Comcast Prepping Superior Offer for Fox

The Walt Disney Co. and 21st Century Fox may think they have a $52.4 million merger agreement to split off 20th Century Fox Film locked up, but Comcast is hedging shareholders will follow the money.

Comcast May 23 issued a statement that it is finalizing an all-cash (reportedly $60 billion) offer for Fox that bests Disney’s stock-based offer.

“In view of the recent filings with the U.S. Securities and Exchange Commission by The Walt Disney Company and Twenty-First Century Fox, Inc. in preparation for their upcoming shareholder meetings to consider the acquisition of Fox by Disney, Comcast Corporation confirms that it is considering, and is in advanced stages of preparing, an offer for the businesses that Fox has agreed to sell to Disney (which do not include the Fox News Channel, Fox Business Network, Fox Broadcasting Company and certain other assets),” Comcast said in the statement.

Comcast also has a separate $31 billion offer on the table for British satellite TV operator Sky that trumps Fox’s $15 billion bid for outstanding shares of Sky it doesn’t already own.

“The structure and terms of any offer by Comcast, including with respect to both the spin-off of “New Fox” and the regulatory risk provisions and the related termination fee, would be at least as favorable to Fox shareholders as the Disney offer,” said the cable giant.

Comcast reiterated that no final decision has been made, but that “at this point” the work to finance the all-cash offer and make the key regulatory filings is “well advanced.”

Comcast’s $31 Billion Bid for Sky Receives Regulatory Bump

Comcast’s proposed $31 billion offer for British satellite TV operator Sky isn’t generating any concern from the government’s Secretary of State for Digital, Culture, Media and Sport.

Comcast May 7 formally submitted a counter-offer to 21st Century Fox’s $15 billion bid to acquire shares of Sky it does not already own.

“Having reviewed the relevant evidence available, I can confirm that … I am minded not to issue [regulatory concern] on the basis that the proposed merger does not raise concerns in relation to public interest considerations, which would meet the threshold for intervention,” Mike Hancock said in a statement.

Separately, media reports say Fox will formally ask shareholders to vote in July on The Walt Disney Co.’s $52.4 billion offer for 20th Century Fox Film, which includes 20th Century Fox Home Entertainment.

Comcast reportedly is readying its own bid for Fox assets in June.

In January, the U.K. Competition and Markets Authority issued a report warning Fox’s majority takeover of Sky without concessions would not be in the public’s best interest.

Fox, like Comcast, has vowed to leave Sky News as an autonomous operation with editorial and fiscal freedom in the event of a merger.

The CMA said successful bids by Disney or Comcast of Sky would “significantly weaken” Rupert Murdoch’s tie to Sky – the basis of the regulator’s concerns.

“On the face of it, these concerns would fall away,” the CMA said.

Comcast Announces Xfinity Retail Store

Comcast May 21 announced the launch of the new interactive Xfinity retail store.

The store is “created to provide customers an immersive destination to discover and address service needs for Xfinity products and services,” according to a company release.

The first locations of the new store format recently opened in Pueblo, Colo.; Aventura, Fla.; Henrico, Va.; Chattanooga, Tenn.; and Tucson, Ariz.

“We want to bring our customers an incredible shopping experience, which showcases the power and innovation of our Xfinity products and demonstrates how they work together,” said Tom DeVito, SVP, retail sales and service, Comcast Cable. “We have heard from our customers that they want to touch and feel our Xfinity products and understand their capabilities as they make decisions for their own home. Our Xfinity stores are the place to do that.”

Comcast has built or re-designed more than 250 new stores since 2015, according to the company. The company will open more than 50 of the new and enhanced Xfinity stores in high-traffic shopping centers across the service footprint in 2018.

“Comcast’s ultimate goal is for customers to be within a 15 minute drive of a Xfinity store,” according to the release.

Xfinity stores are designed strategically by product area —Xfinity Mobile, Xfinity X1, Xfinity Home and Xfinity Internet.

  • At Xfinity Mobile, customers can purchase new mobile phones or bring in their own Apple devices and choose a data plan.
  • At Discover xFi, the Xfinity home WiFi experience, customers can learn how to view and control network devices through the app, site or voice remote in the Xfinity Internet zone.
  • At X1, the next-generation video platform, the store features a living room environment, so customers can try the voice remote and see how X1 works firsthand.
  • The Connected Home Zone section showcases how Xfinity Home shows customers how they can control IoT devices from their phone, tablet or Xfinity Home touchscreen.

Customers can visit the store to upgrade or swap equipment, ask questions about their Xfinity service, troubleshoot equipment or pay a bill at an in-store kiosk. In-store appointments can be scheduled online on their local store website.

New Xfinity stores also have a dedicated space for Comcast Business customers and prospects to come in and discuss their business technology needs with an expert.

Report: Multichannel Subscriptions Fall Slightly in Q1, But Get Virtual Lift

Combined cable, direct broadcast satellite (DBS) and telecom multichannel subscriptions fell 0.8% sequentially in the first quarter ended March 31, to 93.2 million, including 90.3 million residential customers.

That’s according to the Q1 2018 U.S. Multichannel Subscriber Report by Kagan, a media research group within S&P Global Market Intelligence.

However, noteworthy gains for virtual platforms DirecTV NOW and Sling TV cut the quarterly subscription losses in half, raising the overall residential figure to 94.1 million.

Other findings:

  • The residential multichannel penetration rate stood at 76.1% as of March 31 when including the virtual smartphone platforms owned by AT&T and DISH Network (DirecTV NOW and Sling TV).
  • Cable operators logged their largest first-quarter video subscriber decline on record, with the top two multiple system operators, Comcast and Charter, accounting for 59% of the drop.
  • Telco video appears to be regaining its footing as AT&T’s U-verse stabilizes. The platform’s video customer losses fell below 100,000 for the first time since the third quarter of 2015.
  • DBS losses ramped back up in the first quarter, bringing the sector’s total down to 31.1 million.For more information, visit www.spglobal.com/marketintelligence.

Lachlan Murdoch to Become Chairman/CEO of New ‘Fox’

Twenty-First Century Fox May 16 revealed the senior management team at the revamped “Fox” once it consummates the asset sale of 20th Century Fox Film Corp. to The Walt Disney Co. (or Comcast).

Current executive chairman Lachlan Murdoch will serve as chairman and CEO of the new company, while his father, Rupert Murdoch, will serve as co-chairman. John Nallen, CFO at 21st Century Fox, will take a broader role as new COO.

No mention of current Fox CEO James Murdoch, who apparently won’t have a role in the new company.

The younger son was seen as more progressive politically than his father and brother. Indeed, James was reportedly embarrassed by ongoing sexual harassment issues at Fox News, and late last year wrote an email criticizing President Trump’s response to the deadly skirmish in Charlottesville, Va., between protesters and white nationalists and alt-right groups that left one woman dead and 19 people injured.

The downsized Fox will feature Fox News Channel, Fox Business Network, Fox Broadcasting Co., Fox Sports, Fox Television Stations Group, and sports cable networks FS1, FS2, Fox Deportes and Big Ten Network.

It will house the top cable news channel in the country, and a stations group in nine of the 10 largest metro areas in the U.S. Its broadcasting and cable sports brands will have long-term sports rights to the NFL, MLB, World Cup soccer and NASCAR.

“We have worked through the winter ‘standing up’ a reimagined independent Fox,” the younger Murdoch said in a statement.

Rupert Murdoch said the revamped company would become the only media company solely focused on the domestic market.

“Focused on what Americans love best – sports, news and entertainment,” he said.

Comcast’s Solution to Video Sub Losses: Raise Broadband Pricing

Comcast Cable lost 96,000 video subscribers in the first-quarter (ended March 31), and 200,000 subs in 2017 — many to competing over-the-top video services and/or online TV platforms.

So, what is Comcast Cable doing in response to cord-cutters? Raising broadband (high-speed Internet) fees, CEO Dave Watson told an investor group.

Speaking May 14 at the MoffettNathanson Media & Communications Summit in New York, Watson reiterated that the traditional cable bundle still represents the best value to consumers eyeing a-la-carte programming alternatives such as Showtime OTT, HBO Now, Netflix, Amazon Prime Video and Hulu, etc.

When pay-TV subscribers opt for OTT video alternatives, they lose the multiproduct discount, while Comcast is able to lower its programming costs, while hiking monthly broadband fees.

Indeed, Comcast added 379,000 high-speed Internet subscribers in Q1, which helped upped broadband revenue 8.5% to $14.8 billion — 64% of video revenue.

“We’ve seen some low-end customers that have dropped video, maintain broadband … it’s accretive when that happens,” Watson said.

The executive said Comcast’s cloud-based X1 set-top continues to meld the traditional set-top with OTT video. The platform, which accounts for almost 60% of Comcast’s residential video footprint, now offers direct-access to Netflix and YouTube.

“We still think video is a very important category,” Watson said. “We’re still going to compete.”

At the same time, Watson concedes that competing streaming media set-top dives such as Roku offer similar features of X1, including the Xfinity app.

“We have a lot of optionality around how we manage the video relationship,” he said.

 

Fox’s Lachlan Murdoch Declines Comment on Comcast Bid, Touts Studio Home Entertainment Releases

Lachlan Murdoch, executive chairman of 21stCentury Fox, refused to comment on “market speculation” surrounding a possible $60 billion cash offer from Comcast for 20thCentury Fox Film Corp., and related assets.

The Walt Disney Co. currently has an accepted $52.4 billion stock offer for Fox – a transaction that must be approved by shareholders and regulators.

That didn’t stop Rich Greenfield, analyst with BTIG Research, from asking whether any offer other than Disney’s would be considered.

“We are committed to our agreement with Disney … and working on the conditions to bring it to closure,” Murdoch said, adding Fox’s board was aware of its fiduciary duty to entertain all offers.

Notably, Disney has to pay Fox $2.5 billion should the deal not be approved, while Fox is on the hook to Disney for $1.52 billion should it back away from the deal.

Meanwhile, speaking on the brief (28-minute) third-quarter (ended March 31) fiscal call, Murdoch gave a shout out to recent home entertainment releases of The Greatest Showman, The Shape of Water and Three Billboards Outside Ebbing, Missouri and Maze Runner: Death Cure.

“The home entertainment release of these films, along with the theatrical release of Deadpool 2, should propel a strong fourth fiscal quarter,” Murdoch said.

The Fox film unit generated pre-tax operating income of $286 million, which was down 23% decrease from $373 million in operating income in the prior-year quarter. Revenue was flat at $2.24 billion.

The operating income decline reflected lower contributions from the television production business due to higher deficits related to more new drama series delivered during the quarter and the absence of revenue from the prior-year subscription-video-on-demand licensing of “The People v. O.J. Simpson: American Crime Story”.

Fox, like other Hulu corporate parents Disney, Comcast and Time Warner, accrued increased losses from the SVOD service and Hulu Live online TV service. Fox lost $148 million on Hulu in the quarter, up from a loss of $62 million during the previous-year period. Through nine months, Fox has lost $318 million on Hulu compared to a loss of $161 million last year.

Separately, Murdoch acknowledged presence of a “potential further offer [i.e. Comcast],” for “our businesses” – reiterating a “no-comment” company policy on the issue.

He said he expected U.K. regulatory approval shortly for Fox’s bid for shares of satellite TV operator Sky it does not already own. Comcast also has an outstanding bid for Sky that substantially exceeds Fox’s offer.

“Comcast has just begun its regulatory process, and we think it’s very reasonable that Comcast undergo a very robust regulatory review – which could take months,” said Murdoch. “Given Comcast’s bid for Sky, we are considering our options.”

Murdoch said planning for the New Fox (absent 20thCentury Fox) was well underway, including the just-announced $910 million acquisition of seven TV stations from Sinclair Broadcast Group.

Fox chairman Rupert Murdoch and his sons, are keeping Fox News, including new SVOD service Fox Nation, Fox Broadcasting and Fox Sports.

Disney Has Lofty Plans for Hulu, Despite SVOD’s Mounting Fiscal Losses

The Walt Disney Co. plans to “fuel” Hulu with original programming from its core brands should its $52.4 billion acquisition of 20th Century Fox be completed, Disney CEO Bob Iger told analysts.

Speaking May 8 on the fiscal call, Iger said the Fox acquisition would give Disney 60% ownership of Hulu (and Hulu Live online TV service) with co-owners Comcast and Time Warner owning 30% and 10%, respectively.

Comcast is reportedly finalizing plans to outbid Disney for Fox, which, if successful, would give the cable giant control of Hulu.

“It is our intention to continue to fuel Hulu with more original programming,” Iger said. “And much of that original programming will come from the assets of both Disney and Fox. Think FX as one example, Fox Searchlight is another.”

Iger said Disney’s plan to rollout a branded SVOD service in 2019 could include other Fox assets such as National Geographic, but would be largely anchored by Disney, Marvel, Pixar and Star Wars content.

“When we announced [our direct-to-consumer initiatives] a year ago, we were not talking about Hulu,” he said. “And again, neither is dependent upon, but stands to benefit from the Fox acquisition.”

Disney’s growing obsession with OTT video and Hulu comes as it watches Netflix and Amazon Prime Video grab global market share, increasingly featuring original content.

“When we were considering the best way to integrate the Fox assets, we asked ourselves how best to organize the company,” Iger said. “And one of the things that we looked at was how some of the new entrants in the marketplace are organized. And you typically find – Netflix is a good example.”

At the same time, as Hulu ups its content profile and subscriber base (20 million), costs escalate.

Disney has guaranteed $113 million of Hulu’s $338 million term loan, which expires in August 2022. Disney is also committed to infusing $450 million in capital contribution to Hulu in 2018, according to a regulatory filing. Through March 31, Disney’s capital contributions totaled $114 million against this commitment.

Hulu lost $920 million in 2017 compared to a loss of $531 million in 2016. The fiscal loss is reportedly projected to reach $1.7 billion this year as original content (“The Handmaid’s Tale,” “Marvel’s Runaways,” “Future Man,” and “The Doozers”) spending skyrockets.

“The higher losses at Hulu were primarily driven by continued investments in programming and marketing, partially offset by higher subscription and advertising revenue,” said CFO Christine McCarthy.

 

In Digital Age, Comcast is Swinging for the M&A Fence

NEWS ANALYSIS — Comcast still has that Disney itch.

The media giant reportedly is securing upwards of $60 billion in cash financing in an effort to outbid The Walt Disney Co.’s current $52 billion stock offer for 2oth Century Fox Film Corp., which includes movies, TV shows and foreign assets.

The merger & acquisition bid would only be submitted should AT&T’s $84.5 billion acquisition of Time Warner be approved by a federal judge, according to Reuterswhich cited sources familiar with the proceedings. That deal is being opposed in court by the Department of Justice on alleged antitrust issues.

Comcast previously submitted a $30 billion offer for Fox-controlled Sky Plc in the United Kingdom — a bid that trumps Fox’s separate offer for remaining interest in the satellite TV operator, whose business includes operations in Italy and Germany.

Comcast’s legacy cable business is under increasing threat (lost 96,000 video subs in Q1) from over-the-top video behemoths Netflix and Amazon Prime Video, whose global platforms continue to migrate millions of consumers from traditional pay-TV to streaming video.

One way to mitigate the damage is through maximizing economies of scale in content creation and distribution. Comcast assets include NBC Universal, which includes Universal Pictures, and DreamWorks Animation, among many others.

Fox, which is controlled by Rupert Murdoch & his sons, controls the rights to franchises such as “X-Men,” “Fantastic Four,” “Deadpool” and “Avatar,” in addition to “The Simpsons” on TV.

In addition, Comcast, Fox and Disney each own 30% stakes in Hulu (Time Warner owns 10%). Should Comcast prevail acquiring Fox, it would have controlling interest in Hulu, which just topped 20 million subscribers.

Fox subsidiaries are major content suppliers to Hulu, although the platform’s breakout hit, “The Handmaid’s Tale,” is produced by MGM. With Disney eyeing its own branded SVOD service in 2019, controlling interest in Hulu and Hulu Live online TV platform is a pre-requisite.

“We believe this is simply not possible without Comcast’s consent and we see no reason why Comcast would want to enable Disney to have a more successful streaming service that hampers the legacy bundle that is vital to Comcast,” BTIG Research analyst Richard Greenfield wrote in a note last year.

Indeed, Comcast’s rivalry with Disney dates back to 2004 when it made a hostile $54 billion bid for Disney after then-CEO Michael Eisner refused to entertain merger discussions. Comcast later withdrew the offer.

 

Comcast Makes Formal $31 Billion Bid for Sky

As expected, Comcast Corp. April 25 announced a “pre-conditional superior cash offer” of $31 billion for Sky, the European satellite TV operator headquartered in the U.K. The offer represents a 16% premium on 21st Century Fox’s standing bid for the 61% stake in Sky it does not own.

“We have long believed Sky is an outstanding company and a great fit with Comcast,” Brian Roberts, CEO of Comcast Corp., said in a statement. “Sky has a strong business, excellent customer loyalty, and a valued brand. It is led by a terrific management team who we look forward to working with to build and grow this business.”

Comcast eyes Sky’s 23 million subscribers in the U.K, Italy, and Germany, and history of strong financial performance. Roberts said Sky would help expand Comcast’s international footprint in the U.K. and Western Europe.

“The combined customer base of approximately 52 million will allow us to invest more in original and acquired programming and more in innovation as we strive to deliver a truly differentiated customer experience,” he said.

Comcast, like Fox, said it intends to safeguard Sky’s editorial independence by maintaining fiscal support for Sky News for 10 years, establishing an editorial Sky News board; keeping Sky’s U.K headquarters in Osterley for five years; and not acquiring any majority interest in U.K. newspapers for five years.

In a move aimed at competing with Netflix and Amazon Prime Video in the U.K., Comcast said it would increase investment in U.K. film and TV production and maintain support of Sky’s technology hub in Leeds, among other actions.

Comcast, which owns NBC Universal and DreamWorks Animation in the United States, contends owning Sky would create a media conglomerate better equipped to compete in a rapidly changing and highly competitive industry.

“Together, the companies would be well positioned to drive growth to provide attractive returns to Comcast shareholders and to benefit the employees and customers of both organizations,” Comcast said in a statement.

Indeed, Sky’s board of directors issued an April 25 statement withdrawing its recommendation to shareholders to support Fox’s Dec. 15, 2016 offer. It said it was also terminating the co-operation agreement with Fox – which said it would respond shortly to the Comcast offer.