This is a big conundrum for major TV companies that have seen their ratings and ad sales fall: Should they cut spending to keep profit margins high — or increase outlays to help develop shows that might succeed? Fox is taking the latter view, rather than try to hit “some theoretical balance sheet ratio,” co-COO James Murdoch told investors today at the J.P. Morgan Global Technology, Media and Telecom Conference.
Even though Fox’ prime time ratings in its target 18-to-49 demo fell about 9% this season (not including the 2014 Super Bowl), “we always have to invest in the business.” Slick shows including blockbuster Empire as well as Gotham and Last Man on Earth, enable the network to “enter the year with a bit of momentum.” Murdoch adds that “we hope that the network has bottomed out.”
It’s too early to tell how much advertisers in the upfront sales season will spend for spots on the network’s fall schedule. But “the mood music leading into the upfront has been more positive than it’s been for a while.”
Execs also are putting long term growth over short term metrics at the film studio. For example, Murdoch noted that Fox has scheduled a sequel to Independence Day for late June 2016 and one for Ice Age in July 2016. That will mean the costs for the films will show up in the books for the fiscal year that ends in June 2016, although most of the revenues won’t appear until the beginning of the following year. But “we don’t want to make the wrong decision [on the best release dates for the films] to hit a short term number,” Murdoch says.
Fox also is eager to release different kinds of films with distinctive voices. “We don’t want to be a place where people say, ‘If it’s not a comic book movie, or something else, then I wouldn’t even take it to them’.”
On other matters, the exec talked up prospects for Hulu, which Fox co-owns with Disney and Comcast. “I hope we can continue to see eye-to-eye and make this grow.” That will require the backers to keep licensing programming to Hulu, even as they sell to other streaming platforms. He’d also like to see “more varied” advertising.
Murdoch says it’s hard to figure out strategies that would enable Fox channels to appear online without undermining the pay TV bundle. “We want our product to be there, by and large, but only on the right terms.”
He seemed unfazed, though, by the growth of so-called skinny bundles including Verizon FiOS’ recent plan to offer a basic package without sports channels such as Fox Sports 1. “We’ve generally been able to thread the needle on that…I look at it as a healthy partnership” that might be shaped soon by “the amount of downstream distribution competition that’s coming” online.