fargo analyst Marci Ryvicker. “Given the company’s large portfolio of sports assets, they are able to walk away from franchises that don’t make sense from an economic perspective, while acquiring those that do.”
Meanwhile, “India a very important market for us,” Murdoch said in discussing the areas of international upside, also mentioning the rest of Asia and Latin America. He mentioned that News Corp. has as of this year been operating in India for 20 years. He predicted that recent regulatory changes and competition would lead to consolidation of pay TV operators in the country over time. “The pay TV business is going to continue to go really, really well,” he said though. A single channel or two or three channels doesn’t work in India – “you really need scale,” he said in explaining why News Corp.’s Star TV is well positioned.
The Sky Italia pay TV platform has faced challenges, but is positioned to perform better, according to Murdoch. “We have issues in Italy, but a lot of businesses have issues there right now,” he said. “We are positioned well and we feel good about that business.”
Asked about the looming News Corp. split into two companies, Murdoch said it will help with the simplification of the conglomerate’s businesses and management, the ability to expand global operations and competitive investments in content.
Discussing the New News Corp. publishing business following the split, he said the company has “high hopes” for it.
The deputy COO also signaled that News Corp. would continue stock buybacks and dividend payments over time.
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