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Fox Corp. bags significant upfront ad gain

Fox Corp. has started its first full fiscal year as a stand-alone entity, backed by very strong upfront advertising sales.

CEO Lachlan Murdoch said on the company’s August 7 earnings call that the 2019-2020 TV season is expected to be the strongest upfront selling season in 17 years, characterized by high pricing and volume gains, as well as interest across many industries, notably the pharmaceutical and financial sectors.

Moreover, Murdoch said the scatter market continues to be robust, with this inventory commanding double-digit premiums over upfront levels. That means Fox is registering pricing gains in the low 20% range.

During the upfront, advertisers and ad agencies secure linear and digital schedules ahead of the upcoming TV season. In the scatter market, marketers buy ad inventory much closer to when programming airs.

Walt Disney Co. completed its purchase of myriad assets from 21st Century Fox in March.

On the entertainment front, FOX (US) saw cost-per-thousand increases in the low teens during the upfront, while volume grew in the mid- to high single-digit range. The company's sports and news content recorded pricing gains in the mid- to high single digits.

The company expects both volume and pricing growth for ads related to Fox's coverage of Super Bowl LIV in Miami on Feb. 2, 2020, relative to when predecessor 21st Century Fox presented Super Bowl LI from Houston on Feb. 5, 2017.

"We are in a strong television advertising market right now, which is due in part to an especially renewed interest by marketers in prime time and sports programming," Murdoch said.

On the local level, the company's owned stations in Philadelphia and New York are tallying sports betting revenue in "a fairly significant way," said Murdoch. As more states legalize the practice, sports betting is a major revenue opportunity, the executive said.

Financially, total revenues for Fox's fourth fiscal quarter, ended June 30, grew 5% to $2.51 billion from $2.39 billion in the year-earlier period. Advertising revenues declined 6.0% to $918 million.

Cable network programming revenues rose 2.4% to $1.30 billion from $1.27 billion, as affiliates revenues increased 2.9% to $959.0 million behind contractual price hikes, countered by net subscriber declines. The television segment registered a 5.4% gain in revenues to $1.18 billion.

Net income attributable to Fox Corp. stockholders in the fourth fiscal quarter decreased to $454 million, or 73 cents per share, from $471.0 million, or 76 cents per share.

The S&P Global Market Intelligence consensus EPS estimate for Fox Corp.'s fourth fiscal quarter was 59 cents on both GAAP and normalized basis.

Full-year revenues grew 12.2% to $11.39 billion from $10.15 billion, with the increase attributable to double-digit growth in all key categories, notably within the television segment. Net income attributable to stockholders in fiscal 2019 totaled $1.59 billion, or $2.57 per share, compared with $2.19 billion, or $3.52 per share in fiscal 2018.

Full-year results were shaped by the impact of the stand-alone Fox costs, compared to cost allocations from the 21st Century Fox in the prior year, higher income tax and net interest expenses. In addition, fiscal 2018 results were boosted by a $607 million provisional net benefit tied to the enactment of U.S. tax reforms.

The S&P Global Market Intelligence consensus EPS estimate for Fox Corp.'s fiscal 2019 was $2.41 on a GAAP basis, and $2.48 on a normalized basis.