Fox earnings disappoint; movie studio delivered a dud
Rupert Murdoch’s 21st Century Fox delivered a less-than-fantastic fiscal first quarter, with a disappointing performance from its 20th Century Fox film studio and higher marketing costs in television.
The media company, which has a large portfolio of foreign TV businesses, also was hurt by unfavorable foreign currency exchange rates. Without that drag, the company said it would have reported 5% growth.
But the biggest miss was in Los Angeles, where the 20th Century Fox film studio released a dud during the July through September quarter. The big-budget film “The Fantastic Four” failed to live up to its name.
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Fox executives declined to say how much money they lost on that August stinker, which reportedly cost more than $120 million to make and generated an anemic $56 million in domestic box office receipts. Younger moviegoers didn’t turn out to see the film.
“Maze Runner: The Scorch Trials,” which came out in September, could not mitigate the damage. Studio revenue plummeted 28% to $1.8 billion compared to $2.5 billion in the year-earlier period. Studio operating income was down 67% to $149 million.
Fox’s film studio also had a tough comparison because the year-earlier period was buoyed by “Dawn of the Planet of the Apes” and the syndication sale of the hit TV show, “How I Met Your Mother.”
“Fox started out its fiscal year with a mixed bag,” Wall Street analyst Michael Nathanson wrote in a research report Wednesday morning.
Fox executives said they were hopeful the film studio will land much better results in the current quarter because of its runaway hit “The Martian” with Matt Damon, which has already scored $430 million in worldwide ticket sales.
Fox’s management trifecta of Chief Executive James Murdoch, Executive Chairman Lachlan Murdoch and Chief Financial Officer John Nallen handled the earnings call with Wall Street analysts.
Fox shares fell more than 5% in early trading, to about $29.50 a share, as fears renewed on Wall Street about a slowdown in growth for entertainment companies. Cable subscription revenue is the largest contributor to profits among the major media companies, and investors are worried that more consumers will cancel their cable subscriptions in favor of lower-cost streaming options.
The market reacted after disappointing earnings from Time Warner Inc. Fox executives, in contrast, said they were seeing subscription growth for some of their smaller cable channels. However, the comments of Fox executives might have stoked investors’ concerns because they said viewing on streaming service Hulu was up 85% compared to last year, and sign-ups for the service had soared 60%.
Hulu is owned by Fox, Walt Disney Co. and NBCUniversal.
“We are all united in the view that this is a time of transformative change in our industry,” Lachlan Murdoch said to open the conference call with analysts. “It is the kind of change that demands equal measures of clear thinking and of calculated risk taking, and in this quarter we’ve applied both.”
For the July through September quarter, the New York media company reported earnings from continuing operations attributable to shareholders at $675 million, or 34 cents per share, compared to $1.04 billion, or 48 cents a share in the year-earlier period.
In the year-earlier period, Fox enjoyed an income boost from British Sky Broadcasting’s sale of an interest in a TV network. Fox owns 39% of Sky.
Fox revenue missed Wall Street’s expectations. The company generated adjusted revenue of $6.01 billion, a 6% decline from the year-earlier period. Analysts were expecting $6.4 billion.
Fox’s cable television unit continued to be the standout performer with improved results from Fox News Channel, FX and the company’s fleet of sports channels. Cable networks reported revenue of $3.46 billion, an increase of 7% due to higher cable affiliate fees including Fox Sports 1.
“FS1 is making real headway ... and is on or above plans in all metrics,” James Murdoch said. He noted that TV ratings for the just-ended World Series were higher than this year, with nearly 15 million viewers tuning in, but the company was disappointed the series only went five games.
The Kansas City Royals beat the New York Mets, 4-1.
Cable segment operating income increased 26% to $1.31 billion.
Fox News Channel set a cable TV industry record with 24 million viewers tuning into the first Republican presidential debate in August.
The Fox broadcast division produced $1.05 billion in revenue for the fiscal first quarter, up a smidge from the year-earlier period. Segment operating income of $196 million represented a 13% increase.
Lower programming costs at the national network and TV stations helped, but the unit reported higher marketing costs because it launched several new TV series, including “Scream Queens” and “The Grinder.”
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