The good feeling about Fox after the release of its quarterly earnings was short-lived. The stock turned down about 5.8% in post market trading after COO Chase Carey, in a conference call with analysts, acknowledged that “our broadcast business is not where we expected it to be at this time” due to weak ratings and ad sales. The company will increase its spending on programming. “The next year will be a period of stabilizing that business and putting it on a path to grow.” Even so, as he looks ahead to 2016, he expects “the same themes to continue.”
Fox sliced $250 million from its profit forecast for the current fiscal year that ends in June, and $200 million for the one that ends in mid-2016.
Carey says that the company took a roughly $100 million hit in each of three “buckets.” Fox overseas revenues were hurt by weakening foreign currencies vs the strong dollar. Then there are the broadcast troubles. And the company lost more from a change in the ownership structure of Shine Group, which no longer enables Fox to consolidate its financials, as well as theatrical “Christmas releases that didn’t pan out.”
Most of the focus was on the struggles at Fox’s broadcast operations. Even though “we’re not in the point of the growth curve that we expected to be on,” Carey says that “we’ve turned the corner with a new network management team who inherited our current broadcast issues, but has brought fresh momentum and energy to the business.” The COO also says he’s “excited about new hits such as Empire and Gotham as well as a new slate of event programming. Our competitors have shown what a difference a few hits can make.” Still, “it will take a time” for investments in new shows to lead to profits.
Carey acknowledged that digital platforms have taken ad dollars and viewers. “It’s fair to say that this trend recently has been a bit faster than many expected. These issues will put short-term pressures on our business but represent longer-term exciting growth opportunities.” He added that the number of pay TV subscribers for Fox is “down a touch.”
Co-COO James Murdoch noted that the growth of streaming means Fox’s networks are competing “not only with what’s on at the same hour, but with everything that’s come before.” Carey added that while there’s “an oversupply of mediocre programming” it’s hard to get hits. “That’s what it’s all about. Who’s positioned to best create the hit programming tomorrow?”
For now, though, Fox isn’t overburdened with demands for make-good ads to compensate for its ratings shortfalls. Although ratings are “not where we expected,” Carey says that “we’re pretty good at dealing with [ad sales and inventory] on an ongoing basis and not letting it stockpile.”