Fox in the 21st Century: King of Content? Surely a Different Kind

What do you have to do as a traditional programing company, trying to hold onto your content kingship these days? Look around: anyone can now make a movie, a TV show or anything in between. Unlike past content providers, the new ones are self-distributing their programs. That’s right, directly streaming to consumers. It’s an added disadvantage for you: planning to sell your content to a streaming operator? they may not even want it; they’re shooting their own branded shows.

Meanwhile, you know your old pay-TV market is shrinking, with all the online content competing for the same audience. So, either you create content that only you can and everybody else has to have, which is precisely Twenty-First Century Fox’s (FOX) thinking for a future Fox of news and sports only, or you can try to go to consumers directly yourself, which The Walt Disney Company (DIS) has vowed to do with its over-the-top (OTT) plan. A third option is to hook up with an old-line pay-TV distributor, such as Time Warner’s merging with AT&T Inc. (T) and more media assets being sought by Comcast.

Fox: Making the Smart, Foxy Move

The only content not suitable for on-demand streaming obviously are news and sports programming. Who wouldn’t want to watch breaking news and live sports as they are happening? News reporting and commentaries, as well as live sporting and other events, are most valuable to advertisers and sponsors, because they are created and broadcasted simultaneously in real time. No one can rip that away from traditional TV programming and distribution.

By retaining its news and sports programing and selling off other no-longer competitive, scripted entertainment assets, the future Fox contends to be a different kind of media darling in the eyes of content distributors of both pay-TV and streaming. Based on the company’s current sales breakdown, a new Fox might generate revenue about half of what it has now, which is $28 billion in fiscal 2017, rivaling the size of CBS whose 2017 sales were $14 billion. Thus, investors don’t have to worry about whether the new Fox may have operations that are too stripped down.

Into the Disneyland: the Future May Well be an Adventure

Unlike Fox, which is chasing the media crown jewel of news and sports, Disney moves along too many fronts with its streaming venture. It may try to carve out its ABC News and ESPN sports and make them more Fox-like. But a vast amount of its content is in the fragmented and competitive entertainment market, not to mention those to be acquired from Fox. Here, no one knows exactly what makes something an instant hit or an utter flop, meaning such investments don’t always pay off.

Disney does have an opportunity now to really bond with consumers through its own OTT distribution platform. That would give Disney more latitude to potentially play its content at full blast. But if its self-distribution didn’t work out, Disney would have no ready distributors to pick up its content, having made all its content available only to itself. It’s a calculated risk Disney has to take on, knowing that content creation is becoming more fragmented and competitive, while no single distribution channel can reach all the audiences for you.

Defensive Posture: Joint Forces of Content Creator and Distributor

While Disney is determined to be on a risky offense and Fox is to be pursuing a new breed of content dominance, the rest of the old media such as Time Warner, Comcast and AT&T are showing a defensive posture by combining their respective content creating and distributing operations. It’s an insurance policy for both sides.

As more and more content providers move their programs online, old pay-TV operators may end up having less content to distribute. Why not make distributors own the content themselves? That’s what AT&T is doing and what Comcast Corp. (CMCSA) continues to do.

For content providers, they were so used to sending down their content to pay-TV distributors. Now distribution has become something that content owners have to get involved in on a strategic level. So, better just hook up with a distributor and never have to wonder how to distribution. That’s just what Time Warner has settled on.

Investor Note

The future media landscape is to be widely broken apart in terms of both content creation and distribution, as no one can hold everything together anymore. Consumers would have to go onto different platforms for the kinds of content they want to see. Netflix Inc. (NFLX) would stream its own shows, Disney would self-distribute its content exclusively and pay-TV would have to have their own programs to hang on to. How well each will do depends on how big of a following each can have. But the real winner would be someone like Fox that owns the universal content of news and sports, allowing it to amass a much larger following than everybody  else and do so on multiple distribution platforms.       




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