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Digital MVPDs help 21st Century Fox maintain its aggregate subscriber base

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Digital MVPDs help 21st Century Fox maintain its aggregate subscriber base

The migration to over-the-top offerings and skinny bundles and the impact of cord-cutting have taken a toll on distributor and network subscriber rolls. But 21st Century Fox Inc., aided by its positioning on digital multichannel video programming distributor services, has managed to keep its portfolio largely intact.

21st Century Fox Executive Chairman Lachlan Murdoch told analysts on the company's fourth-quarter fiscal 2017 earnings call on Aug. 9 that while broader industry subscriber erosion over the past year has been about 2%, "we have maintained our aggregate subscriber level." He said that includes subscriber additions from all of the emerging digital MVPD products, including from the newest launches, Google Inc.'s YouTube TV and Hulu LLC's Hulu Live, "as well as growth in our younger channels."

Inclusion within the new offerings have also served to keep subscribers losses for the company’s regional sports networks to a minimum, a decrease of 0.5%, according to CEO James Murdoch.

The emergence of the new virtual MVPDs is also providing the company with better economics. James Murdoch said subscriber deals with the digital entrants are significantly more valuable than with traditional distributors.

"We're extracting more per subscriber in every way. Additionally, we get more data shared with us, which allows us to monetize the advertising significantly better as well," he said.

Lachlan Murdoch said the company's strengths with news and sports programming are benefiting it, as these categories, the least likely to be watched on a delayed basis, combine to generate more than half of its advertising revenues. Conversely, entertainment fare, which viewers watch live less than 50% of the time, accounts for under 3% of total ad revenue.

Shifts to delayed viewing on apps and other platforms, though, are opening up new advertising opportunities. James Murdoch said over the past year the company's "nonlinear advertising has grown by 30% and within that, our advanced advertising products revenue has grown by 40%, which is something that's really pleasing to us."

CFO John Nallen expects there will be more growth ahead in this area. He said as streaming becomes the primary way people consume content over time, it will result in fundamentally better ad products and more means for 21st Century to capitalize on the investments it continues to make in quality content production. Nallen noted there will be ways to create new ad products that are priced at premium, relative to their enhanced targeting capability, as well as a "better ad experience for customers with fewer interruptions, shorter formats and the like."

During the fourth quarter of its fiscal 2017 ended June 30, 21st Century Fox saw total revenues rise 1.5% to $6.75 billion from $6.65 billion in the corresponding year-ago. The increase stemmed from higher affiliate and advertising revenues from the company’s cable network programming segment, countered to some extent by lower content revenues from its filmed entertainment unit and lower ad dollars at the television segment.

At the cable networks segment, revenues rose 10.5% to $4.33 billion, boosted by a 10% increase in domestics affiliate revenue, reflective of higher pricing across all of its networks, notably FOX News Channel (US), FX Networks and FOX Sports 1 (US).

Domestic ad revenue improved 6% from the fourth quarter of fiscal 2016, benefiting from the impact of higher ratings at FOX News and increases at National Geographic Channel (US). These advances were partially offset by fewer NBA and NHL playoff games on the regional sports networks and the absence of the Copa America soccer tourney at FS1.

International affiliate revenue increased 9% year over year, aided by higher ratings and more subscribers, while advertising climbed at a like rate, driven by double-digit increases at STAR, which benefited from cricket coverage of the ICC Champions Trophy.

The company's TV segment saw revenues slip 3.9% to $1.00 billion as lower national and local market advertising tied to decreased entertainment ratings were partially countered by higher retransmission-consent revenues.

On the filmed entertainment front, revenues receded 11.8% to $1.80 billion, with declines at both the film and TV studios. Home entertainment revenues suffered when compared to the prior-year period, which included "Deadpool." Pay and free TV revenues were also buffeted due to the timing of feature films and fewer deliveries of returning series.

The company reported a 16.0% drop in fiscal fourth-quarter net income attributable to shareholders to $476.0 million, or 26 cents per share, from net income of $567 million, or 30 cents per share, in the prior-year period.

The fourth-quarter S&P Capital IQ consensus estimate on a normalized EPS basis was 35 cents, and 34 cents on a GAAP basis.

During fiscal 2017, 21st Century Fox posted a 4.3% increase in total revenues to $28.50 billion from $27.33 billion in its fiscal 2016.

Full-year net income attributable to shareholders increased to $2.95 billion, or $1.59 per share, up from $2.76 billion, or $1.42 per share.

Excluding the net income effects of Impairment and restructuring charges, other, net and adjustments to equity losses of affiliates, adjusted annual earnings per share from continuing operations attributable to company shareholders was $1.93, compared to the adjusted year-ago result of $1.73 per share.