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.

Cox Adds YouTube to Online TV Service

Cable pay-TV operator Cox Communications reportedly has begun offering access to YouTube (including YouTube Channels) on its upstart “Contour” online TV service. The cabler recently incorporated direct-access to Netflix subscribers as well.

Contour, which is available in pay-TV channel bundles priced from $59.99 monthly is powered by Comcast’s broadband-based X1 platform. Contour features include a voice remote, which allows customers to change channels, find shows, get recommendations and launch apps by simply using voice commands.

The TV app offers personalized news, weather and traffic, including a sports app which shows stats and scores on the TV screen without interrupting the game. The cloud-based Contour interface is available in-home and on a mobile app which allows viewing on mobile devices both in and outside the home.

 

 

Sky Posts Strong Q3 Fiscal Results

British satellite TV operator Sky – coveted by 21st Century Fox, Disney and maybe Comcast – April 19 reported a 5% increase in third-quarter (ended March 31) revenue to £10.1 billion ($14.2 billion) from £9.6 billion during the previous-year period. Operating income increased 22% to £857 million from £702 million last year.

“It’s been a good quarter for Sky,” CEO Jeremy Darroch, said in a statement.

The pay-TV operator added 70,000 new video subscribers in the U.K. and Ireland, ending the period with 13 million. The service also inked new partnerships with Netflix and music streaming service Spotify for its Sky Q over-the-top video platform.

Sky has another 5.2 million and 4.8 million video subscribers in Germany/Austria and Italy, respectively.

“Against the back drop of a challenging consumer environment, this performance reflects the continual improvement in our broad set of products and services,” Darroch said.

The executive reiterated that Fox’s offer for outstanding ownership of Sky is currently being reviewed by the Competition and Markets Authority. The CMA is due to send its final report to the Secretary of State by May 1, who is expected to give his decision no later than June 13.

In assuage British regulators, Fox has suggested “ringfencing” Sky News from outside corporate (read Fox owner Rupert Murdoch) influence, and/or divesting Sky ownership to Disney.

Disney has a separate offer on the table for select Fox assets, including 20th Century Fox Studios and Sky. Murdoch is keeping Fox News and Fox Sports in the U.S., among other provisions.

In February, Comcast made public its interest in offering an offer for Sky that significantly exceeds Fox’s. The cable giant has yet to act on that.

“Since no firm offer has yet been made by Comcast or any other third party, Sky shareholders have been advised to take no action,” Darroch said.

U.K. Regulator Mandates Disney Into Sky Takeover Offer

The Panel on Takeovers and Mergers, a U.K. regulatory board, April 12 ruled the Walt Disney Co. be forced to match Fox’s $14.4 billion cash offer for British pay-TV service Sky should its $52.4 billion acquisition of select 21st Century Fox assets succeed. Fox currently owns 39% of the satellite TV operator.

The panel mandated Disney pay 10.75 pounds ($15.22) per Sky share, which is equal to Fox’s bid in 2016 for outstanding Sky shares currently held up in regulatory limbo.

Disney, which initially said it wasn’t interested in acquiring the remaining stake in Sky, has agreed to the ruling, according to The Takeover Panel.

While the ruling affords Sky investors a guaranteed Sky buyer should Fox’s bid fail, the markets remain key on Comcast’s Feb. 27 stated desire to bid more than $31 billion for Sky – which represents a 16% premium on the Fox bid. Comcast is also mulling a potential rival offer to Disney for 21st Century Fox assets.

Fox, in a statement, said it remains committed to its cash offer for Sky, which is supported by revised remedies recently offered to the Competition and Markets Authority (CMA) with whom Fox has been co-operating in order to bring the U.K. regulatory process to a “swift and satisfactory” conclusion.