FOXA Fox Corporation

By Keach Hagey 

21st Century Fox Inc. posted a 27% increase in profit for the most recent quarter, driven by stronger advertising and affiliate fees at its broadcast and cable-television segments.

The company, which owns the Fox television network, cable channels such as Fox News and the Twentieth Century Fox movie and television studios, reported net income of $856 million, or 46 cents a share, up from $672 million, or 34 cents, a year earlier, for the three months ended Dec. 31. Revenue rose 4% to $7.68 billion.

After years of being a laggard, the Fox network was the star of the quarter, thanks to strong advertising revenue from sports events such as the World Series, higher spending on political advertising and higher fees from distributors. The broadcaster helped push television segment revenue up 12% in the quarter. Politics and sports also helped boost revenue and profit at the cable division, home to Fox News and the FS1 sports network.

"The power of sports can't really be overstated," said Chief Executive James Murdoch on a call with analysts, noting the strength of Fox's baseball and NFL postseason ratings, as well as viewership for Super Bowl Sunday on Fox.

About 111.3 million people tuned in for the New England Patriots' shocking comeback to beat the Atlanta Falcons 34-28 in the first-ever Super Bowl overtime, and more than 2 million others watched the game online or on Fox's Spanish-language service. Fox had charged advertisers as much as $5 million for 30 seconds of TV commercial time during the game.

21st Century Fox Executive Co-Chairman Lachlan Murdoch said on the call that the Super Bowl "powered Fox's first half-billion-dollar revenue day."

Adjusted for one-time items, Fox reported earnings from continuing operations of 53 cents a share. Analysts polled by Thomson Reuters had been expecting revenue of $7.718 billion and earnings of 49 cents a share.

Fox's Class A shares were up 1.1% in after-hours trading.

At the cable division, domestic advertising revenue grew 12%, thanks to higher ratings at Fox News and FS1. Meanwhile, the division's domestic affiliate revenue grew 7% due to distribution rate increases at Fox Networks, FS1, Fox News and the regional sports networks.

Internationally, advertising revenue decreased 6% because of lower ad revenues at STAR India. The unit was affected by the Indian government's demonetization effort, in which high-denomination notes were taken out of circulation to curb corruption. But it also had significant effects on businesses and the economy.

In the television segment, revenues were boosted by the World Series, particularly game 7, which was the most-watched baseball game in the last quarter century. Adjusted operating income, the company's measure of profitability, was up 35% from the previous year.

In the filmed entertainment division, which includes the Twentieth Century Fox studio, adjusted operating income was up 29% from the year-earlier quarter, primarily due to lower costs from fewer films being released. Revenues decreased 4% in the segment.

The media company announced in December that it had formally submitted a roughly $14.6 billion offer to buy the rest of British pay-TV giant Sky PLC that it doesn't already own. The deal, if approved by regulators, would help Fox integrate content with distribution, an argument similar to the one made by AT&T Inc. and Time Warner Inc. in their proposed merger.

Fox's predecessor's prior effort to buy the U.K. pay-TV company was thwarted in 2011, amid a phone hacking scandal at one of its British newspapers. 21st Century Fox and News Corp, parent company of The Wall Street Journal and other newspapers, split in 2013 but still share common ownership.

Fox executives have repeatedly pointed to Sky's direct-to-consumer capabilities as a key reason for wanting to do the deal. At the moment, Fox has no direct commercial relationship with its viewers, though the company is in the midst of an overhaul of its streaming apps -- today only accessible to people who already subscribe to pay-TV -- that could lead to a direct-to-consumer offering in the mold of CBS All Access in the future.

James Murdoch said the key goal of the streaming overhaul, which will start rolling out in a month, is to make the login process to streaming apps smoother for pay-TV customers, make shows easier to discover with things like a recommendation engine, and create opportunities for more innovative ad formats that allow Fox to reduce ad loads.

"Certainly it's also an option for us in the future, whether or not we'd like to have an independently priced access to that suite of apps," he said. "That's a decision we haven't yet made, but one certainly that we feel we have the capability and the general wherewithal in terms of managing direct-to-consumer business, subscriber business, to tackle."

Write to Keach Hagey at keach.hagey@wsj.com

(END) Dow Jones Newswires

February 06, 2017 18:47 ET (23:47 GMT)

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