21st Century Fox's (FOX) Q1 2015 Results - Earnings Call Transcript

21st Century Fox, Inc. (NASDAQ:FOX) Q3 2015 Earnings Conference Call May 6, 2015 4:30 PM ET

Executives

Reed Nolte - Senior Vice President, Investor Relations
John Nallen - Chief Financial Officer & Senior Executive VP
Charles Carey - President, Chief Operating Officer & Director
James Rupert Murdoch - Co-Chief Operating Officer & Director

Analysts

John Janedis - Jefferies LLC
Jessica Reif Cohen - Bank of America Merrill Lynch
Bryan Kraft - Deutsche Bank Securities, Inc.
Douglas Mitchelson - UBS Securities LLC
David Bank - RBC Capital Markets LLC
Michael Nathanson - MoffettNathanson LLC
Alexia Quadrani - JPMorgan Securities LLC
Tim Nollen - Macquarie Capital, Inc.
Michael Morris - Guggenheim Securities LLC
Anthony DiClemente - Nomura Securities International, Inc.
David Miller - Topeka Capital Markets

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the 21st Century Fox Third Quarter 2015 Earnings Release. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded.

Now, I’d like to turn the conference over to our host, Mr. Reed Nolte, Senior Vice President, Investor Relations.

Reed Nolte

Thank you very much, operator. Hello, everyone, and welcome to our third quarter fiscal 2015 earnings conference call. On the call today are Chase Carey, President and Chief Operating Officer; James Murdoch, Co-Chief Operating Officer; and John Nallen, our Chief Financial Officer.

First, we’ll give some prepared remarks on the most recent quarter, and we’ll be happy to take questions from the investment community.

This call may include certain forward-looking information with respect to 21st Century Fox’s business and strategy. Actual results could differ materially from what is said. The company’s Form 10-Q for the three months ended March 31, 2015, identifies risks and uncertainties that could cause actual results to differ and these statements are qualified by the cautionary statements contained in such fillings.

Additionally, this call will include certain non-GAAP financial measurements. The definition of, and a reconciliation of such measures, can be found in our earnings release and our 10-Q filing. Finally, please note that certain financial measures used in this call such as segment operating income before depreciation and amortization, often referred to as EBITDA, and adjusted earnings per share, are expressed on a non-GAAP basis. The GAAP to non-GAAP reconciliation of these non-GAAP measures is included in our earnings release.

And with that, I’m pleased to turn it over to John.

John Nallen

Thanks, Reed. Before we get into the specific earnings commentary, just a reminder that because of the sale of our DBS businesses to Sky this past November, our reported financial results for the third quarter this year do not include the consolidation of these DBS businesses as compared to a full quarter consolidation a year ago. So, similar to last quarter to provide a more meaningful comparative analysis, we’re providing total company adjusted revenue and adjusted EBITDA which excludes the DBS businesses in all periods.

Now, turning to the quarter results. Third quarter total company revenues were $6.8 billion, up $84 million compared to the year-ago adjusted result, reflecting double-digit increases at our cable networks segment and mid-single-digit increases at film. This growth was mostly offset by lower television segment revenues where the prior year results included approximately $350 million in revenues from the broadcast of the Super Bowl.

Total segment EBITDA for the third quarter was $1.68 billion, a 3% reduction versus the adjusted EBITDA from a year ago of $1.73 billion. This year’s result reflects continued strong underlying cable networks segment contributions and higher film segment contributions. These increases were more than offset by reduced television segment results reflecting last year’s Super Bowl broadcast, as well as this year’s impact of the investments in our new sports channels in India.

Additionally, this quarter reflected the most unfavorable year-on-year comparison so far of foreign exchange rates, and as a result, our overall total EBITDA growth rate was reduced by approximately seven percentage points in the quarter. From a bottom-line perspective, on a GAAP basis, we reported income from continuing operations attributable to stockholders of $990 million as compared to the $1.07 billion we reported a year ago. Equity earnings were $160 million higher than a year ago, primarily reflecting this year’s inclusion of our share of Sky’s gain on the sale of Sky Bet.

Excluding the net income effects of other net, as well as certain adjustments to equity earnings including eliminating the gain on the Sky Bet sale and eliminating last year’s gain from participating in Sky share repurchase program, third quarter adjusted earnings per share were $0.42 this year versus $0.47 in the prior year.

Now, let me provide some comments on the performance at our businesses. Let’s start with the cable networks where total segment revenues increased 14% from last year, highlighted by a 15% increase in affiliate revenues and 9% advertising revenue growth. With respect to affiliate revenues, domestic affiliate fees increased 20% primarily from higher average rates led by the RSNs, FX, and Fox News as well as increases from the conversion of our new channels, FS1 and FXX. The inclusion of the YES Network for the full quarter this year also contributed to our growth. Excluding the contribution from YES, we had a mid-teens domestic affiliate fee increase.

Our reported international affiliate fees were up 2%, reflecting an underlying mid-teens local currency growth rate, which was mostly offset by unfavorable foreign exchange movements particularly in Latin America and in Europe.

The 9% total cable ad revenue growth in the quarter was led by our international channels where reported international advertising grew 24%, reflecting 29% growth on a local currency basis. This growth was primarily driven by increases at STAR from this year’s broadcast of the ICC World Cup. The third quarter domestic advertising revenues were at similar levels to a year ago, with increases at the sports networks, Fox News, and FXX, essentially being offset by lower ad revenues at FX and the National Geographic Channel due to lower ratings.

Total cable segment EBITDA in the third quarter of $1.23 billion was up 5% over the prior year, reflecting the solid revenue growth which was partially offset by a planned 19% increase in expenses primarily related to higher sports rights and entertainment programming costs. Around 60% of the increase in expenses came from STAR Sports, most notably the cost of the Cricket World Cup rights. The negative comparative effect from the strengthening U.S. dollar impacted the segment growth rate by around 5%.

EBITDA at our domestic cable channels increased 21% from higher contributions at Fox News and from our sports channels including the impact of consolidating the YES Network for the full quarter. This EBITDA growth was partially offset by lower contributions from the FX Networks due to increased programming costs. At the international channels, despite local currency growth at FIC, our reported international channel EBITDA contributions declined 60%, driven by both the sizable planned cricket investment we made at STAR Sports as well as the overall negative impact from foreign exchange rates especially from Latin America.

At our Television segment, third quarter EBITDA was $141 million, roughly half the contribution generated in the third quarter a year ago. This decline principally reflects the absence of the revenue and earnings from the Super Bowl broadcast in the prior year, as well as higher entertainment programming cost this year from a higher volume of original series including Glee and Empire. Excluding last year’s Super Bowl, segment revenues were consistent with the year-ago quarter as strong retransmission consent revenue growth was offset by a 7% decline in ad revenues due to lower general entertainment ratings at the broadcast network.

Turning to our film segment, we reported third quarter EBITDA of $382 million, an 8% increase over year ago results as higher film studio contributions more than offset lower television production results and the unfavorable impacts of foreign currency. Total segment revenues in the quarter increased $110 million or 5%, driven by several successful theatrical releases including Kingsman and Taken 3 as well as home entertainment revenues from Rio 2 and The Fault in Our Stars. The reduced contributions from television production are largely due to lower SVOD revenues this year, reflecting last year’s multi-series sale to Amazon, which included 24 and The Americans.

Now, before I turn to guidance, let me make a couple of capital-related comments. We ended the quarter with $9.3 billion in cash and $19.1 billion in gross debt. These balances reflect strong cash generation from operating activities in the quarter alone of approximately $1.8 billion and share repurchases in the quarter of $2.1 billion. Subsequent to the quarter, we continued to actively repurchase shares. From July 1 through today, we have repurchased approximately $5.250 billion of Fox A shares and we have approximately $1.25 billion remaining on our current authorization. So we’re on plan to complete the $6 billion buyback within the 12-month timeframe that we previously announced.

Now, let me address our guidance update for fiscal 2015, and as a reminder, for guidance purposes, we are excluding the DBS businesses for the entirety of all periods, resulting in a base EBITDA for fiscal 2014 of $6.29 billion. On our last quarter’s earnings call, we indicated that the strengthening dollar would have an adverse impact on our EBITDA growth for the year based on exchange rates at that time. Since that call, the dollar on average has continued to strengthen, although in recent days it’s begun to weaken against certain currencies. So this volatility makes it difficult to forecast with precision the impact on our results, but we estimate that foreign exchange rates could have up to an incremental one percentage point negative impact on our growth rate.

Absent this potential impact, we are maintaining our guidance for our total segment EBITDA percentage growth rate for fiscal 2015 to be at the lower end of the mid-single-digit range above the $6.29 billion total segment EBITDA base level for fiscal 2014.

With that, let me turn it over to Chase.

Charles Carey

Thanks, John. Our results continue to be driven by competitive strength in our cable networks, strong affiliate fee growth, and leadership in our content businesses, while we face headwinds due to both foreign currency and the turnaround efforts at our broadcast business. Our third quarter results were further impacted by the absence of the Super Bowl this year and significant investments at STAR Sports in India, particularly the Cricket World Cup. We will address our guidance for the next fiscal year on our year-end call in August, therefore I want to use the next few minutes to address some specific issues.

As I noted a minute ago, we continue to have strong underlying growth at our cable channels driven by higher affiliate fees. We also continue to close agreements that meet or exceed our expectations for new and existing agreements. At the same time, there’s increasing noise in the market about new over-the-top offers, skinny bundles and other new options for consumers to access content. It is important to provide a bit of insight when considering these issues. First, we believe the current pay TV ecosystem is strong and the consumers continue to value choice and breadth in content. While we’re seeing a small decline in pay TV subs, we believe the vast majority of customers will continue to want a bundle of channels that is priced appropriately as opposed to a limited number of premium priced channels.

Second, our existing carriage agreements are carefully constructed, and not only provide us with a fair value for our content but also specify the terms in which our channels are packaged and distributed. Many agreements provide limited flexibility for customer retention or experimentation with alternative packages. Any plans to distribute our package or channels in other ways would require a significantly different pricing structure. Even with this, we do expect there would be more choices for consumers. This means more competition for our content. It also provides us opportunities to expand our business by providing consumers a better experience in connecting with customers we may not reach today.

Not everyone will benefit from these changes. We continue to believe that content will be the ultimate beneficiary of the growth of digital platforms and that within the content world, those with must-have brands in content at scale will be the true winners. As both existing MVPDs and new entrants try to construct new consumer offers, those with broad hit content and unique brands will be best positioned to come out on top. We believe we’re uniquely positioned to be such a winner. In the U.S., and increasingly internationally, we’ve built our business around five key brands: Fox Sports, Fox News, FX, National Geographic, and Fox, each of which is a market leader with unique strengths.

At Fox Sports, we have locked up key local, national, and international rights well into the next decade. Our regional sports networks add a critical dimension to our sports business that truly distinguishes us. The sheer popularity of the RSNs have made that business a pillar of strength second to none for us. We’ve used our scale, experience, and broad affiliate agreements to enable us to continue to grow these businesses.

Fox News and FX have also established themselves as true industry leaders. Fox News is as dominant as ever, beating CNN, MSNBC and HLN combined in primetime viewers. At the FX Networks, the quality, breadth, and distinctiveness in the programming really make it a premium channel residing in the basic cable space. Additionally, our FXX channel has essentially doubled its viewership from a year ago. National Geographic is one of the most recognized brands in the world, and while the channel is still a work in progress, we believe we haven’t come close to tapping its true potential.

The Fox Networks is clearly in a turnaround on the entertainment side. Nonetheless, it continues to be a driving force with enormous upside. The sports side of the network has been further strengthened this year by adding the FIFA World Cup and US Open Golf to our portfolio of NFL, MLB, and NASCAR events. On the entertainment side, this season’s Gotham and more recently Empire give us momentum as we head into next week’s upfront and Dana Walden and Gary Newman have given the business a fresh energy and excitement. We’re not the first broadcast network to fight through a turnaround, and we’re confident we’re on our way.

The breadth and strength of our brands and content are also going to be critical as we navigate the changes to the advertising side of our business. Our product has never seen such demand. However, we don’t yet have the ability to effectively monetize the growing viewership. We also need to realize that consumers in a digital world are not going to be captive viewers that will sit through 16 minutes of ads an hour. Advertising will have to be more effective and engaging to justify a premium. We’ll need to work more closely with advertisers to connect with consumers in ways they value and enjoy. Both the recent re-organization of our channels ad sales group and our true[X] acquisition are steps in this direction.

There’ll be short-term challenges such as those we’re experiencing today in the advertising side of our business, which can create pressure as we work to develop new business models. However, for those that navigate this transition successfully, the media industry that emerges on the other side will be one with enormous growth potential and an incredibly exciting future. One of the keys to success will be the ability to be disciplined in the face of industry noise and to be willing to invest and build on positions of strength even in the face of uncertain times. This is a time to prioritize long-term gains over short-term pain. We need to resist the temptation to react to short-term disruptions by weakening our long-term future.

In many ways, this is a time to double down. We must also continue to invest aggressively in original content. Many have asked if the current level of original content production is sustainable. The obvious answer is that it is if we create the best content. We contend the winners in the content world will be those with the management and infrastructure to maximize the value of that content. Our proven track record, management bench strength, deep roster of talent relationships, unique library, and world-wide set of industry-leading networks will enable us to monetize content second to none.

We also need to control a much wider set of rights to the content we distribute. The days of slicing and dicing rights are over. In order to create the best consumer experience and maximize the value of our content and networks, we need to have the flexibility to come to the broadest set of rights. The best path to controlling our own destiny is to create our own product. We will clearly continue to work with third parties, but the sweet spot is undoubtedly where we own and distribute our own content. Our leadership position in content gives us a big advantage in achieving that goal.

In closing, we believe we’re incredibly well positioned and are confident that today’s challenges represent real opportunities in the future. Thank you.

Reed Nolte

Thank you, Chase. Operator, now we’d like to go to the Q&A where Chase...

Operator

Thank you.

Reed Nolte

...James and John will be happy to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today comes from the line of John Janedis with Jefferies. Please go ahead.

John Janedis

Thank you. Chase, last quarter, you were fairly measured on the ad outlook for traditional medium. Now that we’re further into the year, has your outlook changed at all? And is there any sense that some of the money that shifted over to digital may be coming back to TV due to some issues with ROI or reach?

Charles Carey

I wouldn’t say it’s - there’s a dramatic change. Probably - the ad markets probably were a little better in April. I mean, right now you have the quiet that always exists sort of before the upfront. So it’s sort of heading into the upfront and tough to judge right now. But I think they are okay. I mean, clearly, we’re going through a transition here. Advertisers, without a doubt, have more choices. They want more flexibility in some ways. You can say the upfront we’re about to go into, while important, is probably a bit of an antiquated practice given where the world is heading. I think advertisers want more flexibility. I think for us I think it’s increasingly important. That’s why we restructured our group that we really work with advertisers to figure out how do we create unique opportunities with unique messages that resonate.

I think there’s a degree more energy in it, but again, I think everybody is still trying to navigate this new space. There’s no question everybody wants the attributes that are associated with the digital world. I think in some ways, the promise is ahead of the reality, and I think some of that reality has got to get fleshed out and people have to understand we have to do a better job of prioritizing, monetizing that viewership. I mean, we have taken steps. Certainly, it’s become a not immaterial part of our business, but it’s got to get - we’re in the middle of the first inning of what we need to do in terms of monetizing [ph] that and we need to develop the capabilities to do it. But a lot of it is prioritizing focus and working with these advertisers to develop the right messages and the right communications for those advertisers.

John Janedis

Thank you.

Reed Nolte

Thank you, John. Okay, next question, please?

Operator

That will come from the line of Jessica Reif Cohen with Bank of America Merrill Lynch.

Jessica Reif Cohen

Thanks. I was actually thinking about that advertising question and how different the upfront will be this year. And I was just wondering as an add-on, how are you guys approaching it given - I mean, there’s obviously the measurement issues, but you also - what will the currency be? Do you think you’ll be more cross-platform? How does programmatic play into it this year? And then since you restructured your ad division, do you think that most of the deals will be across broadcast and cable?

Charles Carey

I think, again, these changes usually are more incremental. I mean, people [indiscernible] the world is going to be, but people have to do business short-term. So I think the changes will be more incremental in nature, but clearly, we know the direction its heading. I think all those things will be a bigger factor than they have been in the past, but it’s going to take time. Again, in a lot of ways we haven’t developed a lot of the capabilities, not just measurement but technology and other things to measure the effectiveness, capabilities, deliver on the promise of it.

We’re better than we were, but it’s still really early days. So I think all those things will be a part of it, certainly all the trends you talk in currency. We need to - clearly, C3, we said before, isn’t the answer and C7 isn’t the answer. They’re all directionally the answer of starting to measure the viewership outside the linear network, but we’ve got a long, long way to go to really monetize every viewership in every shape and form we can to work clearly with the reorganization to work with advertisers to find ways.

I think certainly, we will be much more working across, I mean, the purpose of putting our ad sales together was to sell across our platforms and in many ways if we’re going to create unique relationships with advertisers, what we want to do is use the unique franchises we have across the breadth of them. That’s how we create something that really takes advantage of our unique content and brands is to give an advertiser an ability to access customers across all our franchises and to develop then unique messages that resonate.

Again, I think it’s increasingly important we find ways to make advertising not an encumbrance to consumers but sort of a value-add and part of the experience. That’s part of what true[X] brings to us is an ability to make the advertising experience one that is more valued and part of the value just comes from making it more relevant. But all those things have to be part of directionally where we’re going. We’re obviously not going to get there in the next two months, but certainly we expect to make steps and in all honesty, we’ve made steps to date but we have a long, long way to go.

Jessica Reif Cohen

Okay. Super quick follow-up. The sports quest, now that cricket the - the Indian cricket is done, is this the last of the big increases, or is there one more to go overall?

John Nallen

We’ll have an increase next quarter as well with the - this is across cable overall with the increase of the Women’s World Cup and the US Open.

Charles Carey

And I think in cricket, actually, they’re - we’ve got - we’re going over our budget meetings. I think the Indian leadership is in next week, so we’ll see. Their agreements are structured that some ways depends on what events are coming, so I’m actually not fluent. So we’ll actually get a bit more visibility going forward next week on what they think is coming and where it’s going because unlike the U.S. or the NFL, you got 16 games. The schedules are more determined on an ongoing basis for a lot of the events. I mean, the World Cup is planned, but the national team country on country and some of the other big events are sort of evolved over time. So we’ll get a better sense of that next week.

Jessica Reif Cohen

Thank you.

Reed Nolte

Thank you, Jessica. Operator, next question, please?

Operator

Thank you. That will come from the line of Bryan Kraft with Deutsche Bank.

Bryan Kraft

Hi. Thank you. Just two questions. Chase, I know you said you wanted to address the guidance on the next call. But you did talk about a mid-$7 billion target for EBITDA for fiscal 2016 on your last call. I guess I was just wondering what the confidence level is in still achieving that kind of number for next year and then also had a follow-up question on advertising. What specifically are you seeing on scatter pricing right now, if you could talk about that? And do you see C7 as being the predominant currency and does that even matter, or do you end up just with lower pricing on C7 versus C3? Thank you.

Charles Carey

Right. I guess in terms of the guidance, as I said, we really - we do plan to address that at year-end. We’re just beginning our budget reviews now. I mean, actually the first budget meeting is later this week, so we haven’t even had the first one. And as you get closer to it, we’ve got to get a handle on - there will be things that impact the budgets such as the ongoing strength of the dollar. We’ll have better visibility into that, updated views on the ad markets as opposed to the upfronts, specifics in our content release schedule, level of investments in content, all those things will come through.

So, yeah, I think we’ve historically, which is why we give the guidance sort of at year-end after we’ve gone through the budget process to get a handle on it, and I think that’s probably where we’re going to stick with it. Scatter market, I mean, I think the pricing has actually been pretty good. I mean I think probably the volume probably is not quite as strong as pricing. But pricing is actually, in the scatter markets, been pretty good. I think in terms of currency, I’m not going to predict C3 versus C7. I think probably the second part of your question is probably more relevant. I mean, it matters, but at the end of the day, I think neither one is the answer and there’ll probably be some dynamics of pricing factored into what you put into it.

What we need to do is make it a priority to monetize viewership, all the viewership that’s occurring, which is why neither C3 nor C7 is the answer. To some degree, this product has to have - really almost to be sold in a different way. It has to be sold on a premium basis, I mean not just [ph] cumulating up with what we’re selling linearly. We need to [ph] different parts of the world are going to have - it’s going to have a different ad loads and going to have different advertising messages with different capabilities that hopefully should be much more attractive. And in some degree, we have to move to figure out how do we get paid for the premium value of the advertising that can exist in the marketplace going forward.

And things like C3 and C7, to me, are small steps, but they’re not the answer. They’re not irrelevant, so we do want to capture more of that viewership in the manner we can through at least reflecting the expanding viewership of all these digital platforms. But that’s not the end goal. And the end goal is to figure out how do we get fairly compensated for the product that really is the product everybody wants. At the end of the day, the product that consumers and advertisers all want to deal with is our product. We need to build the capability to monetize the popularity of that viewership and again C7 is not an answer. It’s is a small step in the right direction, but just a small step.

Reed Nolte

Thank you, Bryan. Operator, could we have the next question, please?

Operator

Yeah, that comes from Doug Mitchelson with UBS.

Douglas Mitchelson

Thanks so much. So, Chase, at the Analyst Day, [ph] you set up two years of investing in cable networks followed by a period of strong margin expansion and we’re almost at the end of that two years of investment and you went out of your way today to talk about investing to build a position of strength, time to double down, expand the business by offering better experience in reaching customers you don’t reach today. And I feel like to some extent we’re sort of dancing around the over-the-top strategy for the company. And what I’m wondering is are you suggesting investors brace for another investment cycle stacked on the end of this last one? And what do you think we should consider Fox’s over-the-top strategy likely to be going forward? Any sense of cadence around this would be helpful.

Charles Carey

Yeah, I wouldn’t read more - I think probably over-reading things into it. I mean, yes, probably the investing comment if I was going to - and it’s not solely speaking to this - probably is a comment first and foremost about the Fox network. I mean, clearly the Fox network, we report the broad segment, so it’s not a secret. The Fox network is not where we think it should be and not where we planned for it to be. We think we’ve got some nice momentum with Empire and Gotham and a couple of other things coming. We like the sports franchises we’ve added.

We still look at Fox network as a business that should be the shining light that is the top of the pyramid that drives our business forward. Clearly, it’s not performed as such. It’s taken - its ratings declines in the last three years are not what we planned on. We’re excited by the new management team. We made the changes to drive that business. So I think certainly using that as a case in point, it probably is the clearest case in point is I think we think that’s a great business. And we think we need to continue to have the backbone to invest to drive that business to what it can be as opposed to saying how do we hit a profit target at the end of next year for the Fox network as opposed to investing to enable it to get to the right place three years from now?

So I think it’s probably talking more about that type of investment. I think I guess the only other comment I’d make is in general, and you go back to the Analyst Day, the world is fluid. I think you’ve always got to be opportunistic and you’ve got to make judgments as you get to various places in time as to what’s the right decision, what’s the competitive marketplace, what are the other industry dynamics that have occurred and how do you manage your business to build long-term value from what you know today. And certainly today and I’m not - we’re just starting a fact - it’s not making any judgments about margins or anything else as opposed to today clearly there have been changes in the marketplace. Certainly, the impacts on ratings across cable networks have probably been larger than one would have expected a year ago, including me.

I think some of those shifts have been larger than I would have anticipated where you saw the trends coming. And I think as the world evolves, you’ve got to adjust to it. And I think a lot of our businesses, I mean, things like investing in sports, FS1 is pretty much right on plan. The produced programming is still a work in process, and we are bringing a new executive we announced in to be the point person for that. We knew creating programming takes time. Some of it has worked, some of it hasn’t, and we actually feel great about where it is and we’re pretty much where we expected to be.

So I think in general, I think there are businesses that clearly aren’t where we expected it to be, the broadcast network, obviously, the international channels have taken - they are competitively closer to where we are. The financials aren’t where we expected them to be because of the currency. But more broadly, I think we are continuing to adhere to things we talked about and - but we’re always going to - and I think we said it on the Analyst Day. I think you always want to - I think it’s important that you continue to aggressively compete in the world as you know more as the world evolves.

I think in terms of over-the-top, I think over-the-top is a very important part of our future. Now, that being said, as I said in the prepared comments, we still think most consumers are going to want to bundle of programming. I don’t think they want to buy ala carte. They want to buy a bundle of programming. We think there will be more people, more players offering bundles of programming. I think those bundles have to be ones that are concocted with the consumer in mind, not something that is artificially concocted by a big content owner and a distributor that doesn’t really make sense. The alignment of what that content is doesn’t make sense to a consumer.

So you have to figure out - I mean, if these over-the-top players are going to be there, what are they bringing? In many ways certainly bringing a better consumer experience, I think in some ways the Netflix and Hulus are sort of cases in point of a better - the value of a better consumer experience. And I think you can go on the flip side and say this [indiscernible] with TV Everywhere have been an example of the challenges you have when you don’t create the right consumer experience.

So I think there can be over-the-top players that bring a new consumer experience that again at its core is still offering a bundle of programming and not be exactly what’s out there. That’s why I think you want to make sure you have must-have content that has to be in that bundle if you’re creating a bundle that really resonates with that consumer and we do still think consumers want breadth and choice that we got the content that will be a central part of any of those over-the-top bundles. But I think bringing obviously the competition is good, but bringing better experiences to the marketplace if people can develop better user interfaces, that’s a positive.

I always thought of DIRECTV when I was there. I mean, one of the reasons DIRECTV I think competed successfully against the cable industry was it was better experience. And I think sort of the ease of use and simplicity are probably some of the most underappreciated assets and virtues in the business. Actually, we’re excited by it. Look, we’ve got - we probably amongst - many of our peers have more first-hand experience in dealing directly. We have, I said, businesses internationally that deal directly with consumers that create a consumer interfaces and manage relationships with consumers. So we think over-the-top for us specifically is an interesting opportunity. We think working with third parties to create more competition and new experiences is an important opportunity.

We also think there are customers that again, I think, the predominant majority will want a bundle. I think there are consumers that probably are interested in alternatives. Everybody talks about the millennials and I think the ability to create packages or offers that they speak to that generation is also an interesting opportunity. Obviously, they’re consumers. We don’t reach today and we want to [indiscernible] in an additive way. I think it’s important everything we do is adding to the pie, not cannibalizing the pie, create offers that speak to customers that want something different. We think that will be a relatively small minority but it’s important for us to do. And we look forward to developing all of that.

Douglas Mitchelson

Makes sense. Thank you very much.

Reed Nolte

Thank you, Doug. Operator, the next question, please?

Operator

That will come from the line of David Bank with RBC Capital Markets.

David Bank

Okay. Thanks. Chase, James, John, I think it’s - you got them all there. Chase [indiscernible]

Charles Carey

Reed felt left out.

David Bank

Sorry, Reed. You’re in there, man. So, look, Chase, I think, has been talking a fair amount about this in a number of his comments that there has been focus on the lighter bundle. I think for us particularly on the sort of very nascent OTT MVPD side, we’re trying to navigate this and we don’t have much to extrapolate from. We have basically - Sling is kind of out there, Sony PlayStation Vue is out there. There’s a lot of speculation around what might be on Apple. And Fox has a lot, I think, of relatively average priced must-have programming not outside the mean, the broadcast network O&Os, news, general entertainment, even national sports. But we don’t really know where the RSNs fit in, and we don’t have a lot of data to base them on. I guess outside of Sling and Sony, if you can talk about that. But how do you see the distribution landscape shaping up for the RSNs in an OTT MVPD world? What’s your confidence that the distribution model sustains itself? Thanks.

Charles Carey

In all honesty, I don’t think the - I don’t look at the RSNs really as - I guess they’re geographically different, so they’re different [indiscernible] I think our RSNs in aggregate cover 70% of the country, so in some ways you can say the RSNs for us are a national business. And I do think that’s strength in RSNs is a distinguishing feature for us against a lot of the other people, but I don’t actually look at it different. I think the RSNs represent great must-have content and I think that is as important as any content that exists in a local market for a large segment of consumers. Obviously, any piece of content is relevant to everybody, but it is content second to none.

It is - and I think in some ways, I guess we judge its importance as we engage with our distributors in the marketplace. And it has continued to be a critical part of our business, a continued critical pillar of driving our business forward. Obviously, some others have stumbled in it. I think we have proven a capability - sort of the LA and Houston situation that everybody points to, we have proven a capability that we know how to manage, we know how to navigate. I think our scale helps. Most of our agreements in place are long-term. I think over 80% of our agreements are into the 20s and we know how to continue to renew them in terms that work. I think we’ve renewed about 20% of our team deals in the last couple of years.

So it’s a business that - and again, we bring a lot of strength to it that enables us to make these businesses work and that others on a one-off basis obviously aren’t established relationships with MVPDs are all part of that. So in many ways, I just - I look at it the same way we would look at the other channels, the other channels we have, and being one, if not the most important drivers in the business. And we do think again those array of channels are going to be our must-have content for consumers out there.

James Rupert Murdoch

I think - it’s James here. Just to add, David, I think it’s consistent with that the overall strategy for the last number of years in the business, which has been to concentrate meaningful investment in programming, be it entertainment, news, sports, or factual programming that’s arranged around really big brands and distinctiveness that really matters. I don’t think we see the RSNs as a separate category from that. It’s really been part and parcel of how we approach the marketplace both in the United States and in other markets as we have invested in sports around the place. And to Chase’s point, the results of the RSNs and the results in our sports businesses around the world are validating that more as opposed to less.

Charles Carey

And I think in some ways the noise around the RSNs has really come off a couple of specifics. I think - single team RSNs, I don’t think have been a great thing. And I think that’s not really the business we have built. And there are a couple places where I think the pricing and obviously the places we passed on the cost of content. So I think you do have to be disciplined and make judgments. But I think if you manage it properly and again I think the one-team RSNs are sort of more limited phenomena that have had created a broader noise. And I think in some degree positively, some of the events the last year plus have been sobering for the business. And I think in many ways helpful in terms of sobering some of the one-team sort of open-ended euphoria.

James Rupert Murdoch

One team and single market...

Charles Carey

Yeah.

James Rupert Murdoch

...which is hard.

David Bank

Okay. Thank you.

Reed Nolte

Thank you, David. Operator, can we have the next question, please?

Operator

Next we’ll go to the line of Michael Nathanson with MoffettNathanson. Please go ahead.

Michael Nathanson

Thank you. I have one for Chase. Let me focus this question on U.S. cable networks. And if we look at cost growth as you predicted at your Investor Day, the past two years have been a period of investment spending with double digit cable cost growth. We wonder now you’re almost done with that investment cycle, what’s the right way to think about cost growth domestically at cable going forward? Because in the past before the cycle started, you guys were mid to high single digit expense growers, so that’s I think one of the questions people want to get is what’s normalized spending post the investment cycle?

Charles Carey

I think if you’re - I mean, I think if everything was ordinary course, obviously again our broadcast network is not where we want it to be. So - but if you said the cable networks, I think probably back to that is probably sort of what you’d expect. And again, we’ve sort of had the ramp-up in sports and the ramp-up to take FX from one to two networks. But I think once you get past that, I think what you have before is sort of what it comes back to. And again, that’s dependent on the new opportunities. Obviously, they’ll dictate new plans. But just in the world as defined as it is today, it probably goes back to where it was.

Michael Nathanson

Okay. Let me ask you about buybacks, because I think if you go back and look at the $2 billion plus you spent this quarter, maybe the highest buyback quarter almost ever [indiscernible] News Corp., and given that you have $9 billion of cash in your books and you accelerated to this quarter, what does that say about your goal for the next couple years on buybacks? Is $6 billion the right run rate, or can we expect given the stock prices and the cash generation that you’ll start accelerating the rate of buyback?

Charles Carey

No. Look, I mean, we’re not going to make predicted comments at buyback. I think we’ve said and we’re going to continue to hear. Pretty much we’ll address the next buyback when we get through this buyback, and we’ll address it with the board before obviously year-end, and we’ll announce what we plan to do on the year-end call. But we’re not going to get ahead of the board. That’s a cycle we’re in and a cycle we’re going to stick with.

Michael Nathanson

Okay. Thanks.

Charles Carey

Thanks.

Reed Nolte

Thank you, Michael. Next question, please?

Operator

Thank you. That will be from Alexia Quadrani with JPMorgan.

Alexia Quadrani

Hi. Thank you. When you look at your hit shows like Empire, Gotham, can you give us some color on how much you think you can leverage those hits in the upfront in terms of getting better pricing across your lineup? And also now that you have a better sense of what the lineup is for next year, I guess, any color on how we should think about programming expense in broadcast network next year?

Charles Carey

I’m not going to put a number to them. Look, I guess what is clearly true in today’s world is hits are more valuable than ever. Sort of second rate product is - mediocre product is less valuable, and hits are more valuable than they have ever been. So when you get a phenomena like Empire, it’s great. It obviously is a product that with all the platforms and all the abilities to access content we ever want, it in many ways becomes must-have content for consumers. So it’s tremendously important. I’m not going to - hits. Hits just continued to increase in importance.

Look, we’re excited. We’ll have this - I’m not going to get, what, five days from now the whole schedule will be out where we couldn’t be more excited by it. Dana and Gary obviously bring an incredible track record to the business. They’ve proven themselves over a decade plus at the studio side. And I think we really will have some exciting things to talk about on Monday, and I’ll let them sort of address them.

Alexia Quadrani

Thank you.

Reed Nolte

Thanks, Alexia. Next question, please?

Operator

It will come from Tim Nollen with Macquarie.

Tim Nollen

Hi. Thanks. I wanted to dig in a little bit to your international networks. A lot of the questions here have been focused a bit more on the U.S. side, but understanding the cricket investments that you’ve made recently and how that’s gone for you, could you possibly break out between STAR and FIC? Kind of what proportion of your incremental costs are on sports versus non-sports programming? I guess what I’m getting at is other than knowing that the Cricket World Cup and these other big sporting events have been major focuses for you, what more is to be done on general entertainment programming and how should we think about the cost base for your investments in your international networks there, please?

John Nallen

Well, on the international side, clearly the ramp-up in costs on those channels have been in sports. And that’s actually true of both FIC and STAR, but most notably at STAR. As Chase said, as we look forward in India, in particular, there’s - there will be more cricket investment as the BCCI determines its tournaments. But we’ll continue - I don’t think the expectation in India on the entertainment side should be a massive or very significant increase in the programming investment on the entertainment side, but at FIC, we continue a strategy of investing in those networks. So FIC will continue to see programming increases on the entertainment side.

James Rupert Murdoch

And I just - it’s James here. I think as well just in terms of how those investments have gone, I think over the last little while as we have really bedded in the acquisition of the sports networks, ESPN’s shared STAR - in ESPN, STAR Sports as well as the Pan-American sports business in South America, it’s really added a new dimension to all of the international channels businesses including FIC and STAR. And it has done well, and even though the investment in cricket, for example, has been very - it’s been heavy, the results have been tremendous. And we’ve seen record viewership. We saw an incredible, from an audience perspective, some really incredible results, and that’s particularly in India over 600 million viewers for the World Cup.

And also that’s a real platform to build new sports off of as well. So in the last year, investment not just in cricket but in kabaddi, in domestic professional football, I’d say soccer, in India. And the investment in sports across Asia and Latin America has been very, very effective both with our affiliates but also with advertisers and most importantly for customers.

Tim Nollen

Great. So it sounds like from - also tying in a previous comment you made that you’re very happy with the state of progress for your national networks, STAR and FIC, both with heavy sports costs, I don’t want to say done, but a lot of that being done in that last year or two. Is it safe to say it’s a smoother investment process from here?

James Rupert Murdoch

I think it’s - I think the - as you look at over the next couple of years, you see the ramp-up kind of normalize.

Tim Nollen

Yeah.

James Rupert Murdoch

And we’ll see in particular where we have a real investment of loss on the sports business in India that normalizes, you really start to expose the underlying profitability of the entertainment business. And that’s really what drives the sort of double benefit as that goes towards much greater profitability. The other regions are less pronounced with respect to that shift.

Charles Carey

Look, I guess I’d also say because when you talk about sort of, I mean, in some ways it almost sounds like [indiscernible] maturing and the reverse is true. I mean, If you go to a place like Asia in general, India in many ways, but sports is giving us an ability to play a bigger role in shaping the whole marketplace, and so the whole digitalization, defining of packages, how you sell, how you get paid, how various content is offered and paid for by consumers is all still being built, I mean, in across Asia in many ways the next generation of growth is coming on these over-the-top - I mean, call them over-the-top digital platforms.

And some places like Japan sort of cable - I mean, cable matured at sort of 20% to 25% penetration and all the energy now is coming in various subscription digital platforms. So these are businesses. So, yeah, I think we have a good handle on it, but I do think it’s important to understand these are - in many of these places these are businesses that are still very much in early stage growth forms, and a lot of the business models and rules and practices are all still being developed. And, again, one of the value having key content like sports is it gives us a unique role as these things are being developed. And [indiscernible] in the prepared comments, I think those things you want to make sure you’re strong as those markets take shape and form and new paths evolve.

Tim Nollen

Thanks very much.

Reed Nolte

Thank you. Operator, next question, please?

Operator

We’ll go to the line of Michael Morris with Guggenheim.

Michael Morris

Thank you. Good afternoon, guys. Couple questions about domestic sports. One of the questions we get is about there being such an increase in inventory lately and that the demand is not there to match it on the advertising side. So would you be willing to share in the past quarter what the advertising at broadcast and at cable, what the growth looked like for your sports products versus general entertainment? And then as we look into 2016, I know that you’re not giving guidance or changing the guidance, but generally speaking when you think about the operating profit outlook at the cable networks, how much of that do you expect to come from your sports businesses versus the other businesses? Thanks.

Reed Nolte

Outlook into the quarter.

Charles Carey

Well, sports, I mean, [indiscernible] sports, in general, is a - obviously, includes the RSNs and certainly, as I’ve said, FS1 is pretty much on track for us. I don’t know that I have a percentage. I don’t want to give a percentage. I don’t think we break it down like that, but certainly a significant part of the overall cable space. I think in terms of advertising, sports in general - again, it’s not one size fits all. We have an array of sports. Right now, we’re selling golf and the World Cup, and it’s probably exceeding our expectations.

One of the benefits about sports is clearly some of the things that exist on unscripted entertainment in terms of being able to - most people don’t watch live sports three days later. So some of the - and to some degree there aren’t a lot of substitutions. If you want to watch the Women’s World Cup or the US Open and there isn’t really a second choice that’s going to satisfy if you don’t watch that. So I think those attributes have stood the test of time pretty well. I don’t actually and I’m not sure there’s obviously been some expansion in the NFL adding Thursday night. I’m not sure I guess going beyond that. I’m trying to think what would be the real expansion in sports inventory in the marketplace.

James Rupert Murdoch

I mean, other than just news sports channels, [indiscernible] events. It’s the reason we invest in premium events that deliver those unique mass audiences is because we think they continue to maintain their premium price and there’s a lot of demand for them.

Charles Carey

Yeah, we have more sports inventory, but to some degree it’s not new inventory. I mean, the US Open was in the marketplace, so we may be selling more inventory. But I don’t think from a marketplace perspective you’d look at it in the same way. And I think sports continues to distinguish itself pretty well. Different sports are in different - not one size fits all obviously - the different stories surround different sports.

John Nallen

Michael, it’s John. Just in the quarter, realize we’ll take the comp of the Super Bowl out of this, but from a broadcast side, advertising was healthy in sports. It wasn’t any dramatic trend one way or the other. And then on the regionals as you probably know, such a substantial amount of that business is affiliate fee driven that advertising doesn’t really move the needle one way or other on it. So...

Charles Carey

Actually, ratings [indiscernible] ratings have been great realistically, both the NBA and NHL overall probably exceeded our targets and MLB is off to both - both our national and regional MLB product to again - we’ve got a lot of teams, so it’s not true for all. But in general, it’s off to a great start.

John Nallen

Yeah. So overall, I would characterize the sports market for us in the quarter as pretty good.

Michael Morris

Great. Thanks, guys.

Reed Nolte

Thanks, Mike. Operator, can we have the next question, please?

Operator

That will come from Anthony DiClemente with Nomura.

Anthony DiClemente

Thanks a lot. Thanks for including me for the questions. I have two. Talking about moving to over-the-top for the RSNs, I’m just wondering, the rights structures seem to change a bit with the leagues. I’m thinking of MLB for in-market streaming rights. And I just wanted to ask about that. I think there’s been some tension between Fox Sports and MLB in terms of getting MLB games streamed in-market. And I think you guys would prefer to authenticate those games, and I think if I have it right, they would prefer to keep them open and eliminate the authentication wall. So just wondering if you could talk a little bit about that and give us a sense for what you’re thinking about the value of those rights.

And then just kind of along that theme, you guys have a number of valuable and growing streaming digital properties inside the company, just as many of your big cat media peers do. I’m referring to FOX NOW, FOX Sports Go, FXNOW, are any of those streaming apps gaining critical mass where it might make sense for you guys to give us more disclosure around users, growth in users, hours watched; things like that, things that might be helpful to us in order to maybe highlight the value of the viewership or just value of those businesses as they sit inside of the corporation? Thanks.

Charles Carey

On the rights issues [indiscernible] I don’t think there’s as much tension as you apply. Obviously, there are issues in every sports league we do business with, there’s always issues you work through. Clearly, we’d like to resolve - we’d like to expand the offering. We have the marketplace to provide really what the experienced consumers want. We’re engaged with baseball. We hope - we believe we will - and I don’t think we’re - we don’t have these dramatically different views or plans as you imply. I’m not going to get too deep into it. I’d just say we’re actively engaged, and I think we’re confident we and baseball will get to a place that works for both of us and enables us to bring to consumers the experience they want. And - but it’s - sometimes these things take time. But we are working on it.

Anthony DiClemente

Okay.

James Rupert Murdoch

And on your second question which is about disclosure around the digital assets and performance metrics there, I think some of it kind of goes back to some questions that we addressed earlier on in this call around currency, around what metrics and measurements are going to be important and are going to emerge not just for us but for the industry. I do think we see very, very encouraging audience growth on the digital side of the business both in terms of authenticated streaming apps like you mentioned Fox.com, FOX NOW, FXNOW, and so on. And also our joint venture with Disney and Comcast, Hulu is really experiencing some great growth and is really monetizing high quality video views in new extended Windows that we think are very - that we think is very, very encouraging.

So I think we will get to a place probably pretty soon where we will want to talk more regularly about some of those metrics. But the definition of those metrics between what advertisers care about, what we care about, what the ad products are and how we measure and report streams, hours, unique viewers, et cetera, are all things that we’re kind of nutting through right now.

Reed Nolte

Thank you, Anthony.

Anthony DiClemente

Got you. Thank you.

Reed Nolte

Operator, I think we have time for one last question.

Operator

Yeah. And we’ll go to the line of David Miller with Topeka Capital Markets.

David Miller

Yeah, hey, guys. Just a question on the Big Ten network. I think this is a really special asset, and I’m a little surprised you guys never call it out. I mean, it really equates to kind of a Pan-American national RSN just given all the Big Ten alumni that are out there. So would you be willing to just kind of talk up any statistics you might be willing to share on the call in terms of what the addressable market is for Big Ten alumni that are out there and what the penetration rate of the network has been thus far? My understanding is it’s been a huge success with Big Ten alumni, but I’m just wondering what the penetration rate has been thus far and are you getting pricing power from the MVPDs? Thanks a lot.

Charles Carey

Yeah, certainly, I mean - you’re right. We don’t [indiscernible] I don’t think we’ll disclose facts on any individual networks. It’s been great. We love the Big Ten. And it’s been a great relationship. The business has been a great success. Probably our most recent efforts and in some degree the Big Ten is always - sort of had two footprints. It’s sort of the in-market geographies of [indiscernible] are and then the wider universe that exists out. So consumers in Florida and Arizona are obviously outside the Big Ten markets. I think we’ve - the distribution has been great. I think we have achieved every goal we set out for. Our most recent initiative was to expand it northeast with [ph] rockers and Maryland coming on.

We’ve essentially hit or exceeded every target we had for sort of widening out that, what I call, the in-market footprint for the Big Ten. And we think continue to be great upside for the Big Ten, continues to distinguish itself. If you look at Ohio state, if you look at March Madness, the strength and the history of those schools is just second to none, and we think that is truly a unique conference with unique institutions and a business that continues to have great upside. It continues to be an exciting growth business for us, and so certainly the lack of talking about it is not in any way, shape or form due to the lack of enthusiasm, excitement, or success we’ve had.

And in many ways, it’s business that I think has a long, long way to go. I think the management has done a fabulous job. I mean, the ratings they get on some of the games are just incredible. I mean, they’ve got, anyway, sometimes [indiscernible] third pick in the market and they’re beating better games distributed on a wider basis and have found some really revolutionary and creative ways to produce cost effectively the wide array of sports that are associated with it, developed a real following amongst some of the [indiscernible] shows they produce to support those shows. So they’ve done it great. We couldn’t be - we couldn’t - realistically we couldn’t feel more excited about it.

John Nallen

Thank you, David.

David Miller

Thank you.

Reed Nolte

At this point, we are out of time. Thank you, everybody, for joining today’s call. If you have any further questions, please give me or Mike Petrie a call. Thank you.

Operator

Thank you. Today’s conference call is available for replay beginning at 7:00 p.m. today and running through May 16 at midnight. You may contact AT&T Replay Service by dialing 1-800-475-6701 or internationally 320-365-3844 with the access code of 357763. Those numbers again are 1-800-475-6701 or 320-365-3844 with the access code of 357763. And that does conclude our conference for today. We thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.