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Fox Embracing Digital Distribution, Especially Hulu Live

4 May, 2016 By: Erik Gruenwedel

21st Century Fox CEO James Murdoch

Fox is going full-digital. The media company’s industry-wide embrace of over-the-top video and subscription streaming follows years of guarded acceptance. With Rupert Murdoch’s sons, Lachlan and James, heading 21st Century Fox, the days of management dealing with digital distribution at arms length are over.

As co-owner and principle operator of Hulu, it’s not surprising Fox is supportive of Hulu launching an online TV service dubbed Hulu Live next year. The online TV service will be getting all Fox brands, including regional sports networks. Fox is also licensing all channels (except Fox News) to Sling TV.

“We continue to move to more efficient and effective target [business] models that is enabled by streaming distribution,” Lachlan Murdoch said in a May 4 fiscal call. “In a world where people are accessing more screens across multiple platforms, the demand for premium content will continue to grow.”

James Murdoch said that while all video content will soon be consumed over IT streaming networks, doing so will put content at the whim of on-demand consumers. As a result, the executive said Fox must stop making a distinction between linear and digital distribution — “Just as the walls between cable and broadcast melted way years ago.”

Fox last month joined Dish Network’s Sling TV multi-stream service. Fox is involved in direct-to-consumer digital offerings in India, the U.K. (with Sky) and Latin America (Fox Plus). The company is also marketing proprietary TV Everywhere apps such as Fox Now, Fox Sport Go and FX Now — the latter during the recent American Crime Story: The People v. O.J. Simpson.

“We think this is a really good consumer experience. We think this is right thing to do to grow the audience in the streaming environment. This [digital] progress we are making puts us on strong footing,” Murdoch said.

The executive said Fox’s redoubled digital strategy is applicable to Hulu — notably from an advertising perspective, as are the company’s owned-and-operated apps, and VOD platforms belonging to affiliate pay-TV operators. Fox is open to pay-TV operators as well as third-party OTT services creating online TV.

“We’d like to make our programming more available [to Hulu and digital distribution], not less,” James Murdoch said.

Fox contends OTT video and SVOD afford new monetization opportunities while enhancing the user experience. Murdoch said the company is open to pay-TV operators as well as third-party OTT services creating online TV platforms offering reduced channels at lower prices.

“We prefer to call them a ‘core bundle’ as opposed to a skinny bundle because it is really the core brands that will be represented in the bundle,” Murdoch said, adding that as OTT video flourishes, DVR use declines.

To retain pay-TV and broadcast affiliates in the digital age, Fox is upping stacking rights to in-season shows. These rights enable broadcasters and pay-TV operators to offer on-demand access to previous episodes.

“Our focus is on making a better customer experience. And the in-season stack is a big part of that,” Murdoch said.

James Murdoch believes both Sling TV and Hulu Live will have national access to Fox channels. He said that while each affiliate group and agreement is different, the streaming business model is actually superior to traditional distribution because monetizing advertising is done via targeted ads and lower ad loads.

In addition to Fox channels, the media giant is betting offering live sports in the streaming environment can resonate with subscribers.

“We look around the world and see sports driving OTT consumption. The sport feature is really attractive and something new,” he said.

Meanwhile, 20th Century Fox Studios generated third-quarter (ended March 31) operating income of $470 million, up $88 million, or 23%, from the $382 million reported during the previous-year period. The increase was driven by higher contributions from the studio, led by the worldwide theatrical release of Deadpool, which has grossed over $760 million globally and is the top-grossing 'R'-rated movie in history.

The results were partially offset by lower television production reflecting the absence of the network delivery of “Glee,” which aired its final season last year. Studio revenue decreased $68 million to $2.32 billion, reflecting lower worldwide home entertainment and television production revenue, and a 3% negative impact from foreign exchange rate fluctuations.

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