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Murdochs Express Confidence in Future of Fox News, More Settlement Costs Disclosed

Variety logo Variety 5/10/2017 Brent Lang
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UPDATED: It was a mixed financial quarter at 21st Century Fox, as the media conglomerate reported higher than expected profits while falling short on revenues. The company’s stock fell sharply in after-hours trading, as investors seem to be getting jittery about the long-term health of the cable sector.

Revenues for the three-month period ending in March hit $7.56 billion. That represented a 5% increase from the $7.23 billion of revenues reported in the prior year quarter — an increase Fox attributed to stronger ad sales stemming from its Super Bowl broadcast and higher affiliate contributions from its cable arm. Earnings per share climbed 15% to 54 cents, while net income dipped roughly 5% to $799 million.

Analysts had projected the company behind 20th Century Fox, FX, Fox Broadcasting, and Fox News would report earnings of 40 cents a share on $7.63 billion in revenues. Wall Street reacted negatively to the financial picture Fox offered up. Shares of Fox were down 4.30% at $26.70 in after-market trading.

The earnings report comes as Fox News, a major profit center for the company, has been embroiled in fallout from sexual harassment allegations. Last month, Bill O’Reilly, the top-rated cable news host, was pushed out after several women accused him of sexually inappropriate behavior and advertisers began abandoning the program. His ouster came months after Fox News chief Roger Ailes was fired in the wake of his own sexual harassment scandal.

In a brisk 37-minute call with analysts, Fox CEO James Murdoch and Fox Executive Co-Chairman Lachlan Murdoch both avoided mentioning O’Reilly by name, only referring cryptically to “programming changes.” James Murdoch argued that even with the loss of the anchor, Fox News continues to loom large in the cable space, noting that after the shake-up the network continued its ratings dominance.” At another point, when pressed by an analyst about how the changes Fox News were impacting the company financially, Lachlan asserted: “We’re very confident in the future of that business.”

Meanwhile, in a Securities and Exchange Commission filing, Fox disclosed $10 million in payments during the quarter in connection with the ouster last July of Fox News chairman-CEO Roger Ailes amid a cascade of sexual harassment allegations. Fox said in the filing that the $10 million was “related to settlements of pending and potential litigations following the July 2016 resignation of the Chairman and CEO of Fox News Channel after a public complaint was filed containing allegations of sexual harassment.” For the nine months ended March 31, Fox has paid $45 million in such settlements, a figure that includes an estimated $20 million to Gretchen Carlson, the former Fox News anchor who sued Ailes.

The departure of O’Reilly, who left with an estimated $25 million settlement of his contract, came on April 19.

In the filing, Fox also acknowledged the existence of “regulatory and investigative inquiries” connected to the scandals at Fox News although the company emphasized that th would not be “material” in the long run. Fox also was forced to disclose that the change in the primetime lineup — without naming O’Reilly specifically — could wind up hurting the cable channel’s ratings.

“Due to the early stage of these matters, the amount of liability, if any, that may result from these or related matters cannot be estimated at this time. However, the Company does not currently anticipate that the ultimate resolution of any such pending matters will have a material adverse effect on its consolidated financial condition, future results of operations or liquidity,” the filing stated. “Since the allegations of misconduct in July 2016, the CEO of Fox News Channel has resigned and there have been significant changes in the management of the business unit. In addition, the network’s primetime lineup has significantly changed which could have a negative impact on our ratings.”

21st Century Fox’s internal woes add to the scrutiny that Wall Street is giving to media congloms after several companies, including Time Warner and Viacom, reported declines in advertising spending. There are also fears that cord cutting, industry jargon for consumers abandoning cable packages for cheaper streaming services, is taking hold. Disney, for instance, was hit hard after reporting declines in subscriber levels, which made investors worried about the popularity of ESPN.

Advertising was flat at Fox’s cable division, but the broadcasting business saw its advertising revenues jump nearly 40% due to its Super Bowl broadcast in February. The film segment was less of a contributing factor. Last year, the studio scored with “Deadpool,” but hits like “Hidden Figures” couldn’t match the box office windfall enjoyed by the comic book adaptation.

Fox is currently awaiting regulatory approval for its $14.6 billion deal to buy European pay-TV firm Sky. The company’s leaders said they expect the deal will close by the end of the calendar year.

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