Twenty-First Century Fox, Inc. (FOX) is among the newest mammoth companies in America, having been spun off in 2013 from the late multinational conglomerate News Corporation. That company wanted to separate its entertainment and publishing businesses, which it accomplished by moving all the entertainment to 21st Century Fox and reconstituting the latter as the much smaller and almost identically named News Corp (NWS).

Its name hearkens back to that of legendary movie studio 20th Century Fox. Post 2000, 21st Century Fox has expanded into four major reporting segments. These are cable network programming, TV, filmed entertainment, and direct broadcast satellite TV, each critical to the mission of this international media conglomerate. 

In early November of 2017, reports emerged that 21st Century Fox had been holding talks with Disney to discuss potentially selling off some of Fox's assets, including their TV and filmed entertainment content, such as the movie and television studios, ownership shares in British network Sky, and Fox's 30% share in streaming service Hulu, which, when combined with Disney's 30% share, would make Disney the majority shareholders. Fox would retain Fox News, their broadcast network, and sports channel FS1, among other assets. In December of 2017 it was further reported that the two companies were nearing a deal, with Disney paying over $60 billion for the assets. 

Profit Center: Your Couch

The cable network television business is at least passingly familiar to any American with cable or satellite TV. They include Fox News Channel, the most popular cable news network, famed for its conservative slant; Fox Business Network, the company’s analog to CNBC or Bloomberg Television; and cable networks FX, FXX, and the Fox Sports empire of regional and national sports channels. Twenty-First Century Fox also owns the National Geographic Channel, both the U.S. and international versions. The company also has a huge presence in Western Europe, Latin America, Oceania and Asia, operating various movie channels and sports channels throughout said parts of the world.

As distinguished from cable network programming, 21st Century Fox’s television segment refers to the ownership and operation of television stations. The company owns 28 stations in the United States, including two apiece in the nation’s three largest cities: New York, Los Angeles and Chicago. 

A couple dozen television stations might sound like a relatively modest list of assets. After all, what’s a station but a building with a handful of satellite dishes to receive network programming, plus a local news division? It’s not a rhetorical question. The answer is: a license to print money. Television stations in major markets can command prices upward of $750 million.

The television segment also includes the Fox Broadcasting Company itself, parent to the Fox Network, better known as the United States’ only new national broadcast network founded in the last 60 years. 

Own the Outlet, Own the Content

As for filmed entertainment, that includes movie production and distribution, under the 20th Century Fox Film banner. The segment also entails other movie brands, among them Fox Searchlight Pictures, which distributes special-interest and independent films. Also under filmed entertainment is television programming, TV production, and syndication & distribution. Under the name 20th Century Fox Television, this is the department tasked with producing Empire, The Simpsons, and Brooklyn-Nine-Nine, along with other shows broadcast on the Fox Network. By the way, there’s no rule that prohibits a company affiliated with one network from producing shows for another, which is how 20th Century Fox Television can produce successful shows for ABC (Modern Family, Fresh Off the Boat) among other networks. Also, 20th Century Fox Television’s sister company, 20th Television, licenses programs for syndication. Another related company, Fox Television Studios, produces yet more shows for more networks (USA Network, Independent Film Channel, etc.). Finally, this division owns the Shine Group, which produces and distributes programs for viewers in the United Kingdom, Germany and elsewhere.

The company also owns, or at least owns the right to distribute, several thousand movies and television episodes. If your local UHF outlet broadcasts The Sound of Music or Star Wars: A New Hope gets a cut. (Fox owns the rights to the original Star Wars "in perpetuity," probably because George Lucas was so desperate to get his movie made in 1977 that he didn't even look at the fine print. All the other Star Wars films are owned by Disney.) The same goes for many television series, even including vintage ones that predate the company’s founding by decades (M*A*S*H, The Mary Tyler Moore Show, etc.).

Which takes us to Direct Broadcast Satellite Television. In the United States, there are only two direct broadcast satellite television operators of significance: DirecTV (DTV) and Dish Network Corp. (DISH). In this regard 21st Century Fox has little presence in its country of origin. Instead its operations are concentrated in Italy (Sky Italia), Germany and Austria (Sky Deutschland). It also has a 39% ownership stake in Sky, the United Kingdom’s primary TV provider. 

That’s 21st Century Fox’s biggest equity interest, but not its only one. Not far behind is the company’s one-third interest in Hulu, the American online video service it shares with the parent companies of ABC and NBC. FOX also has a large interest in an Indian satellite TV firm (Tata Sky).

All that accounts for an empire of entertainment, but where does the revenue come from? FOX lists four major streams, three of them almost equal in their contributions to the income statement: affiliate fees, content and advertising. Subscriptions run a somewhat distant fourth. (For more, see: Hulu, Netflix, and Amazon Instant Video Comparison.)

Revenue from Every Angle

As for affiliate fees, that's the money that television stations pay for the privilege of receiving 21st Century Fox programming. Neither KTTW Sioux Falls nor KRIV Houston gets to broadcast Fox shows to its viewers free of charge. Each Fox-affiliated station around the United States — and there are close to 200 of them — scratches a substantial check to be able to fill up its schedule with dozens of weekly hours of network programming. Affiliate fees brought in around $12.1 billion to 21st Century Fox thus year, a 8% increase that the company credits to higher average subscriber rates. Your cable or satellite provider pays to show 21st Century Fox content, and in turn collects those fees from you the viewer.

The more channels 21st Century Fox creates or buys, the more revenue it will generate through affiliate fees. In the last couple of years, 21st Century Fox bought controlling interest in the YES Network (a New York City-based cable network that shows New York Yankees and Brooklyn Nets games, among other sports programming) and created Fox Sports Asia, formerly ESPN Star, Asia’s largest cable sports network. 

Content, where sales approached $7.7 billion last year, refers to the TV shows and movies that the many 21st Century Fox businesses create. That sales figure represents a 3% decrease over fiscal year 2016. As for advertising, that’s fairly self-explanatory. Advertising revenues increased 5% to $8 billion in 2017. Interestingly, the company attributes much of that $379 million increase to a single event: Super Bowl LI, in which a 30-second commercial cost between $5 and $5.5 million. With approximately 100 commercials available during the broadcast, 21st Century Fox’s math not only checks out, but makes the $1.1 billion Fox pays annually to the National Football League (which grants the broadcaster the right to show the Super Bowl every third year) seem like a bargain.

The Bottom Line

FOX carries $19 billion in long-term debt and cash flow has been going in a suboptimal direction for years. But the company is still quite profitable, and trades at less than eight times earnings. For an investor looking for an established company to add to their portfolio, there are thousands of worse choices.

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