Yes, domestic consumers are starting to cut the pay TV cord, or not signing up in the first place. And, yes, TV ratings and ad sales are diminishing. But Fox CEO James Murdoch told the Goldman Sachs Communacopia Conference this morning that he remains optimistic about the business.
Although he considers it “reasonable” to expect the U.S. pay TV market to shrink about 1% a year, there’s still a lot of growth in Europe, Asia, and Latin America. “We operate more globally than many of our competitors,” Murdoch says. And in the U.S. where “we’re seeing declines in linear viewing,” Fox has channels including Fox Sports 2 and FXX that are still growing even though fully distributed ones such as Fox News and FX “may see some decline.”
Like a lot of his peers, Murdoch says he doesn’t fear skinny bundles. “We’re going to see a rebundling happen.” Fox is “making sure that the brands we’re investing in are as fully distributed as possible.”
But he considers digital technologies and distribution platforms to be more friend than enemy. Fox sees “better consumption” on state-of-the-art platforms including Comcast’s services using its X1 set-top box.
One big challenge is to fully measure the audience, including for previous-season shows, so advertisers will pay. “Rentrak is making great progress with real set-top box data,” Murdoch says. He considers it “necessary for some of us to push on that and accelerate the pace.”
There may be additional advertising options on Internet-delivered video. For example, instead of just counting eyeballs, Fox hopes to “charge a higher price if a customer watches one ad for 30 seconds and engages with that ad.”
Although Fox does a lot of business with Netflix, “the business rules around how we sell to [subscription video on demand] providers is changing.” For example, Fox is licensing more of its content to Hulu, which it co-owns with Comcast and Disney. Unlike Netflix, Hulu is willing to pay on a per-subscriber basis, and Fox “can control ad inventory and ad loads.”
Ultimately, though, the company needs to “go back to the root of our business” to make sure it provides quality, and differentiated programming. “If we’re doing me-too programming and playing around the edges, then we won’t do well.”
That line of thinking also applies to Fox’s regional sports networks. The company decided to “pick the markets that are going to matter, and the teams that don’t take their fans for granted….Not every team is going to work and not every team is going to work, and some markets are pretty messy.” To that end, it backed away from Los Angeles and the Dodgers, and moved in on the New York Yankees’ YES Network.
As you might expect, Murdoch says his new leadership partnership with his brother Lachlan, who’s executive co-chairman, is going great. “We’re big shareholders and are aligned,” he says. “We’re very committed to making it work…When I look at lots of other companies, in terms of leadership transition, [the one at Fox] is pretty clear and smooth.”