Disrupting TV Business Model in Fox’s Blood

Earnings Call Notes: Murdochs look to push changes in streaming and advertising
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Another generation of Murdochs wants to disrupt the TV business.

Decades after Rupert Murdoch disrupted the cozy world of broadcasting by introducing a fourth network, his sons James and Lachlan are running the company he created, 21st Century Fox. On Fox’s earnings call Wednesday, they made it clear the business was evolving and that they didn’t intend to be conservative.

“This is a time of transformative change in our industry. It's the kind of change that demands equal measures of clear thinking and of calculated risk-taking,” said Lachlan Murdoch, executive chairman.

During the Q&A session, CEO James Murdoch was asked about streaming VOD, which is siphoning off TV viewers, and Hulu in particular, which is introducing an ad-free option that makes watching the experience of traditional linear TV less appealing.

“It's really important for us to be able to be disruptive in those areas. I think is important for us not to cling to business rules that inevitably change and have been changing over the last number of decades,” he said.

“We're in a business and in an industry that's been characterized more than anything else by really wave after wave of technological change that fundamentally creates better products for customers, creates more competition downstream, and we think in that environment we've always been best served to be able to innovate and disrupt ourselves,” Murdoch said.

“It's really crucial that we don't become overly beholden to our own incumbency. And I think that's a real, for any business, that's trying to move faster trying to grow. We have to be willing to take some risk but also to be innovative and to be disruptive,” he added.

Murdoch seems to be a fan of streaming TV. “When we look at growing the IP streaming business in the future, we're pretty excited about the innovation that we can bring to that marketplace, and we're working hard across the board both internally when we think about developing our authenticated apps, potentially direct-to-consumer offerings, some of our competitors have been out there with those.”

In a new environment, advertising is going to have to change if it is to avoid becoming an endangered species.

“We're also really pleased with the progress we're making with respect to sort of ad innovation. To both the premium ad-free services, which Hulu announced and launched, but also with expanding the opt-in engagement advertising that we've talked about,” Murdoch said.

Viewers can decide to interact with an ad from Fox’s true[x] unit at the beginning of an on-demand show and watch the remainder commercial-free.

“Fundamentally, in advertising, these innovations are about empowering the audience to decide the value of their attention, and that make sense to them, and it also makes a lot of sense to us, and we think pricing models around attention are going to be developing, and we want to be at the forefront of developing those and understanding how those work and how we can create the best return,” he said.

“I think our opportunities do lie in leaning in and being disruptive ourselves and not being afraid of that,” Murdoch added. “And look, I think it's consistent with the way we've managed and the way the business has grown over many, many years from disrupting the U.S. broadcast business with Fox Broadcasting so many years ago, to disrupting the European television business with the three different Skys and disrupting advertising and the broadcast business today with Hulu and other things over the current period and the next few years, I think it's a real opportunity to create enormous value. So look, I think that's one of the most important sort of cultural traits in our business, and it's one that we're going to continue to encourage and nurture because I think it has to exist everywhere in this company.”

As far as the current traditional TV world goes, like others in the industry, Fox is looking for better measurement to help it monetize viewership.

Lachlan Murdoch said that the season 2 premiere of Fox’s hit Empire reached nearly 12 million total viewers in live plus same day measurement.

“That figure more than doubles to 25 million when we look at 30-day multiplatform viewing,” Murdoch said. He added that using Nielsen live plus seven-day ratings, the Fox network is up a couple of percent year-over-year, and excluding sports, up almost 10%.

But he said that's only half of the picture.

“Our Fox Networks average nonlinear audience has risen by about a third year over year. It's a testament to the fact that premium broadcast content is in more demand than ever, but it also illustrates the needs for the industry to move to modern ratings currencies. It reflects today's consumption of media in a way that is highly measurable and relevant to advertisers,” he said.

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