Fox Benefits as Politics Chatter Fuels Growth for Cable News

  • Fourth-quarter profit beat forecasts, aided by subscriber fees
  • Murdochs pledge greater diversity after race, sex cases

Bloomberg's Oliver Renick takes a look at the fundamentals driving the performance of 21st Century Fox Inc. shares. He speaks with Bloomberg's David Gura on 'Bloomberg Markets.' (Source: Bloomberg)

21st Century Fox Inc., part of the Murdoch family’s media empire, continues to benefit from a highly charged political environment in the U.S. that’s spurring growth at cable networks including Fox News Channel.

The entertainment group controlled by billionaire Rupert Murdoch posted fiscal fourth-quarter profit that beat analysts’ estimates, buoyed by subscriber fees and ad revenue in a cable unit where profit grew at almost twice the pace of sales. 

A constant flow of political news has kept Americans tuning in to cable television, with debate about health-care coverage and possible Russian influence in elections dominating much of the first six months of U.S. President Donald Trump’s administration. Even so, it hasn’t been an entirely easy run for the Fox News Channel, which has been challenged in the ratings by MSNBC and faced allegations of sexual harassment at the network.

The company had tough comparisons with the year-earlier quarter, which included a tax benefit that boosted earnings. Profit excluding some items slipped to 36 cents a share, New York-based Fox said Wednesday in a statement, exceeding the 35-cent average of analysts’ estimates compiled by Bloomberg. Revenue rose to $6.75 billion in the period ended June 30, compared with projections of $6.79 billion.

Fox rose 2.5 percent to $28.20 as of 10:09 a.m. in New York.

Cable Revenue

Revenue in the cable division grew 10 percent to $4.33 billion, Fox said, with earnings ahead 19 percent. Domestic affiliate fees grew 10 percent, while U.S. advertising revenue increased by 6 percent.

Those results countered a slump in broadcast-TV revenue and the further struggles at its film division. Fox turned out disappointing movies in the quarter, including “Alien: Covenant” and “Diary of a Wimpy Kid: The Long Haul.” It also had to contend with strong-year-ago revenue from its home entertainment unit, which released the hit “Deadpool” on DVD.

“If media stock valuation is a tug of war between short-term growth/earnings versus terminal value, Fox is the extreme case,” Todd Juenger and George Zhao, analysts as Sanford C Bernstein & Co., wrote in a note to clients. While they said there’s “a case to be made” for Fox based on next year’s growth rate and multiple, “we can’t close our eyes, the future is coming, we’ve seen it, and it isn’t pretty for anybody, not even Fox.”

Fox was buffeted by news of its own during the quarter. Popular host Bill O’Reilly was ousted in April from his top-rated show over allegations of sexual harassment, and multiple current and former Fox News employees filed a class-action race-bias lawsuit. In a memo Wednesday, Murdoch’s sons, Executive Chairman Lachlan and Chief Executive Officer James, said they were committed to making Fox a more diverse organization.

“Moving forward we aspire to put an ever greater focus on embracing our differences, listening to each other and celebrating the huge swath of diversity that is 21CF,” the two said. “We are committed to being an organization where anyone, from anywhere, feels welcome and can thrive.”

TV Stations

James Murdoch declined to comment on a report by Bloomberg News that it was in talks with Ion Media to form a joint venture to pool their TV stations in a bid to counter Sinclair Broadcasting’s growing leverage in negotiations over retransmission revenue.

Broadcast networks and broadcast stations “are delivering a lot of value to distributors,” he said on a call with analysts. “We’re very, very focused on the best way to really maximize any advantage that we can get for the business going forward.”

Fox also is trying to gain U.K. regulatory approval for its $15.2 billion takeover of Sky Plc and said Wednesday it expects to complete the deal in mid-2018. Critics of the deal have argued it would give Murdoch and his family too much influence over U.K. media.

— With assistance by Reade Pickert

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