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Item 1. BUSINESS
Background
Fox Corporation, a Delaware corporation, is a news, sports and entertainment company, which manages and reports its businesses in the following segments:
| • | Cable Network Programming, which principally consists of the production and licensing of news and sports content distributed primarily through traditional cable television systems, direct broadcast satellite operators and telecommunication companies (“traditional MVPDs”) and online multi-channel video programming distributors (“digital MVPDs”), primarily in the U.S. |
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| • | Television, which principally consists of the acquisition, marketing and distribution of broadcast network programming nationally under the FOX brand and the operation of 28 full power broadcast television stations, including 11 duopolies, in the U.S. Of these stations, 17 are affiliated with the FOX Network, 10 are affiliated with MyNetworkTV, and one is an independent station. |
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| • | Other, Corporate and Eliminations, which principally consists of corporate overhead costs, intracompany eliminations and the FOX Studios lot. The FOX Studios lot, located in Los Angeles, California, provides television and film production services along with office space, studio operation services and includes all operations of the facility. |
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Unless otherwise indicated, references in this Annual Report on Form 10-K (this “Annual Report”) for the fiscal year ended June 30, 2019 (“fiscal 2019”) to “FOX”, the “Company”, “we” or “us” mean Fox Corporation and its consolidated subsidiaries.
FOX became a standalone publicly traded company on March 19, 2019, when Twenty-First Century Fox, Inc. (now known as TFCF Corporation) (“21CF”) distributed, on a pro rata basis, all the issued and outstanding common stock of the Company to 21CF stockholders. Following the distribution, the Company’s class A common stock, par value $0.01 per share (the “class A common stock”) and class B common stock, par value $0.01 per share (the “class B common stock” and, together with the class A common stock, the “common stock”) began trading independently on The Nasdaq Global Select Market. We refer to the foregoing as the “Transaction”.
In connection with the Transaction, the Company was formed with a focused portfolio of domestic media assets in live news and sports and original entertainment programming, including leading brands FOX News Media, FOX Sports, FOX Entertainment and FOX Television Stations. The remaining 21CF assets were acquired by The Walt Disney Company (“Disney”) through a series of transactions contemplated by the amended and restated merger agreement (the “21CF Disney Merger Agreement”) among 21CF, Disney and certain Disney subsidiaries, pursuant to which 21CF became a wholly-owned subsidiary of Disney (the “Disney Merger”).
The Company is party to several agreements that govern certain aspects of the Company’s relationship with 21CF and Disney following the Transaction, including a separation and distribution agreement, a tax matters agreement, a transition services agreement, as well as agreements relating to intellectual property licenses, employee matters, commercial arrangements and a studio lot lease. See Note 1, “Description of Business and Basis of Presentation”, to the consolidated and combined financial statements included in this Annual Report for further information about these agreements.
The Company’s fiscal year ends on June 30 of each year. The Company was incorporated in 2018 under the laws of the State of Delaware. At June 30, 2019, the Company had approximately 7,700 full-time employees. The Company’s principal executive offices are located at 1211 Avenue of the Americas, New York, New York 10036 and its telephone number is (212) 852-7000. The Company’s website is www.foxcorporation.com. The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available, free of charge, through the Company’s website as soon as reasonably practicable after the material is electronically filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”). The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Caution Concerning Forward-Looking Statements
This Annual Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. All statements other than statements of historical or current fact are “forward-looking statements” for purposes of federal and state securities laws. Forward-looking statements may include, among others, the words “may,” “will,” “should,” “likely,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “outlook” or any other similar words. Although the Company’s management believes that the expectations reflected in any of the Company’s forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any forward-looking statements. The Company’s future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties. Important factors that could cause the Company’s actual results, performance and achievements to differ materially from those estimates or projections contained in the Company’s forward-looking statements include, but are not limited to, government regulation, economic, strategic, political and social conditions. For more detailed information about these factors, see Item 1A, “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Caution Concerning Forward-Looking Statements.”
Forward-looking statements in this Annual Report speak only as of the date hereof. The Company does not undertake any obligation to update or release any revisions to any forward-looking statement made herein or to report any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or to conform such statements to actual results or changes in our expectations, except as required by law.
Business Overview
Fox Corporation produces and delivers compelling news, sports and entertainment content through its iconic brands, including FOX News Media, FOX Sports, FOX Entertainment and FOX Television Stations. The Company, with a simple structure focused on two principal reporting segments, differentiates itself in a crowded media and entertainment marketplace through the leadership positions of the Company’s brands, premium programming with a focus on live and “appointment-based” content that brings communities together, a significant presence in major markets and the broad distribution of the Company’s content across traditional and digital platforms.
Our Competitive Strengths
Premium brands that resonate deeply with viewers.
Under the banner of the FOX name, we produce and distribute content through some of the world’s leading and most valued brands. Our long track record of challenging the status quo emboldens us to continue making innovative decisions, disrupting competitors and forming deeper relationships with audiences. FOX News is among the most influential and recognized news brands in the world, recently ranked the “most trusted” American television news brand in the U.S., according to an independent survey conducted by Brand Keys. FOX Sports has earned a reputation for bold sports programming and, with its far-reaching presence in virtually every U.S. household, is the premier destination for live sporting events and sports commentary. The FOX Network primetime lineup has consistently delivered the 18 to 49 year-old audience coveted by advertisers and is home to The Masked Singer, the top new entertainment series on broadcast television for the 2018-2019 broadcast season. These brands and others in our portfolio, including our local station affiliates broadcasting under the FOX brand, hold cultural significance with consumers and commercial importance for distributors and advertisers. The quality of our programming and the strength of our brands maximize the value of our content through a combination of distribution and affiliate fees and advertising sales.
Leadership positions across strategically significant programming platforms.
FOX airs a strong slate of entertainment programming and enjoys a leadership position across our core live news and sports programming businesses. As linear television viewership declines across the industry, “appointment-based” programming that is the FOX hallmark remains resilient, especially in live news and sports. FOX News has been the number one national cable news network for 70 consecutive quarters and is the top-rated national cable news network in primetime and total viewing across key demographics as of June 2019. FOX Sports programs Thursday night and Sunday National Football League (“NFL”) football, the Major League Baseball (“MLB”) All-Star Game and World Series and other marquee events, including the Super Bowl and Fédération International de Football Association (“FIFA”) World Cup. FOX Sports and FOX Entertainment together deliver approximately 15 hours of high-quality, primetime programming each week on the FOX Network, including the hit series The Masked Singer. The FOX Television Stations produce nearly 1,000 hours of local news coverage each week. Taken together, we believe our leadership positions will support strong
affiliate fee revenue growth and sustained advertising revenue, while enabling us to nimbly respond to the challenges relating to rapidly evolving technologies and changes in consumer behavior that traditional media companies are facing.
Significant presence and relevance in major domestic markets.
The FOX portfolio combines the range of national cable and broadcast networks with the power of tailored local television. FOX News and FOX Business are available in over 80 million U.S. households and the FOX Network is available in essentially all U.S. households. Additionally, our 28 owned and operated full power broadcast television stations cover 17 Nielsen-designated market areas (“DMAs”), including nine of the 10 largest, balancing content of national interest with programming of note to local communities. The breadth and depth of our footprint allows us to produce and distribute our content in a cost-effective manner and share best business practices and models across regions. It also enables us to engage audiences, develop deeper consumer relationships and create more compelling product offerings.
Attractive financial profile, including multiple revenue streams, strong balance sheet and tax asset benefit.
We have achieved strong revenue growth and profitability in a complex industry environment over the past several years, led by affiliate fee increases. Additionally, our strong balance sheet provides us with the financial flexibility to continue to invest across our businesses, allocate resources toward investments in growth initiatives, take advantage of strategic opportunities, including potential acquisitions across the range of media categories in which we operate, and return capital to our stockholders. We also benefit from a tax asset that resulted from the step-up in the tax basis of our assets following the Transaction, which will provide an annual cash tax benefit for many years.
Goals and Strategies
Maintain leading positions in live news, live sports and quality entertainment.
We have long been a leader in news, sports and entertainment programming. We believe that building on our leading market positions is essential to our success. We are investing in our most attractive growth opportunities by allocating capital to our news, sports and original entertainment programming, which we believe have distinct competitive advantages. For example, fiscal 2019 saw the launch of FOX Nation, an over-the-top streaming service to deliver premium content to our most dedicated FOX News customers. At FOX Sports, we extended our exclusive rights to broadcast certain premier MLB content, including the World Series and All-Star Game, through the 2028 MLB season. FOX Sports also established a long-term partnership with The Stars Group Inc. to extend the FOX Sports brand through the launch of FOX Bet, a suite of products that will allow audiences to participate in free-to-play games and, in markets where it is legal, wager on sporting events. FOX Entertainment is investing in more co-production arrangements and will own a stake in nearly all new series airing on the FOX Network during the 2019-2020 broadcast season. We believe continuing to provide compelling news, sports and entertainment programming across platforms will increase audience engagement and drive growth across our distribution, affiliate and advertising relationships.
Increase revenue growth through the continued delivery of high quality, premium and valuable content.
With a focused portfolio of assets, we create and produce high quality programming that delivers value for our viewers and our distribution, affiliate and advertising partners. We intend to receive appropriate value for our content, particularly through distribution and affiliate fees. Additionally, we expect our enhanced ability to acquire independent programming through co-production arrangements will facilitate growth by enabling us to directly manage the economics and programming decisions of our broadcast network and stations group. We also believe our unique ability to deliver “appointment-based” viewing and audiences at scale, along with innovative advertising platforms, delivers substantial value to our advertising customers, and the unique nature of our “appointment-based” content positions us to maintain and even grow audiences during a time of increasing consumer fragmentation.
Leverage brands to expand our online distribution offerings, increasing complementary sources of revenues.
The strength of our brands allows us to leverage effective platforms for the digital distribution of our content. Nearly all of our networks are offered in all major digital MVPD services, and we plan to continue enhancing our digital offerings with over-the-top distributors, including streaming via web sites, smartphone and tablet applications, and online and on-demand streaming videos. We also intend to continue cultivating direct interactions between FOX brands and consumers outside traditional linear television. During fiscal 2019, FOX Sports launched a new multi-platform pay-per-view championship boxing service and FOX News launched FOX Nation, an over-the-top streaming service, delivering
premium content complementary to FOX News programming directly to consumers. We intend to identify similarly innovative new products and services across our business to increase revenues and profitability in the future.
Segments
Cable Network Programming
The Cable Network Programming segment produces and licenses news, business news and sports content for distribution primarily through MVPDs primarily in the U.S. The businesses in this segment include FOX News Media (which is comprised of FOX News and FOX Business) and our primary cable sports programming networks FS1, FS2 and Big Ten Network.
The following table lists the Company’s significant cable networks and the number of subscribers as estimated by Nielsen Media Research (“Nielsen”):
| As of June 30, | ||
| 2019 | 2018 | |
| (in millions) | ||
| FOX News Media Networks | ||
| FOX News(a) | 84 | 87 |
| FOX Business(a) | 82 | 84 |
| FOX Sports Networks | ||
| FS1(a) | 81 | 83 |
| FS2 | 58 | 58 |
| Big Ten Network(a) | 57 | 58 |
| FOX Deportes | 21 | 21 |
| (a) | Decrease reflects a reduction in subscribers to traditional MVPDs, partially offset by increased subscribers to digital MVPDs. |
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FOX News Media. FOX News Media includes the FOX News and FOX Business networks and their related properties. As of June 2019, FOX News is the top-rated national cable news channel in both Monday to Friday primetime and total day viewing and has held its number one status for 70 consecutive quarters, according to Nielsen. FOX News also finished fiscal 2019 as the number one network among all cable networks in Monday to Friday primetime and total day viewing among total viewers, the fourth year in a row it has held this status, according to Nielsen. FOX Business is a business news national cable channel. Fiscal 2019 was the second highest rated year ever for FOX Business and, as of June 2019, it has been the most-watched business network for 10 of the last 11 quarters by total business day viewers, according to Nielsen. FOX News also produces a weekend political commentary show, FOX News Sunday, for broadcast on FOX Television Stations throughout the U.S. FOX News, through its FOX News Edge service, licenses news feeds to affiliates to the FOX Network and other subscribers to use as part of local news broadcasts throughout the U.S. FOX News produces the national FOX News Radio Network, which licenses news updates and long-form programs to local radio stations and to mobile, Internet and satellite radio providers.
FS1. FS1 is a multi-sport national network that will feature over 790 live events during calendar year 2019, including National Association of Stock Car Auto Racing (“NASCAR”), college football, college basketball, the Bundesliga, the FIFA World Cup, Major League Soccer (“MLS”), National Hot Rod Association (“NHRA”) and United States Golf Association (“USGA”), as well as regular season and post-season MLB games. In addition to live events, FS1 also features original programming from FOX Sports Films and opinion shows such as Skip and Shannon: Undisputed, The Herd with Colin Cowherd, First Things First, Lock It In and Speak for Yourself.
FS2. FS2 is a multi-sport national network that will feature over 525 live events during calendar year 2019, including NASCAR, collegiate sports, horse racing, rugby, surfing, world-class soccer and motor sports.
FOX Sports Racing. FOX Sports Racing is a 24-hour video programming service consisting of motor sports programming, including NASCAR, events and original programming, NHRA and Fédération Internationale de l’Automobile Formula E Championship. FOX Sports Racing is distributed to subscribers in Canada and the Caribbean.
FOX Soccer Plus. FOX Soccer Plus is a premium video programming network showcasing over 350 exclusive live soccer and rugby competitions, including events from Bundesliga, FIFA, Super Rugby League, Australian Football League and the National Rugby League.
FOX Deportes. FOX Deportes is a Spanish-language sports programming service distributed in the U.S. FOX Deportes has more than 3,300 annual hours of live and exclusive programming, including exclusive Spanish language coverage of premier soccer (such as Liga MX and Copa MX, Tijuana Xolos, Rayados de Monterrey and Santos Laguna home matches, MLS and Bundesliga), Monster Energy NASCAR Cup, regular and post-season games of the NFL, including the National Football Conference (“NFC”) Championship game in 2019 and Super Bowl LIV in 2020, and MLB, including regular season, All-Star, American League Championship Series (in 2019) and World Series games. In addition to live events, FOX Deportes also features multi-sport news and highlight shows and daily studio programming. FOX Deportes is available to more than 21 million cable and satellite households in the U.S., of which over five million are Hispanic.
Big Ten Network. The Big Ten Network is a 24-hour national video programming service dedicated to the collegiate Big Ten Conference and Big Ten athletics, academics and related programming. The Big Ten Network televises approximately 530 live collegiate events annually, including football games, regular-season and post-season men’s basketball games, women’s basketball games, men’s and women’s Olympic events (featuring volleyball, soccer, wrestling, gymnastics, ice hockey, softball, baseball, lacrosse and more). In addition to live events, the Big Ten Network televises a variety of studio shows. The Company owns an approximate 51% interest in the Big Ten Network.
Digital Distribution. The Company also distributes programming through its FOX-branded and network-branded websites and applications and licenses programming for distribution through MVPDs’ websites and applications. The Company’s websites and applications provide live and/or on-demand streaming of network-related programming primarily on an authenticated basis to allow video subscribers of the Company’s participating distribution partners to view Company content via the Internet. These websites and applications include the websites FOXNews.com and FOXBusiness.com, the mobile applications FOX News and FOX Business, and the website FOXSports.com and the FOX Sports App, which offer live and on-demand streaming of both broadcast and cable network sports programming. During fiscal 2019, FOX News launched FOX Nation, an over-the-top streaming service, delivering premium content complementary to FOX News directly to consumers.
FOX Sports College Properties. FOX Sports College Properties, a division of Home Team Sports (“HTS”), holds the exclusive multi-media and sponsorship representation rights for the University of Southern California and the Los Angeles Memorial Coliseum, Michigan State University, University of Florida, Auburn, San Diego State, Georgetown, Villanova and the BIG EAST Conference. HTS is a multi-media sales unit that connects advertisers with every MLB, NHL and National Basketball Association (“NBA”) home team in the U.S.
Cable Network Programming Competition
General. Cable network programming is a highly competitive business. Cable networks compete for content and distribution and, when distribution is obtained, for viewers and advertisers with free-to-air broadcast television, radio, print media, motion picture theaters, DVDs, Blu-ray high-definition format discs (known as Blu-rays), Internet delivered free, advertising supported, subscription and rental services, wireless and portable viewing devices and other sources of information and entertainment. Important competitive factors include the prices charged for programming, the quantity, quality and variety of programming offered, the accessibility of such programming, the ability to adapt to new technologies and distribution platforms, quality of user experience and the effectiveness of marketing efforts.
FOX News Media. FOX News’ primary competition comes from the cable networks CNN, HLN and MSNBC. FOX Business’ primary competition comes from the cable networks CNBC and Bloomberg Television. FOX News and FOX Business also compete for viewers and advertisers within a broad spectrum of television networks, including other non-news cable networks and free-to-air broadcast television networks.
FOX Sports. A number of basic and pay television programming services, such as ESPN and NBC Sports Network, as well as free-to-air stations and broadcast networks, provide programming that also targets FS1, FS2 and the Big Ten Network’s respective audiences. On a national level, the primary competitors to FS1, FS2, and the Big Ten Network are ESPN, ESPN2, NBC Sports Network, CBS Sports Network, TNT, Golf Channel and league-owned networks such as NFL Network, NHL Network, NBA TV and MLB Network. In regional markets, the Big Ten Network competes with regional sports networks, local broadcast television stations and other sports programming providers and distributors. FS1, FS2,
and the Big Ten Network also face competition online from ESPN+, DAZN, Yahoo Sports, Facebook, Twitter, ESPN.com, NBCSports.com, Bleacherreport.com and CBSSports.com, among others.
In addition, FS1, FS2, and the Big Ten Network compete, to varying degrees, for sports programming rights. FS1, FS2 and the Big Ten Network compete for national rights principally with a number of national cable and broadcast services that specialize in or carry sports programming, including sports networks launched by the leagues and collegiate conferences. Additionally, MVPDs and online and social media properties such as ESPN+, DAZN, Amazon, Yahoo Sports, Facebook and Twitter compete with the Company’s cable sports networks by acquiring and distributing sports content to their online users.
Television
The Company is engaged in the operation of broadcast television stations and the acquisition, marketing and distribution of broadcast network programming nationally under the FOX brand.
FOX Television Stations
FOX Television Stations owns and operates 28 full power broadcast television stations, which deliver broadcast network content, local news and syndicated programming to viewers in 17 local markets. These include stations located in nine of the top ten largest DMAs and two stations (referred to as duopolies) in each of 11 DMAs, including the three largest DMAs (New York, Los Angeles and Chicago). In three of the duopoly markets, FOX Television Stations is channel sharing whereby both of its stations in the market operate using a single 6 MHz channel. Of the 28 full power broadcast television stations, 17 stations are affiliated with the FOX Network. These stations leverage viewer, distributor and advertiser demand for the FOX Network’s national content. In addition, the FOX Network’s strategy to deliver fewer hours of national content than other major broadcasters benefits stations affiliated with the FOX Network, which can utilize the flexibility in scheduling to offer expanded local news and other programming that viewers covet. Our 28 stations collectively produce nearly 1,000 hours of local news every week. For a description of the programming offered to affiliates to the FOX Network, see “—The FOX Network.” In addition, FOX Television Stations owns and operates 10 stations broadcasting programming from MyNetworkTV, and one of those stations also broadcasts The CW Television Network through the end of August 2019.
The following table lists certain information about each of the television stations owned and operated by FOX Television Stations. Unless otherwise noted, all stations are affiliates of the FOX Network.
FOX Television Stations
| DMA/Rank | Station | Digital Channel RF (Virtual) | Type | Percentage of U.S. Television Households in the DMA (a) | ||
| New York, NY | 1 | WNYW | 27(5) | UHF | 6.4% | |
| WWOR(b)(c) | 25(9) | UHF | ||||
| Los Angeles, CA | 2 | KTTV | 11(11) | VHF | 4.8% | |
| KCOP(b) | 13(13) | VHF | ||||
| Chicago, IL | 3 | WFLD | 31(32) | UHF | 2.9% | |
| WPWR(b)(d)(e) | 31(50) | UHF | ||||
| Philadelphia, PA | 4 | WTXF | 42(29) | UHF | 2.6% | |
| Dallas, TX | 5 | KDFW | 35(4) | UHF | 2.4% | |
| KDFI(b) | 27(27) | UHF | ||||
| Washington, DC | 6 | WTTG | 36(5) | UHF | 2.3% | |
| WDCA(b)(f) | 36(20) | UHF | ||||
| Houston, TX | 7 | KRIV | 26(26) | UHF | 2.2% | |
| KTXH(b) | 19(20) | UHF | ||||
| San Francisco, CA | 8 | KTVU | 44(2) | UHF | 2.2% | |
| KICU(g) | 36(36) | UHF | ||||
| Atlanta, GA | 10 | WAGA | 27(5) | UHF | 2.1% | |
| Tampa, FL | 11 | WTVT | 12(13) | VHF | 1.7% | |
| Phoenix, AZ | 12 | KSAZ | 10(10) | VHF | 1.7% | |
| KUTP(b) | 26(45) | UHF | ||||
| Detroit, MI | 14 | WJBK | 7(2) | VHF | 1.6% | |
| Minneapolis, MN(h) | 15 | KMSP | 9(9) | VHF | 1.6% | |
| WFTC(b) | 29(29) | UHF | ||||
| Orlando, FL | 18 | WOFL | 22(35) | UHF | 1.4% | |
| WRBW(b) | 41(65) | UHF | ||||
| Charlotte, NC | 23 | WJZY | 47(46) | UHF | 1.0% | |
| WMYT(b)(i) | 47(55) | UHF | ||||
| Austin, TX | 40 | KTBC | 7(7) | VHF | 0.7% | |
| Gainesville, FL | 157 | WOGX | 31(51) | UHF | 0.1% | |
| TOTAL | 37.7% | |||||
Source: Nielsen, January 2019
| (a) | VHF television stations transmit on Channels 2 through 13 and UHF television stations on Channels 14 through 51. The Federal Communications Commission (the “FCC”) has reallocated Channels 38 through 51 to the wireless industry and broadcast television stations transmitting on Channels 38 through 51 are scheduled to be “repacked” into UHF Channels 14 through 36 by July 3, 2020. The FCC applies a discount (the “UHF Discount”) which attributes only 50% of the television households in a local television market to the audience reach of a UHF television station for purposes of calculating whether that station’s owner complies with the national station ownership cap imposed by FCC regulations and by statute; in making this calculation, only the station’s RF broadcast channel is considered. In a duopoly market, both stations must be UHF for the discount to apply. In addition, the coverage of two commonly owned stations in the same market is counted only once. The percentages listed are rounded and do not take into account the UHF Discount. For more information regarding the FCC’s national station ownership cap, see “Government Regulation” in this Annual Report. |
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| (b) | MyNetworkTV licensee station. |
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| (c) | WWOR hosts television station WRNN, New Rochelle, NY, licensed to WRNN License Company, LLC, an unrelated third party pursuant to a channel sharing agreement between FOX Television Stations and WRNN License Company, LLC. A portion of the spectrum formerly licensed to WWOR is now shared with and licensed to WRNN. |
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| (d) | WPWR-TV channel shares with WFLD. |
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| (e) | Station WPWR is an affiliate of The CW Television Network during prime time and other network time periods. MyNetworkTV programming is telecast during other time periods. The CW Television Network affiliation will terminate at the end of August 2019. |
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| (f) | WDCA channel shares with WTTG. |
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| (g) | Independent station. |
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| (h) | The Company also owns and operates full power station KFTC, Channel 26, Bemidji, MN as a satellite station of WFTC, Channel 29, Minneapolis, MN. Station KFTC is in addition to the 28 full power stations described in this section. |
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| (i) | WMYT-TV channel shares with WJZY. |
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The FOX Network
The FOX Network is a premier national television broadcast network, renowned for disrupting legacy broadcasters with powerful sports programming and appealing primetime entertainment. The FOX Network regularly delivers approximately 15 hours of weekly primetime programming, 60 minutes of late-night programming on Saturday and 60 minutes of news programming on Sunday to 208 local market affiliates, including 17 stations owned and operated by the Company, covering approximately 99.9% of all U.S. television households, according to Nielsen. The FOX Network primetime lineup is intended to appeal primarily to the 18 to 49 year old audience, the demographic group that advertisers seek to reach most often, with particular success in the 18 to 34 year old audience. The FOX Network has ranked among the top two networks in the 18 to 34 year old audience for the past 24 broadcast seasons and in the 12 to 17 year old audience for the past 28 broadcast seasons. During the 2018-2019 broadcast season, the FOX Network ranked second in the 18 to 49 year old audience (tied with CBS Television Network (“CBS”), based on Live+7 ratings), just one-tenth of a rating point behind NBC Television Network (“NBC”). The FOX Network ranked first in the 18 to 34 year old audience (tied with NBC, based on Live+7 ratings) and it ranked first in primetime programming in the 12 to 17 year old audience (tied with NBC and CBS, based on Live+7 ratings). Inclusive of all telecasts, the median age of the FOX Network viewer is 53 years, as compared to 57 years for each of ABC Television Network (“ABC”) and NBC and 60 years for CBS.
| • | FOX Entertainment. FOX Entertainment delivers high-quality scripted, non-scripted and live content. During the 2018-2019 broadcast season, FOX Entertainment primetime programming featured such series as 9-1-1, Bob’s Burgers, Empire, Family Guy, The Orville, The Resident, The Simpsons and Star; unscripted series such as The Masked Singer, Hell’s Kitchen, MasterChef Junior and 24 Hours to Hell and Back; and event specials such as a live production of Rent. The FOX Network’s The Masked Singer was the 2018-2019 broadcast season’s top new entertainment series in the 18 to 49, 18 to 34 and 12 to 17 year old audiences, while also ranking number one in the same measures among new unscripted series. 9-1-1 ranked among the 2018-2019 broadcast season’s top five broadcast dramas in the 18 to 49 and 18 to 34 year old audiences. Empire ranked among the 2018-2019 broadcast season’s top 10 broadcast dramas in the 18 to 49, 18 to 34 and 12 to 17 year old audience for the fifth consecutive season. The FOX Network’s Family Guy, Bob’s Burgers, The Simpsons and Last Man Standing placed among the 2018-2019 broadcast season’s top 10 broadcast comedies in the 18 to 34 year old audiences. |
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| • | FOX Sports. A significant component of the FOX Network programming consists of sports programming, with the FOX Network providing to its affiliates live coverage of the NFC of the NFL (including coverage of the NFC playoffs) and MLB (including the post-season and the World Series), as well as live coverage of the Monster Energy NASCAR Cup Series (including the Daytona 500), USGA golf events (including the men’s U.S. Open), college football and basketball and international soccer (including FIFA World Cup events). In January 2018, the Company acquired rights to broadcast five seasons of the NFL Thursday Night Football and began airing live coverage of these games in September 2018. In June 2018, the Company expanded its domestic sports rights to include WWE SmackDown Live, which is scheduled to premiere in October 2019. |
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The FOX Network obtains entertainment programming from major television studios, including Twentieth Century Fox Television (which, following the Disney Merger, is owned by Disney), and independent television production companies pursuant to license agreements. The terms of those agreements generally provide the FOX Network with the right to broadcast a television series for a minimum of four seasons. National sports programming is obtained through license agreements with professional or collegiate sports leagues or organizations. The FOX Network’s current licenses with the NFL, MLB, college football and basketball conferences, NASCAR, FIFA, USGA and WWE are secured by long-term agreements.
The FOX Network provides programming to its 208 affiliates in accordance with affiliation agreements of varying durations, which grant to each affiliate the right to broadcast network television programming on the affiliated station. Such agreements typically run three or more years and have staggered expiration dates. These affiliation agreements require
affiliates to the FOX Network to carry the FOX Network programming in all time periods in which the FOX Network programming is offered to those affiliates, subject to certain exceptions stated in the affiliation agreements.
The FOX Network also distributes programming through its network-branded website, FOX.com, and its FOX NOW application, which offer live streaming of the FOX Network shows and programming from many broadcast stations affiliated with the FOX Network, and licenses programming for distribution through MVPDs’ websites and applications.
MyNetworkTV
The programming distribution service, Master Distribution Service, Inc. (branded as MyNetworkTV), distributes two hours per night, Monday through Friday, of off-network programming from syndicators to its licensee stations. As of June 30, 2019, MyNetworkTV had license and delivery agreements covering approximately 180 stations, including 10 stations owned and operated by the Company, available to approximately 97% of U.S. households.
Competition
The network television broadcasting business is highly competitive. The FOX Network and MyNetworkTV compete for audiences, programming and advertising revenue with other broadcast networks, such as ABC, NBC, CBS and The CW Television Network, independent television stations, cable and direct broadcast satellite distribution services, cable and direct broadcast satellite television networks, as well as other media, including digital platforms, Internet-delivered free, advertising supported, subscription and rental services, and DVDs, Blu-rays and other physical media. In addition, the FOX Network and MyNetworkTV compete with other broadcast networks and programming distribution services to secure affiliations or station agreements with independently owned television stations in markets across the U.S. ABC, NBC and CBS each broadcasts a significantly greater number of hours of programming than the FOX Network and, accordingly, may be able to designate or change time periods in which programming is to be broadcast with greater flexibility than the FOX Network. Technological developments also may affect competition within the broadcast television marketplace.
Each of the stations owned and operated by FOX Television Stations also competes for advertising revenues with other television stations, radio and cable systems in its respective market area, along with other advertising media, such as digital platforms, Internet apps and websites, newspapers, magazines, outdoor advertising and direct mail. All of the stations owned and operated by FOX Television Stations are located in highly competitive markets. Additional items that are material to the competitive position of each of the television stations include management experience, authorized power and assigned frequency of that station. Competition for sales of broadcast advertising time is based primarily on the anticipated and actually delivered size and demographic characteristics of audiences as determined by various rating services, price, the time of day when the advertising is to be broadcast, competition from the other broadcast networks, cable television systems, direct broadcast satellite television, services and digital media and general economic conditions. Competition for audiences is based primarily on the selection of programming, the acceptance of which is dependent on the reaction of the viewing public, which is often difficult to predict.
Other, Corporate and Eliminations
The Other, Corporate and Eliminations segment consists primarily of corporate overhead costs, intracompany eliminations and the FOX Studios lot.
FOX Studios lot. FOX owns the FOX Studios lot in Los Angeles, California. The historic lot is located on over 50 acres of land and has over 1.85 million square feet of space for both administration and production services available to service a wide array of industry clients, including four scoring and mixing stages, two broadcast studios, 15 sound stages, theaters and screening rooms, edit bays, and other production facilities. The FOX Studios lot provides two primary revenue streams — the lease of a portion of the office space to 21CF and the operation of studio facilities and sound stages for third party productions, which until 2026 will predominantly be Disney productions.
Investments
Roku. FOX owns approximately 6 million shares representing approximately 5% of Roku, a pioneer in television streaming that connects users to movies, shows and music, enables content publishers to build and monetize large
audiences and provides advertisers with unique capabilities to engage consumers. It had over 30 million active accounts as of June 30, 2019 and streams billions of hours of content every quarter.
The Stars Group Inc. In May 2019, the Company and The Stars Group Inc. announced plans to launch FOX Bet, a national media and sports wagering partnership in the U.S. FOX Sports and The Stars Group have entered into a long-term commercial agreement through which FOX Sports will provide The Stars Group with an exclusive license to use certain FOX Sports trademarks. In addition, the Company invested $236 million to acquire a 4.99% equity interest in The Stars Group.
Government Regulation
The television broadcast industry in the U.S. is highly regulated by federal laws and regulations issued and administered by various agencies, including the FCC. The FCC regulates television broadcasting, and certain aspects of the operations of cable, satellite and other electronic media that compete with broadcasting, pursuant to the Communications Act of 1934, as amended (the “Communications Act”). The introduction of new laws and regulations or changes in the enforcement or interpretation of existing laws and regulations could have a negative impact on the operations, prospects and financial performance of the Company.
Broadcast Licenses. The Communications Act permits the operation of television broadcast stations only in accordance with a license issued by the FCC upon a finding that the grant of the license would serve the public interest, convenience and necessity. The Company owns broadcast licensees in connection with its ownership and operation of television stations. Under the Communications Act, television broadcast licenses may be granted for a maximum term of eight years. Generally, the FCC renews broadcast licenses upon finding that the television station has served the public interest, convenience and necessity; there have been no serious violations by the licensee of the Communications Act or FCC rules and regulations; and there have been no other violations by the licensee of the Communications Act or FCC rules and regulations which, taken together, indicate a pattern of abuse. Currently, FOX Television Stations has no pending renewal applications for its television broadcast licenses.
Ownership Regulations. Under the FCC’s national television ownership rule, as established by Congress, one party may own television stations with a collective national audience reach of not more than 39% of all U.S. television households, subject to the UHF discount. Under the UHF discount, a UHF television station is attributed with reaching only 50% of the television households in its market for purposes of calculating national audience reach under the national ownership rule. In December 2017, the FCC issued a Notice of Proposed Rulemaking pursuant to which it will consider modifying, retaining or eliminating the 39% national television audience reach limitation (including possibly the UHF discount). If the FCC determines in the future to eliminate the UHF discount, but does not eliminate or modify the national television audience reach limitation, the Company’s ability to acquire television stations in additional markets may be affected.
Under the FCC’s local television ownership rule, one party may own up to two television stations in the same DMA and there is also a presumptive prohibition on the ownership of two stations ranked among the top-four stations in a DMA based on audience share, measured as of the date an application for FCC approval of an acquisition is filed. In November 2017, the FCC issued a reconsideration order that relaxed the local television ownership rule so that, among other things, station owners could petition the FCC to permit ownership of two stations both ranked among the top four in a market.
Also in the 2017 FCC reconsideration order, the FCC eliminated the newspaper/broadcast cross-ownership rule, which prohibited common ownership of broadcast stations and daily newspapers in the same market. The reconsideration order is currently the subject of an appeal in the United States Court of Appeals for the Third Circuit. Prior to the elimination of the rule, the Company had operated under waivers of the cross-ownership rule because Company shareholders retained an attributable interest in The New York Post, a daily newspaper in the New York DMA, by virtue of the Murdoch Family Trust’s ownership interest in both News Corporation (“News Corp”) and the Company. If the elimination of the newspaper/broadcast cross-ownership rule is overturned by the court, the Company’s operations or future conduct, including the acquisition of any broadcast networks, or stations or any newspapers, in the same local markets in which News Corp owns or operates newspapers or has acquired television stations, may affect News Corp’s ability to own and operate its business in compliance with the rule. We have agreed with News Corp that, if we acquire newspapers, radio or television broadcast stations or television broadcast networks in the U.S., and such acquisition would impede or be reasonably likely to impede News Corp’s business, then we will be required to take certain actions, including divesting assets, in order to permit News Corp to hold its media interests and to comply with applicable rules.
Under the Communications Act, no broadcast station licensees may be owned by a corporation if more than 25% of the corporation’s stock is owned or voted by non-U.S. persons, their representatives, or by any other corporation organized under the laws of a foreign country. This ownership limit can be waived if the FCC finds it to be in the public interest. The FCC could review the Company’s compliance with the foreign ownership regulations in connection with its consideration of FOX Television Stations’ license renewal applications.
Carriage and Content Regulations. FCC regulations require each television broadcaster to elect, at three-year intervals, either to require carriage of its signal by traditional MVPDs in the station’s market or to negotiate the terms in which that broadcast station would permit transmission of its signal by the traditional MVPDs within its market, which we refer to as the retransmission consent. Generally, FOX Television Stations has elected retransmission consent for all of its owned and operated stations.
Federal legislation limits the amount of commercial matter that may be broadcast during programming designed for children 12 years of age and younger. In addition, under FCC regulations, television stations are generally required to broadcast a minimum of three hours per week of programming, which, among other requirements, must serve, as a “significant purpose,” the educational and informational needs of children 16 years of age and under. A television station found not to have complied with the programming requirements or commercial limitations could face sanctions, including monetary fines and the possible non-renewal of its license.
FCC rules prohibit the broadcast by television and radio stations of indecent or profane material between the hours of 6:00 a.m. and 10:00 p.m. Federal law currently authorizes the FCC to impose fines of up to $407,270 per incident for violation of the prohibition against indecent and profane broadcasts. The FCC may impose fines for, and also has the power to pursue license revocation proceedings in cases of, serious or multiple violations of the indecency prohibition. Several complaints alleging the broadcast of indecent or profane material by FOX Television Stations are believed to be pending at the FCC (and it is not possible to predict the outcome of any such complaints).
Modifications to the Company’s programming to reduce the risk of indecency violations could have an adverse effect on the competitive position of FOX Television Stations and the FOX Network. If indecency regulation is extended to Internet or cable and satellite programming, and such extension was found to be constitutional, some of the Company’s other programming services could be subject to additional regulation that might affect subscription and viewership levels.
The FCC continues to enforce strictly its regulations concerning sponsorship identification, political advertising, children’s television, environmental concerns, equal employment opportunity, technical operating matters and antenna tower maintenance. In addition, the Federal Trade Commission, or FTC, has increased its focus on unfair and deceptive advertising practices, particularly with respect to social media marketing. Both FCC and FTC rules and guidance require marketers to clearly and conspicuously disclose whenever there has been payment for a marketing message or when there is a material connection between an advertiser and a product endorser.
FCC rules also require the closed captioning of almost all broadcast and cable programming. In addition, Federal law requires affiliates of the four largest broadcast networks in the 25 largest markets to carry a specified minimum amount of hours of primetime or children’s programming per calendar quarter with video descriptions, i.e., a verbal description of key visual elements inserted into natural pauses in the audio and broadcast over a separate audio channel. The same statute requires programming that was captioned on television to retain captions when distributed via Internet Protocol apps or services.
FCC regulations govern various aspects of the agreements between networks and affiliated broadcast stations, including, among other things, a mandate that television broadcast station licensees retain the right to reject or refuse network programming in certain circumstances or to substitute programming that the licensee reasonably believes to be of greater local or national importance.
Violation of FCC regulations can result in substantial monetary forfeitures, periodic reporting conditions, short-term license renewals and, in egregious cases, denial of license renewal or revocation of license. Violation of FTC-imposed obligations can result in enforcement actions, litigation, consent decrees and, ultimately, substantial monetary fines.
National Broadband Plan. In order to free up more spectrum for wireless broadband services, the FCC has promulgated a national Broadband Plan that is intended to incentivize current private-sector spectrum holders to return some of their spectrum to the government through such initiatives as voluntary “incentive” spectrum auctions and “repacking” of channel assignments to increase efficient spectrum usage. Over time, if voluntary measures fail to yield the
amount of spectrum the FCC deems necessary for wireless broadband deployment, the Broadband Plan proposed various mandates to reclaim spectrum, such as forced channel sharing. The FCC already has conducted one voluntary “incentive” auction to reclaim spectrum from broadcasters willing to relinquish it. FOX Television Stations had three stations’ bids to relinquish spectrum accepted by the FCC as part of that auction, which concluded in March 2017. Of its remaining stations, nine will be required to repack during a multi-year transition.
C-Band Reallocation. In order to free up additional spectrum that will likely be used to provide the next generation of commercial wireless broadband services, commonly referred to as 5G services, the FCC has initiated a Notice of Proposed Rulemaking to determine whether a portion of the 500 MHz in the 3.7 to 4.2 GHz (“C-Band”) spectrum can be auctioned. The C-Band forms the backbone of the infrastructure for how the Company delivers its programming to broadcast affiliates and traditional MVPDs. Currently, there is no viable, scalable and reliable alternative for video delivery. If the FCC does not adopt rules that safeguard video delivery while it reallocates and “repacks” the C-Band, it would significantly hinder the Company’s ability to deliver its programming to broadcast affiliates and traditional MVPDs.
Broadcast Transmission Standard. In November 2017, the FCC adopted rules to permit television broadcasters to voluntarily broadcast using the “Next Generation” broadcast television transmission standard developed by the Advanced Television Systems Committee, Inc., also referred to as “ATSC 3.0.” FOX Television Stations is actively planning to build out ATSC 3.0 facilities. FOX Television Stations is participating in various ATSC 3.0 testing with other broadcasters, but it is too early to predict the impact of this technical standard on the Company’s operations.
Privacy and Information Regulation
The laws and regulations governing the collection, use and transfer of consumer information are complex and rapidly evolving, particularly as they relate to the Company’s digital businesses.
Federal laws and regulation affecting the Company’s online services, websites and other business activities include: the Children’s Online Privacy Protection Act, which prohibits websites and online services from collecting personally identifiable information online from children under age 13 without prior parental consent; the Controlling the Assault of Non-Solicited Pornography and Marketing Act, which regulates the distribution of unsolicited commercial emails, or “spam”; the Video Privacy Protection Act, which prohibits the knowing disclosure of information that identifies a person as having requested or obtained specific video materials from a “video tape service provider;” and the Telephone Consumer Protection Act, which restricts certain marketing communications, such as text and calls, without explicit consent. Although the media industry is also active in self-regulatory initiatives relating to advertising and online privacy, such initiatives may be replaced or superseded by government action. A number of privacy and data security bills that address the collection, maintenance and use of personal information, breach notification requirements and cybersecurity are pending or have been adopted at both the state and federal level, including the California Consumer Privacy Act effective in 2020. In addition, state attorneys general have made privacy and data security an enforcement focus.
Non-U.S. governments also have implemented, and continue to introduce and assess new, privacy and data security laws and regulations, some of which could apply to us even if our business is conducted from the U.S. It is possible that our current data protection policies and practices may be deemed inconsistent with new legal requirements or interpretations thereof, and could result in the violation of these new laws and regulations. The EU General Data Protection Regulation, in particular, regulates the collection, use and security of personal data and restricts the trans-border flow of such data.
The Company monitors and considers these privacy and data security laws and regulations, particularly with respect to the design and operation of digital content services and legal and regulatory compliance programs. These laws and regulations, and their interpretation, are subject to change, and could result in increased compliance costs, claims, financial penalties for noncompliance, changes to business practices, or otherwise impact the Company’s business. For example, violations of applicable privacy and data security laws could result in significant monetary fines and other penalties, require us to expend significant resources to defend, remedy and/or address, and harm our reputation even if we are not ultimately responsible for the violation.
Intellectual Property
The Company’s intellectual property assets include copyrights in television programming and other publications, websites and technologies; trademarks, trade dress, service marks, logos, slogans, sound marks, design rights, symbols, characters, names, titles and trade names, domain names; patents or patent applications for inventions related to its
products, business methods and/or services, trade secrets and know how; and licenses of intellectual property rights of various kinds. The Company derives value from these assets through the production, distribution and/or licensing of its television programming to domestic and international cable and satellite television services, video-on-demand services, operation of websites, and through the sale of products, such as collectible merchandise, apparel, books and publications, among others.
The Company devotes significant resources to protecting its intellectual property, relying upon a combination of copyright, trademark, unfair competition, patent, trade secret and other laws and contract provisions. There can be no assurance of the degree to which these measures will be successful in any given case. Policing unauthorized use of the Company’s products and services and related intellectual property is often difficult and the steps taken may not in every case prevent the infringement by unauthorized third parties of the Company’s intellectual property. The Company seeks to limit that threat through a combination of approaches, including offering legitimate market alternatives, deploying digital rights management technologies, pursuing legal sanctions for infringement, promoting appropriate legislative initiatives and international treaties and enhancing public awareness of the meaning and value of intellectual property and intellectual property laws. Piracy, including in the digital environment, continues to present a threat to revenues from products and services based on intellectual property.
Third parties may challenge the validity or scope of the Company’s intellectual property from time to time, and such challenges could result in the limitation or loss of intellectual property rights. Even if not valid, such claims may result in substantial costs and diversion of resources that could have an adverse effect on the Company’s operations.
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