James Murdoch Says "Incremental" Networks Are at Risk, Touts "Huge" National Geographic Upside

James Murdoch - H 2015
Courtesy of 21st Century Fox

James Murdoch - H 2015

The Fox CEO also discusses Hulu's planned online pay TV service, the streaming of live sports, why pay TV firms will launch outside their current markets and why he prefers to call binge viewing "marathoning."

21st Century Fox CEO James Murdoch on Wednesday touted the upside for the company's National Geographic and FX families of brands at the 32nd annual Sanford C. Bernstein Strategic Decisions Conference in New York and warned that non-core "incremental" channels are increasingly at risk.

In a session that was webcast, he also said Fox remains focused on optimizing its channel lineup and its value to pay TV firms and consumers and explained the opportunity for Hulu's planned online pay-TV service.

The big issue in the pay-TV industry is "just the amount of stuff that's out there that just nobody watches and the sort of plus-one channels and the other bits and pieces, all of them incremental spinoffs," said Murdoch. "That is going to be a really hard question for the [pay-TV operators] to say what do we decide not to have." He predicted that some of those channels and their owners could be "more niche, more a la carte" in the future.

The CEO joins other industry executives who have argued that smaller niche networks with a lack of a passionate fan base will face difficulties in carriage-deal talks in the future as pay-TV firms deal with increasing programming expenses.

In that context, Fox is focusing on "core brands that really matter," Murdoch told the conference. Discussing the company's strategy, he said: "We've certainly simplified the portfolio of brands." But he said there is more upside for such brands as the National Geographic Channel family, where the company is investing "a lot" and sees "huge opportunity," and the FX family, where the company wants to "actually make more programs over the next few years and increase the volume."

Murdoch said the company also feels "really good about the slate going forward" at the Fox broadcast network.

Asked about the Hulu joint venture's plans for a cable TV-style online TV service, he said it would be "a great new service," even though not all details are fully formed yet. Asked if the service wouldn't compete with existing pay-TV providers, the exec said, "We have always really succeeded when we have had more competition downstream for our products. So we see that as very much the same situation."

Murdoch told the conference that he expects U.S. pay-TV operators to start competing outside their traditional markets down the line via streaming offers. They may "all deny" that for now, "but I think that's pretty inevitable," he said.

Discussing sports rights and their rising price tags, Murdoch said Wednesday that "we worry about the cost of sports," joking that some athletes need Maseratis, which contributes to the higher cost.

Asked how experiments of live streams of sports by online companies will affect traditional media companies and sports costs, the CEO said Fox has "always thought that live rights ... [are] one right, and once it starts getting sliced up by platforms, that is going to impact the value that each one piece is going to pay for that." He predicted leagues would "come back" and license one right, like in such markets as the U.K. where the English Premier League live rights have been offered in one piece.

Murdoch on Wednesday also was asked about Fox's plans for its 39 percent stake in European pay TV giant Sky, where he serves as chairman. Wall Street has been debating whether Fox would eventually sell it or take full control. Murdoch lauded the business performance of Sky and said the company "believes" in it, while "we are super-focused on how do we make it better." He added: "We don't have any immediate plans to change" Fox's ownership.

Fox CFO John Nallen recently similarly reiterated previous management comments that the stake in Sky was not “the right end state,” adding, “Our view hasn’t changed at all. Our focus right now on Sky is Sky executing on what was the business case for putting the three Skys together. ... They are delivering on that. So, for us, right now, our focus is to allow Sky’s stock price to transfer into the Fox stock price and achieve a value that we should be achieving.”

Murdoch also addressed binge viewing and said it was typically a sign of powerful content. "Internally, we call it marathoning," he explained. That "at least gives you a sense of accomplishment after 15 hours of 24," he quipped.