Is Rupert Murdoch eyeing another attempt to takeover UK satellite TV giant, BSkyB, despite abandoning the previous attempt after the News of the World scandal in July 2011?
There’s a small, but significant suggestion in his casually announced ambition yesterday to boost operating profit of 21st Century Fox (FOX) by 50% or $US3 billion over the next three years.
This new target was revealed in prepared comments in yesterday’s first quarter profit statement from the company when Mr Murdoch said:
"In our first quarter as 21st Century Fox, we delivered strong revenue increases across all of our businesses as well as growth in OIBDA even as we made significant investment in our channels business, and faced a difficult film comparison and currency headwinds. The investment we are making, including the launch of FXX and Fox Sports 1, will drive future sustained growth toward our stated 2016 target of $9 billion of OIBDA and beyond."
That new ambition diverted attention from what was a flat first quarter for the family’s major company as it missed market earnings forecast because of weak film results and rising investment in new TV and cable channels such as Fox Sports and product.
Given the ambitious target for Fox Sports in particular (at least $US1 billion will be invested in the new channel to take on ESPN, the market leader owned by Disney), 21st Century faces a few flat quarters in the next year and a bit. But Mr Murdoch has shown in the past he is prepared to wear that, so long as the objective is met.
And, seeing he and his family control 39% of the voting shares of 21st Century, he can do what he likes.
But it is clear the ambitious plan to boost operating profit by 50% in the next three years will require a sharp rise in revenues, more hit movies, more revenues from TV retransmission fees and/or a major takeover.
Despite that, the company confirmed the previously announced 47% boost in half year dividend to 12.5 USc a share which will benefit the Murdoch’s very nicelyl
FOX 6-Months – Fox has weak Q1 as it eyes 50% earnings gain by 2016
The most likely takeover deal on the cards is the still held ambition to buy the remaining 60% of BSkyB in the UK, a deal that was blocked back in 2011 after the News of The World hacking story erupted.
And with a number of court cases still to run for much of the next two years (covering appeals), it would seem Murdoch is aiming to have another crack in late 2015 (after the next UK elections) or early 2016.
Taking full control of BSkyB would be the fastest way to get to his ambitious goal of $US9 billion in operating profit. BSkyB earned an operating profit of $US1.92 billion in 2012-13, on revenues of $US11.5 billion, which would get him close to his 2016 target quite easily.
But will the Brits agree to such a deal, even when the phone hacking scandal has faded a bit from memory?
21st Century Fox yesterday reported first quarter total segment operating income before depreciation and amortization ("OIBDA") of $US1.62 billion, compared with the $US1.59 billion reported in the first quarter of 2012-13 (before the company was created in the split on June 28 of this year).
The slim, 2% improvement was due to growth at the company’s direct broadcast satellite group and its TV operations in the US, which was offset principally by declines at the Filmed Entertainment segment and Fox cable.
21st Century Fox made an operating profit of $US6.26 billion in 2012-13 on revenues of $US27.68 billion, so the task of getting to the $US9 billion figure in 2016 has started slowly, and will continue that way for the foreseeable future as the investment in new channels and businesses increases.
On an after tax basis, earnings for the quarter fell to $US768 million (or $0.33 US a share), compared with $US2.25 billion (or $0.95 US a share) reported in the September quarter of 2012. Stripping out a series of one-offs from both results, 21st Century Fox said earnings per share fell to 33 USc a share from an adjusted 38c in the same quarter of 2012.
Revenue for the quarter rose by just over $US1 billion to $7.061 billion. The earnings release reveals that while the heartland cable business lifted revenues 12% in the quarter, earnings fell 3% thanks to the increased spending on the new channels. The free to air TV business lifted operating profit 30%, despite weak ratings for programs like American Idol and the absence of political advertising (which will have a bigger impact on the TV comparison this quarter).
Higher retransmission fees paid by cable companies helped boost earnings in the TV business (Murdoch’s Foxtel refuses to pay retransmission fees in Australia).
The Direct Broadcast business benefitted from higher earnings from Sky Italia, the absence of the impact of the spending on the London Olympics and the consolidation of Sky Deutschland. The Filmed Entertainment group saw a 24% slide in earnings in the quarter, despite a 9% rise in revenues.
These days this company is irrelevant to Australian investors given that its involvement in this country is limited to films and TV program distribution through Foxtel (50% owned by News Corp, the other Murdoch company) and Fox Sports (100% owned by News). Fox TV programs are sold to Ten and Seven principally and the production arm Shine makes programs and formats for Ten, as well as for other networks.
News Corp is more involved in Australia through newspapers, magazines, books and pay TV (Foxtel and Fox Sports). It is due to report its first quarter result on Tuesday morning, our time.
21st Century Fox shares rose 9c in Australia yesterday to end at $35.91.
