A la carte cable pricing is off the menu, exec says
Despite calls for a la carte cable television packages, allowing consumers to pick and choose the channels they want, the media industry’s system of selling large bundles of channels will not end soon.
“A la carte is a fantasy,†21st Century Fox Chief Operating Officer Chase Carey said Thursday. “Consumers actually want a bundle.... They just want a different bundle. The reality is that any new bundle would create other issues, like higher costs for individual channels.â€
At a daylong conference in Los Angeles for shareholders and Wall Street analysts, Carey described the lucrative practice of selling bundled TV channels as “a great consumer proposition,†which will continue for at least several years because most programming agreements are “tied to the bundle.â€
The Rupert Murdoch-controlled company hosted an investor conference on the Fox production lot in West Los Angeles to outline business strategies following the June 28 corporate breakup of News Corp.
Murdoch, the company’s chief executive, divided his vast entertainment empire to boost the value of the entertainment side of the business after spending years defending the company’s ownership of newspapers. The newspapers now make up the new News Corp.
The old News Corp. relied heavily on advertising revenue from its TV stations and vast portfolio of newspapers. But the largest source of revenue for the pared down 21st Century Fox, which boasts the profitable television channels and movie and TV production, is affiliate and licensing fees.
21st Century Fox executives outlined their goal of doubling the company’s profit to $9 billion by fiscal 2016, with earnings growth about 10% each year.
Carey also said the company would give up some short-term profits by spending $400 million to $500 million a year to invest in its new TV networks, including FXX and its new national channel Fox Sports 1, which is scheduled to launch Aug. 17.
Carey addressed risks to Fox’s business, including media fragmentation and higher programming costs, but downplayed the threat of “a la carte†packages. He also dismissed worries that rising costs will force people to cancel their pay TV subscriptions, a phenomenon known as cord-cutting.
“We see no meaningful evidence of cord-cutting today,†Carey said. “The reality is that this content is such a fundamental part of daily life that people will give up food and a roof over their head before they give up TV.â€
The open question, Carey said, remains whether young adults in their 20s who have never subscribed to pay TV, the so-called cord-nevers, will eventually sign up for pay TV as they become more established in their lives. That will play out “over the next 10-plus years, not the next three,†Carey said.
Fox executives said TV channels increasingly are the financial engine for the company, and much of the growth is coming from international channels. And they said the Fox movie studio remains the most profitable in Hollywood.
“Let me be absolutely clear: Content is still king,†Murdoch said in his opening remarks.
“In this fragmented world, mediocre content has limited to no value because people will find something they really value instead ... on another channel, device or medium,†Murdoch said. “The value of hit content is going to continue to increase exponentially.â€
Carey conceded that sports programming costs will continue to climb. However, he chalked up recent hand-wringing over escalating costs to “public posturing†by pay TV distributors and others.
“There is a reason sports costs a lot. It’s the most important content on TV. Period,†Carey said. “In an increasingly fragmented world, sports is the strand that binds us together.â€
He said the increase in fees for Fox’s regional sports networks came down to about $1 per subscriber per month, which he described as hardly the straw that would break the backs of the pay-TV industry.
Carey also dismissed critics who have focused on declining broadcast network ratings. Fox Broadcasting had a particularly disappointing 2012-13 season with 20% lower ratings. Fox executives in recent weeks have initiated a campaign to demand better measurement and reporting to reflect the increasing amount of delayed viewing by consumers.
“Broadcast TV is not a business in decline; it is in fact the most powerful force in the dynamic and growing business we call cable television,†Carey said.
He said sports and other event programming, such as “American Idol,†still pack in enormous audiences. Retransmission consent fees will help fuel broadcast revenue, he said, and local news remains key to Fox’s TV stations.
“During the coming year, we will be investing more in entertainment content to ensure the next generation of hits,†Carey said. “Our sports costs will increase during the next few years, however, we can more than absorb those investments through the unique importance of our content to advertisers and subscribers.â€
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