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21st Century Fox co-COO James Murdoch on Wednesday discussed the outlook for the entertainment conglomerate’s film business, possible deals involving its European pay TV businesses, as well as his thinking on sports and other content investments.
Speaking at the Sanford C. Bernstein Strategic Decisions Conference in New York, the son of Rupert Murdoch also discussed pay TV consolidation in the U.S. and Europe, saying “fundamentally, the distribution business strives on scale.” After this year’s announcements of the Comcast acquisition of Time Warner Cable and the DirecTV-AT&T deal, combinations will continue to be in focus.
Its scale and “content that matters” make Fox confident about its business. The firm feels “okay” about pay TV consolidation, he said. “We think we are big enough,” but he said he isn’t sure if other content companies may look at growing in response to distributors’ consolidation.
U.K. pay TV giant BSkyB and 21st Century Fox recently confirmed that they have held talks about a possible deal that would consolidate the European pay TV companies that Fox controls – BSkyB in the U.K., Sky Deutschland in Germany and Sky Italia in Italy. Bloomberg News had reported that BSkyB could acquire Sky Italia and Sky Deutschland in a nearly $14 billion deal.
“Eventually, they are stronger together than apart,” James Murdoch said Wednesday, but emphasized that the recent discussions may or may not lead to a deal. He said there are different deal options and said “we are in no particular hurry” to do anything, meaning a deal could come in another year or two – or sooner. The focus for now is on operating the businesses as well as possible, Murdoch said.
Fox has also said that it is looking at partnering with private equity firm Apollo Global Management on a new venture, with television production companies Shine Group, part of Fox, Endemol and American Idol parent Core Media Group falling under the umbrella of the group. Should plans move forward, some of the biggest names in reality TV would come under one roof. Murdoch didn’t get a question on that possible deal on Wednesday.
Discussing the film unit, Murdoch highlighted that “a little more” than half of the film arm’s operating profit comes from TV production, a business that is more predictable and stable than the box office. Highly differentiated content that matters has been a key reason for the success of the Fox TV production business, he said, adding that the company has more original series in production today than ever before.
On the film side, flops last year “hurt us a little bit,” but over a longer term, the film business is “very attractive,” Murdoch said. He touted the latest X-Men release as having done “super-well.” Rio 2 and others have also done well, so the business has been looking well in recent months, he said. Upcoming comedy drama The Fault in Our Stars could become a breakout hit, he also said.
The goal must be to have “a reasonable track record” in film over several years, he said, adding: “Over the next 3-5 years, we see a lot of really attractive films coming through that we are really proud of,” including the planned Avatar sequels.
Asked about investment focus areas, Murdoch said Fox likes to invest where it sees market opportunities, such as the U.S. national sports market, which he said the company is going after with the recently launched Fox Sports 1 network. “It’s going really well,” Murdoch said about the channel, but added that its performance should be judged over the next two to three years. “We are really happy with how it is going….There is a lot more room to go.”
In terms of content spending, Murdoch said it is important not to get “caught in the middle ground” these days, emphasizing that Fox is looking to spend money on “content that is big and matters.”
Asked about the approach to investments in sports rights, Murdoch said that Fox prefers to buy rights for longer periods to build a sustainable business. “We’ll walk away from…certain competitions” if the price is too high, he said, but overall, “we feel really good about the sports business.
European soccer rights typically get sold for three years, which makes things there more difficult, Murdoch said. For example, Sky Italia walked away from Italian soccer rights for that reason, he explained. In terms of being conservative on prices Fox pays, he mentioned that the company didn’t strike a new L.A. baseball rights deal for that reason. “The Dodgers deal, we thought, was too rich,” he said.
Discussing FXX, Murdoch said a recent deal that makes the channel the home for the library of Fox animation hit The Simpsons was “exciting.” When the show comes to the network in the fall, “it will really make the channel a greater standout in the cable universe” and will also improve FXX’s digital offerings, he said.
Asked about cord cutting, Murdoch said “there is no question that there is a lot of more competition downstream,” including Netflix and Amazon.com. Overall pay TV subscriptions have been roughly flat, and he expects that will remain the case near-term, the Fox COO said. He argued that few people seem to cut the pay TV cord to watch TV only via online services at this stage though, with more people taking multiple services.
Asked about Fox’s global ambitions, Murdoch said the company has focused on key international territories where it feels it understands the market and sees upside, such as in big European countries in pay TV and Latin America in the TV networks business.
In Asia, Fox continues to focus mostly on India with pay TV giant Star, which has continued to grow. Murdoch reiterated that the company has though “pared back our investments in China,” because “the regulatory environment just seems very challenging.” The Indian business would continue to grow and could reach operating cash flow of $1 billion over time, Murdoch told the conference on Wednesday.
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