10-K: Fox Corporation 2024 Annual Report: Navigating a Shifting Media Landscape

Fox Corporation's 2024 annual report details a year of strategic adaptation amidst evolving consumer behavior and technological advancements in the media industry.

Summary

• Fox Corporation's revenue decreased by 6% to $14 billion in fiscal year 2024, primarily due to a decline in advertising revenue, partially offset by an increase in affiliate fees.
• Advertising revenue saw an 18% decrease, largely due to the absence of major events like the Super Bowl and FIFA Men's World Cup, and lower political advertising revenue.
• Affiliate fee revenue increased by 4%, driven by higher average rates per subscriber and increased fees from FOX Network affiliated stations, though this was partially offset by a decline in subscriber numbers.
• Operating expenses decreased by 6%, mainly due to lower sports programming rights amortization and production costs.
• The company reported a net income of $1.554 billion, a 24% increase compared to the previous year, primarily due to the absence of legal settlement costs and lower indemnity costs.
• Fox repurchased approximately 40 million shares of Class A Common Stock for approximately $1 billion during fiscal 2024 and returned approximately $1.25 billion of capital to stockholders through stock repurchases and cash dividends.
• Tubi's total view time grew by over 40% in fiscal 2024, reaching approximately 9.7 billion hours, and finished the year with approximately 2.0% of all television viewing according to Nielsen's The Gauge.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to the company's strong performance in certain areas like Tubi's growth and increased affiliate fees, but is tempered by the decline in advertising revenue and overall revenue decrease. The company is adapting to industry changes but faces significant challenges.

Positives

• Affiliate fee revenue increased by 4%, driven by higher average rates per subscriber and increased fees from FOX Network affiliated stations.
• Operating expenses decreased by 6%, mainly due to lower sports programming rights amortization and production costs.
• Net income increased by 24% to $1.554 billion, primarily due to the absence of legal settlement costs and lower indemnity costs.
• Tubi experienced significant growth, with total view time increasing by over 40% in fiscal 2024.
• The company maintains a strong balance sheet with approximately $4.3 billion in cash and cash equivalents.
• Fox returned approximately $1.25 billion of capital to stockholders through stock repurchases and cash dividends during fiscal 2024.

Negatives

• Total revenue decreased by 6% to $14 billion, primarily due to a decline in advertising revenue.
• Advertising revenue decreased by 18% due to the absence of major sporting events and lower political advertising revenue.
• The company experienced a decline in the average number of subscribers across almost all networks.
• Television Segment EBITDA decreased by 50% due to lower advertising and other revenues.

Risks

• Changes in consumer behavior and evolving technologies continue to challenge existing business models.
• Declines in advertising expenditures due to market conditions and changes in consumer behavior could adversely affect revenues.
• The failure to renew affiliation and carriage agreements on favorable terms could negatively impact the company's business.
• Continued declines in the number of subscribers to MVPD services could negatively affect affiliate fee and advertising revenues.
• The company faces intense competition from other media companies and direct-to-consumer streaming services.
• The company is exposed to risks associated with weak economic conditions and increased volatility in financial markets.
• Cybersecurity threats and content piracy pose risks to the company's operations and intellectual property.
• The company is subject to complex laws and regulations related to privacy and data protection, which are evolving and potentially costly.

Future Outlook

The company expects to continue to invest in and expand its digital distribution offerings and direct engagement with consumers, including through Tubi, FOX Nation, FOX Weather and other offerings such as the Venu Sports streaming service expected to launch in the fall of 2024.

Management Comments

• The company differentiates itself in a crowded media and entertainment marketplace through its simple structure, the leadership positions of its brands and premium programming that focus on live and appointment-based content, a significant presence in major markets, and broad distribution of its content across traditional and digital platforms.
• The strength and leadership of our brands will continue to support industry leading affiliate fee revenue growth and sustained advertising revenue, while enabling us to nimbly respond to the opportunities and challenges traditional media companies are facing as technologies and changes in consumer behavior continue to rapidly evolve.

Industry Context

The report highlights the ongoing shift in the media industry towards digital platforms and direct-to-consumer offerings, with traditional linear television viewership declining. Fox is adapting to these trends by investing in its digital platforms like Tubi and expanding its digital content offerings.

Comparison to Industry Standards

• The report notes that as linear television viewership declines across the industry, appointment-based programming that is the FOX hallmark remains resilient, which is a key differentiator compared to other media companies.
• Fox News has been the top-rated national cable news channel in Monday to Friday primetime viewing for over 20 consecutive years, outperforming competitors like CNN and MSNBC.
• Tubi has become one of the most relevant and fastest growing AVOD services in the country, with over 40% growth in total view time in fiscal 2024 compared to the prior fiscal year, further cementing its leadership as the most watched free ad-supported TV (FAST) streaming service in the U.S.
• FOX Entertainment has delivered the youngest and most diverse audience of the broadcast networks across all programming in primetime for over two decades, which is a key competitive advantage.
• The report mentions that ABC, CBS and NBC each broadcast a significantly greater number of hours of programming than the FOX Network, which is a key difference in strategy.

Legal Proceedings

• The company continues to believe the Smartmatic and other lawsuits alleging defamation or disparagement as well as related derivative lawsuits are without merit and intends to defend against them vigorously, including through any appeals.
• The company has incurred significant expenses defending against the defamation and disparagement matters, including the payment of approximately $800 million to settle the Dominion matter and a related lawsuit in April 2023.

Stakeholder Impact

• Shareholders benefited from approximately $1.25 billion of capital returned through stock repurchases and cash dividends.
• Employees are supported through competitive pay and comprehensive benefits, as well as learning and development programs.
• Customers are provided with a variety of content across different platforms, including news, sports and entertainment.
• Advertisers are provided with access to a substantial, incremental digital audience through Tubi.

Next Steps

• The company will continue to invest in and expand its digital distribution offerings and direct engagement with consumers.
• The company will continue to review opportunities to optimize its sports portfolio with the dual goal of maintaining and growing its audience while achieving accretive financial returns.
• The company will continue to expand its footprint across owned and unscripted content, including leveraging the breadth of offerings from FOX Entertainment studios to populate its primetime lineup and reduce its reliance on third-party content providers.

Key Dates

Keywords

advertising revenue, affiliate fees, streaming, Tubi, sports programming, cable networks, digital distribution, content production, media, entertainment