Author Topic: FOXA - Twenty-First Century Fox Inc  (Read 38453 times)

spartan

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Re: FOXA - Twenty-First Century Fox Inc
« Reply #120 on: October 17, 2020, 12:37:17 PM »
Thought it would be useful to inject some data into this discussion.

Michael Nathanson (respected media analyst) asked 5,000 households the following question: are you a regular sports viewer? (Defined as weekly/daily/monthly viewing of sports.) You could argue that 5,000 households is a relatively small sample size, but he seems to think the data is reliable.

Yes = 53%, of which 90% still pay for the cable bundle.
No = 47%, of which 67% still pay for the cable bundle.

Nathanson found that most sports viewers are predominantly male (no surprise), there is no significant difference in age amongst viewers (somewhat surprising), and there is a clear positive correlation between sports viewing and income levels (very surprising). Sports fans tend to have much higher income levels.

Of those regular sports viewers, what other content do they watch? 84% of them said news.

Based on this sample, along with other studies, Nathanson was able to conclude that of all the pay TV subscribers (98 Million at the time of the study):

- 51% are regular sports and news fans (50 Million)
     - 81% are still paying for traditional TV
     - 10% have vMVPD
- 9% are regular sports viewers only (9 Million)
     - 69% are still paying for traditional TV
     - 16% have vMVPD
- 26% are regular news viewers only (25 Million)
     - 74% are still paying for traditional TV
     - 6% have vMVPD
- 14% are non-sports and news viewers (high risk cord cutters – 14 Million)
     - 44% are still paying for traditional TV
     - 7% have vMVPD

So, what is the resting place of cord cutting? Big question, but we can at least agree that the non-sports and news viewers (14%) will cut quickly. Therefore, that leaves roughly 85 Million. However, as I’m sure many would agree, it will likely be much less. (Maybe 40-50 Million?) Fundamentally unknowable variable. Nathanson uses an interesting analogy: will pay TV mirror the decline of magazines or music (pre-streaming)? In other words, will the decline be rapid or gradual? Interestingly, niche lifestyle magazines (InStyle, People, etc.) grew total paid subscribers over the past 20 years. “There’s something about the magazine and delivery of that content that stayed valuable.” Nathanson is of the view that live news/sports fall into this category.

Another question he posed: How often do you or someone in your household use the following service to stream content?

- Netflix
     - 40% daily
     - 40% few times a week
- Amazon Prime
     - 25% daily
     - 40% a few times a week
- Hulu
     - 40% daily
     - 35% a few times a week

Nathanson also reiterated what many have already said on this forum: the next few years (he predicts around 5 years) are going to be great for consumers, producers, people who own facilities, people who do hair and makeup, and many others in the “content supply chain”. This could lead to other interesting investment opportunities. It is hard to argue against the notion that Amazon, Disney, Hulu, Netflix, Apple, et. al. will continue to spend for content in a race to scale up.

Therefore, IMO the overarching thesis for an investment in Fox has to be this: smaller revenue base but higher take rate. Higher pricing power regardless of volume declines. Live news and sports will not be severely disrupted. In addition, Fox's strong balance sheet and unique assets (Fox Studio Lot, gambling investments) give investors a reasonable cushion.

IMO a major weakness to the Fox investment thesis is the threat of Amazon and the rising cost of sports rights. Much to Nathanson’s surprise, Amazon is the only Big Tech player that’s making a serious foray into sports rights. They’ve purchased rights for select games in the past and recently acquired rights for an NFL playoff game (https://www.wsj.com/articles/amazon-expands-nfl-coverage-with-playoff-game-11602702168). They seem to be willing to pay up for the real/imagined synergies with Prime Video. As a side note, this made me respect Amazon a bit more. They make data-driven decisions and aren't afraid to take chances.

Another weakness is the possibility that Netflix, YouTube, and other streaming services will add more advertising minutes in their videos. What if Netflix decides to change their pricing model and add a minute of ads here and there? (Another Nathanson point.) Where will that ad money come from? As ads become more targeted and data-driven, Fox’s lack of “relationship with the customer” will become a weakness when trying to sell ads.

And lastly, there is a real weakness with Lachlan. Although he has made some impressive bets in the past (REA Group), he doesn't seem to be driven by shareholder return. The guy paid $150 Million for the Chartwell Mansion...I'll let you draw your own conclusions on that one. In addition, John Nallen (COO) mentioned that the company prefers growth acquisitions over "reducing the denominator". While it might make sense for someone like Mark Leonard to say something like that - presumably because there are many more accretive opportunities in vertical market software - it's a little cringe to hear that from a company that operates in a somewhat stagnating industry.

One last general point: Nathanson thinks many vMVPD's have a profitless future (and I think correctly). The rise of vMVPD subs is slowing the decline of pay TV subs, but the networks/content they’ve chosen as bedrocks of the vMVPD experience have immense pricing power. As the price of content continues to grow, higher COGS = lower profit. Either they increase subscription prices or absorb losses to maintain subs. Either way, the future doesn’t look good for vMVPD’s.

Talk 1: https://www.youtube.com/watch?v=UEkbclAjt74
Talk 2: https://www.youtube.com/watch?v=A02X0gL1aQ8
« Last Edit: October 17, 2020, 12:41:00 PM by spartan »


Spekulatius

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Re: FOXA - Twenty-First Century Fox Inc
« Reply #121 on: October 17, 2020, 03:32:36 PM »
The growth over value statement from Lachlan makes me think twice investing in FOX. It makes no sense whatsoever for Fox shareholders. Fox is a mature cash cow business. If Fox doesn’t distribute cash now, when will they do so?
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