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Gain from DBS biz sale offsets 21st Century Fox’s loss from termination costs for CL T20

MUMBAI: Twenty-First Century Fox’s annual income from continuing operations attributable to stockholders more than doubled to $8.37 billion for the fiscal year ending 30 June compared with $3.79 billion in the prior year due to a $4.20 billion gain on the company’s sale of the direct broadcast satellite (DBS) businesses, Sky Italia and Sky Deutschland AG, to Sky.

The gain from sale of DBS businesses was partially offset by approximately $800 million in charges recorded in the fourth quarter related to programming inventory that will no longer be aired, contract termination costs for cancellation of Champions League T20 (CL T20) and the disposition of certain pension liabilities.

It is pertinent to note that the Governing Council of the Champions League Twenty20 (CLT20) had last month decided to scrap CLT20 competition with immediate effect.

Twenty-First Century Fox’s India subsidiary Star India was in favour of scrapping the tournament as it was not garnering enough viewership. Star is believed to have paid $330 million to exit the tournament. ESPN Star Sports (now Star Sports in India and Fox Sports in rest of Asia) had acquired the rights for $975 million in 2008.

CL T20 was jointly owned by BCCI, Cricket Australia and Cricket South Africa.

The media conglomerate has reported total revenues of $28.99 billion for the fiscal year ending 30 June, representing a $2.88 billion decrease from prior year revenues of $31.87 billion.

Excluding the net revenues from the DBS businesses, Sky Italia and Sky Deutschland AG, which were sold in November 2014 to Sky, adjusted revenues increased $890 million or 3 per cent over the $26.06 billion of adjusted revenues in the prior year driven by double-digit revenue growth at the Cable Network Programming segment.

The company reported annual total segment operating income before depreciation and amortisation (OIBDA) of $6.72 billion which is equal to the amount reported in the prior year.

Excluding the OIBDA contributions from the DBS businesses in both years, OIBDA increased $197million, or 3 per cent, over the $6.29 billion of adjusted OIBDA in the prior year, due to higher contributions from the company’s Cable Network Programming and Filmed Entertainment segments.

The full year results also include approximately $800 million in gains included in equity earnings of affiliates primarily related to the company’s share of Sky’s gains on the sale of certain investments.

The company reported quarterly revenues of $6.21 billion, a $2.22 billion decline from the $8.42 billion of revenues reported in the prior year quarter. Excluding the prior year quarter’s net revenues from the DBS businesses, adjusted revenues decreased $635 million, or 9 per cent, from the $6.84 billion of adjusted revenue in the prior year quarter.

This decrease primarily reflects lower revenues generated at the Filmed Entertainment segment partially offset by a 7 per cent increase at the Cable Network Programming segment due to higher affiliate revenues.

Quarterly total segment OIBDA of $1.54 billion declined by $222 million from the $1.77 billion reported in the prior year quarter. Excluding the OIBDA contributions from the DBS businesses in the prior year quarter, OIBDA declined $76 million, or 5 per cent, as growth at the Cable Network Programming segment was more than offset by lower contributions from the company’s Television and Filmed Entertainment segments.

The company reported quarterly income from continuing operations attributable to stockholders of $116 million, as compared to $966 million reported in the corresponding period of the prior year. Excluding the net income effects of Other, net and adjustments to Equity earnings of affiliates, including adjustments related to Sky and Endemol Shine Group, fourth quarter adjusted earnings per share was $0.39 versus adjusted earnings per share of $0.42 in the same quarter of the prior year.

Commenting on the results, Twenty-First Century Fox executive chairman Rupert Murdoch said, “We made clear operational strides over the last year that will further position us to benefit from the strong and growing global demand for high quality video content. We delivered a solid financial performance, driven by sustained gains in affiliate fees, while we continued to invest in building our new channels Fox Sports 1, FXX and Star Sports. The appeal of our new sports rights resonated with consumers globally, whether it was Star Sports in India setting new records with hundreds of millions of viewers for the ICC Cricket World Cup, or the more than 25 million viewers who watched the Women’s World Cup Final on FOX.

“Our film studio achieved outstanding critical and box-office success with a truly diverse range of films and we are proud of the creative excellence that earned it the most Academy Awards in the industry. Our company is well positioned for this time of opportunity in our industry. We will balance the utilization of our strong balance sheet to drive growth. Today’s announcement of our new $5 billion buyback authorization reflects our ongoing program to provide direct shareholder returns.”

Cable network programming

Full Year Segment Results

Cable Network Programming annual segment OIBDA increased 5 per cent to $4.65 billion, driven by a 12 per cent revenue increase led by continued strong affiliate revenue growth and higher advertising revenues. The revenue improvement was partially offset by a 16 per cent increase in expenses, representing higher sports programming costs driven by the broadcasts of the ICC Cricket World Cup at STAR Sports, increased Major League Baseball and NASCAR rights costs at Fox Sports 1 (FS1), and higher professional team rights costs at the regional sports networks (RSNs) as well as increased entertainment programming costs at FX Networks. The segment OIBDA growth was adversely impacted by 5 per cent from foreign exchange rate fluctuations, primarily in Latin America and Europe.

Domestic affiliate revenue increased 17 per cent reflecting the combination of sustained growth at the regional sports networks (RSNs), Fox News Channel and FX Networks, increased contribution from FS1, and the consolidation of the Yankees Entertainment and Sports Network (the YES Network). International affiliate revenue increased 3 per cent driven by strong local currency growth at the Fox International Channels (FIC) and Star, partially offset by a 12 per cent adverse impact from the strengthened U.S. dollar.

Domestic advertising revenue grew 4 per cent over the prior year period led by double-digit growth at the sports channels, including the impact of the consolidation of the YES Network, as well as growth at Fox News and FX Networks. International advertising revenue increased 14 per cent due to strong local currency growth at Star and FIC, which was partially offset by a 5 per cent adverse impact from the strengthened U.S. dollar.

OIBDA from the domestic channels increased 12 per cent from the prior year, led by strong double-digit growth at the RSNs, which includes the impact of the consolidation of the YES Network, as well as higher contributions from Fox News Channel and National Geographic Channels. Annual OIBDA at the company’s international cable channels declined 16 per cent from the prior year as double digit local currency growth at the FIC channels and Star entertainment channels was more than offset by the impact of the ICC Cricket World Cup at Star Sports and the adverse impact from the strengthened U.S. dollar, primarily in Latin America and Europe.

Fourth Quarter Segment Results

Cable Network Programming quarterly segment OIBDA of $1.22 billion increased 1 per cent over the result reported in the corresponding period of the prior year. A 7 per cent increase in revenues from higher affiliate and advertising revenues was offset by a 10 per cent increase in segment expenses, principally driven by higher sports programming costs at FS1 related to both new events, including the FIFA Women’s World Cup and the U.S. Open Golf Championship, and NASCAR. Segment OIBDA growth was adversely impacted by 4 per cent from foreign exchange rate fluctuations.

Domestic affiliate revenue rose 12 per cent reflecting sustained growth at FS1, the RSNs, Fox News, and FX Networks. International affiliate revenue decreased 2 per cent as strong local currency growth at FIC and Star channels was more than offset by an 11 per cent adverse impact from the strengthened U.S. dollar.

Domestic advertising revenue decreased 2 per cent in the quarter versus the prior year period as increased sports advertising revenues from FS1 and the RSN’s were more than offset by lower entertainment advertising revenues at FX Networks due to the ratings impact from airing lower original programming hours. International advertising revenue increased 14 per cent as strong double digit local currency growth at Star and higher FIC growth led by the inclusion of Fox Turkey beginning this quarter were partially offset by a negative 9 per cent impact from foreign exchange rate fluctuations.

OIBDA from the domestic channels decreased 1 per cent from the corresponding period in the prior year as higher contributions at FX Networks, Fox News and the RSNs were more than offset by reduced contributions at FS1 relating to planned higher event sports programming costs. Quarterly OIBDA at the company’s international cable channels increased 13 per cent from the corresponding period of the prior year as double digit local currency growth at the FIC channels and Star channels was partially offset by the adverse impact from the strengthened U.S. dollar.

Television

Full Year Segment Results

Full year segment OIBDA of $718 million decreased $164 million or 19 per cent versus the prior year. The decline principally reflects the absence of advertising revenue and OIBDA generated from the broadcast of the Super Bowl in the prior year. Excluding the impact of the Super Bowl in the prior year, segment revenues were consistent with the year ago as strong retransmission consent revenue growth was counterbalanced by a 6per cent decline in advertising revenues reflecting overall lower general entertainment ratings at the FOX Broadcast Network.

Fourth Quarter Segment Results

Television generated quarterly segment OIBDA of $113 million compared to the $145 million reported in the prior year quarter as higher retransmission consent revenues were more than offset by lower advertising revenues and higher sports programming costs principally from the U.S. Open Golf Championship and FIFA Women’s World Cup events. Quarterly advertising revenues declined 14per cent from the corresponding period in the prior year due to lower general entertainment ratings, led by American Idol and The Following.

Filmed entertainment

Full Year Segment Results

Full year segment OIBDA of $1.45 billion increased $87 million, or 6 per cent, over prior year amounts reflecting higher film studio contributions partially offset by lower contributions from the television production businesses and the absence of full year contributions from Shine Group (Shine), which was contributed into the Endemol Shine Group joint venture in December 2014.

The film studio’s growth was led by strong worldwide theatrical and home entertainment performance across a diverse set of releases, including Dawn of the Planet of the Apes, The Fault In Our Stars, Taken 3, Gone Girl, Kingsman: The Secret Service and The Maze Runner as well as the home entertainment performance of Rio 2.

The film studio’s commercial and creative success was further highlighted by the all-time industry record it set of more than $5.5 billion in global box-office receipts for calendar 2014, as well as its industry leading 8 Academy Awards for Fox Searchlight, including Best Picture for Birdman: Or (The Unexpected Virtue of Ignorance). Segment OIBDA growth was also adversely impacted by 9 per cent from foreign exchange rate fluctuations.

Fourth Quarter Segment Results

Filmed Entertainment generated fourth quarter segment OIBDA of $269 million, a $70 million decrease from the $339 million reported in the same period a year-ago. More than half of this decrease was due to the absence of contributions from Shine. The results also reflect lower contributions from the television production business due to lower network revenues due to fewer episodes of Glee and the absence of a new season of 24.

Total segment revenues of $1.9 billion were $896 million lower than the prior year due to the absence of revenue from Shine as well as lower theatrical revenues due to difficult comparisons to the prior year which included the successful theatrical releases of X-Men: Days of Future Past and Rio 2. Segment OIBDA growth was also adversely impacted by 13 per cent from foreign exchange rate fluctuations.