Fox Corp. COO John Nallen confirmed the company is in “very, very early discussions” with the NFL about renewing its rights deal with the league, a closely watched process that he said often gets misconstrued.
Investors should “get away from the press headlines of average annual value growth,” he said during an appearance Tuesday at the Credit Suisse Virtual Communications Conference. “It’s absurd.”
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In Fox’s former configuration as 21st Century Fox, it paid a reported $1.1 billion in 2011 to reup with the NFL at the same time NBC, CBS and ESPN also extended their deals in a collective $7 billion outlay. Those rights expire after the 2022 season, and the clout of the NFL — whose top-rated telecasts are a ballast for advertising and pay-TV — has increased scrutiny on the renewal process. After selling about two-thirds of its assets to Disney in 2019, Fox is also a much smaller company than the one that shelled out for rights the last time.
Many Wall Street analysts and media observers have predicted that traditional media companies will likely pay a steep price to keep the NFL and possibly encumbering them in other areas of their operations. Streaming remains an existential threat. The NFL has done deals with Amazon, Twitter and Yahoo in recent years, fueling speculation that a larger piece of the upcoming rights could go online as the traditional TV ecosystem continues to face pressure.
Nallen hit back at the tendency of too many people to think in terms of the increase in aggregate cost, as opposed to framing it more incrementally, as is the usual custom. Fox’s 54% increase from the prior deal in the 2000s to the current one created “big headlines,” he said, even though “some of the other networks were up 70%.” From the last year of the old deal to the start of the new one, he noted, the increase in costs was in a high-single-digit percentage change, far from a 54% spike. “Give me the NFL, the ability to have that kind of programming,” Nallen said. “That’s where the focus should be.”
Average annual value, he continued, “is a press headline that makes it great on the sports pages. But it really has no relevance to the business. If I took the AAV of my affiliate revenues, you’d say, ‘Wow, that’s fantastic.’ But you always measure me on how I did last quarter, never mind last year, compared to this quarter.”
Credit Suisse analyst Doug Mitchelson, who conducted the keynote interview with Nallen, replied with a slight smile, “I can’t wait to see how you write that next press release about the NFL contract.”
Because of the uncertainty created by COVID-19 that is clouding the 2020 NFL season as well as Major League Baseball and college football, Nallen declined to offer guidance on advertising for the full year.
Advertisers with investments in the third quarter have the options to cancel those ads, a notion that has unsettled the TV ad sector. Nallen said Fox’s third-quarter cancellations have been “manageable” and not at a level causing any alarm. “Pricing is clearly softer than where it was,” he said of the scatter market, which prior to COVID-19 had been the best in a decade.
The nearly hour-long session also covered other topics, including the Fox broadcast network’s worst-to-first rebound in 2019-20, continued optimism at the company about distribution revenue and initial operational takeaways from COVID-19.
“Like every company, we’ve learned a lot over these three months,” Nallen said of the pandemic. “My sense of this is, it’s going to play out over a year. People will start to return. They’re going to try to figure out what the level water is on how they can operate their business differently. They’ll test a few things, and probably a year from now we’ll know permanently how we’re going to work. … It’s going to be trial and error.”
On the distribution front, which accounts for about half of total company revenue, Nallen said the company is “locked and loaded,” with “no major renewals” with distributors until 2023.
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