Fox: The Importance Of FXX's High Risk 'Simpsons' Gamble

Aug.22.14 | About: Twenty-First Century (FOXA)

Summary

'The Simpsons' is one of TV's most iconic series of all time.

After 25 years the series is finally coming to cable through a syndication deal with FXX that includes multiple viewing options.

FXX is a part of Fox, which through the broadcast channel and FX cable network is already a powerful force...but FXX has gotten off to a rocky start.

FXX spent a record amount of money on the well-known brand in a bid to get more people to tune into the network and stay tuned in afterwords.

This new model is potentially setting the groundwork for future deals taking place in an increasingly crowded online medium.

Call it a $750 million gamble.

That's the reported price tag FXX (a subsidiary of Fox (NASDAQ: FOXA)) paid for the all-encompassing syndication rights for The Simpsons. The deal, which may be the most expensive of its kind on record, includes cable/VOD/digital and online viewing. It includes the rights for over 500 episodes and will continue to expand as the series continues to defy the laws of television entering its 26th season this fall.

(CREDIT: FOX)

Selling Syndication

Before looking at the impact on FXX, you have to look at why it is making such an impact in general. Syndication deals are nothing new and they've been around forever. Usually the golden rule is a show must make it to the 100 episodes mark (roughly four or five seasons) for a network to take it out for sale, but The Simpsons is a unique case.

Remember this is a show that hit the 100 episode milestone back in 1994 but given the show's both edgy (at the time) nature and it being of the animated variety, the deal was harder than most. With cable TV not the behemoth it is today, local Fox stations had a lot of leverage and they made it clear they wanted a "hometown discount" so to speak to run the show. In return for airing The Simpsons on their affiliates they wanted to maintain exclusivity as long as the show was still cranking out new episodes on Fox.

What's so interesting is that at a certain point that meant The Simpsons was essentially worth more dead than alive as once the series was cancelled Fox could cash-in in a major way with cable. That's also part of the reason why the vocal cast was quicker to settle their most recent contract dispute because they had less leverage. Fox could have easily called it a day, collected its money and moved on, but all involved wanted to keep the show going.

That brings us to now where the exclusivity deal was reworked, FXX was granted the rights and the network has just started a massive marathon that over 12 days will see every Simpsons episode (and feature film) airing consecutively…on cable. All episodes will also be available on a new website where fans can stream the series to their hearts content…for free (with a cable subscription).

Business Impact

FXX is a spin-off of FX, which is of course a spin-off of Fox. Yet FXX executives have made it clear that being a part of the Fox family didn't net them the same type of sweetheart deal the local affiliates got decades ago. In turn they had just presented the best package and it just so happened the synergy was a nice side perk. Yet it's a perk that's needed as investors are well aware FXX hasn't lived up to expectations. Granted it's still in its infancy but it's had a rocky start.

FXX was conceived after Fox lost the rights to soccer to NBC and they needed a replacement for the Fox Soccer network. The plan was for FX to move away from comedy and focus solely on gritty dramas like American Horror Story or Sons of Anarchy. The problem was that the network also had successful comedies such as It's Always Sunny In Philadelphia and The League as well as the (initially) well-received Totally Biased with W. Kamau Bell. This was in addition to award darling Louie and long-time staple Archer, so the idea was FXX would handle comedy …but only Philadelphia, League and Biased moved over.

With no real lead-ins and on a harder to find channel, the numbers suffered. Biased was eventually cancelled and the network has yet to really launch a successful FXX series. Enter The Simpsons…this is a way to draw in a viewers to the channel and keep them there. Again, it's a $750 million gamble to make one of Fox's least performing subsidiaries more appealing and profitable.

Investor Analysis

FXX is a part of Twenty-First Century Fox, Inc., formerly News Corporation, which focuses on global media and entertainment through cable network programming; television, filmed entertainment, direct broadcast satellite television and other avenues. While film is a big part of the company's portfolio, TV is its bread and butter. Home to Fox, FX, FXX, Fox News, Fox Business, Fox Sports, Fox Sports Network, FS1 and numerous other channels, plus 28 local TV affiliates it's a major conglomerate.

Most of the networks are profitable in their own right, but to investors Fox and FX are the real power players in terms of original content (not including news and sports programming). It's that content that helps steer success. This fall Fox has a strong roster of rookie series including Gotham, Red Band Society and Gracepoint while FX has the one-two punch of American Horror Story: Freak Show and the final season of Sons of Anarchy, which combined dwarf FXX's offerings.

The hope is The Simpsons deal lays the groundwork for a turnaround. In addition for the industry, this is the prototype for the next big type of syndication deal which will impact a number of networks and future series, many of which haven't even been created yet. This is now a tech heavy world and fans want instant access and they are getting it in a big way.

The trade-off for that unparalleled availability is dealing with a slew of commercials. It's been estimated that of the 12 days of the marathon, it will include about three or four days' worth of ads. Of course it doesn't hurt that some of those ads will be for Fox programming, of which there is a ton.

Meanwhile Simpsons' rival South Park is trying something similar and yet very different. In a deal reported at $80 million, the series will post its entire library online behind a paywall at Hulu Plus. It's another salvo in the increasingly crowded race for online supremacy.

The difference with The Simpsons is Fox has a real opportunity here to turn its weakest link into one of its strongest. Investors also need to be aware this isn't going to happen overnight…it's gradual. Adding The Simpsons is just the first step, from here it has to develop and foster its creative pipeline to stay competitive. Again, FX is very competitive and with 45 Emmy nominations including a network record 18 for breakout limited-run series Fargo, it's beginning to remind rivals it also has a seat at the table. FXX executives know the network is trading off FX's name but is clearly trying to break free.

USA, TNT, TBS and AMC (among others) are cable powerhouses but none of them have the type of series that hits every demographic the way The Simpsons does. It's a part of Americana and that makes it special which for FXX and its parent company is a competitive advantage that just may be worth its weight in gold.

Although that begs the question that if Fox is ready to gamble on the idea with their money…are you willing to gamble on them with yours?

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The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.