Commentary

Forecast: Fox Corp. Sees Mixed Affiliate Fee Results

Now, a few months into its smaller, independent structure, Fox Corp.'s day of reckoning is at hand.

Did it make the right move in selling half the company to Disney, leaving itself as a live sports and news programming entity? For the first weeks of the new season, the answer would be yes, but...

Fox’s NFL TV programming has seen higher ratings versus a year. At the same time, Fox News Channel continues its dominant ways -- in terms of overall cable viewership. The goal is that live TV content -- news and sports -- will achieve premium advertising pricing.

But the negatives are hanging around, too.

MoffettNathanson Research says affiliate/retransmission fees for Fox broadcast and cable networks could mean trouble. “We are decreasing our target multiples to reflect the more challenging secular industry headwinds in Pay TV subscriber trends,” it said in a recent report.

For example, looking at just Fox’s cable TV networks, MoffettNathanson is estimating a paltry 2% rise for its fiscal year 2020 affiliate fee growth rate. Looking specifically at the first two quarters of 2020, it only sees a 1% gain. These estimates are down from its projection of 7% in March.

For years, cable TV networks have depended on steady affiliate fee hikes in the wake of mostly stagnant, or declining, ad revenues. The latter is due to an increase in cord-cutting.

In the fourth quarter of 2018, even including results from new vMVPDs, the rate of cord-cutting has accelerated. Subscribers are down 1.1% in that period, according to MoffettNathanson. There was further slippage of 1.8% in the first quarter of 2019, and 2.8% in the second quarter of 2019.

Projections across all Fox cable networks -- including Fox News Channel and Fox Sports One -- give the company a $0.83 per subscriber/month. MoffettNathanson estimates the average number of subscribers for all Fox cable networks is down 2.1% to a total of 383.1 million.

This totals an overall $948 million in affiliate fees for the third quarter of 2019. Although higher than the previous quarterly period, it is down from the $968 million in the first quarter o 2019.

And there are more questions to come: In 2022, 70% of all Fox cable network agreements with pay TV providers will be up for renewal. What will cord-cutting look like then?

Will live sports and news content be of greater, perhaps increasing value, for subscribers (traditional pay TV or virtual) as well as advertisers and new video distributors?

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