Jessell | Fox Isn’t For Sale, But Let’s Say It Is
The respected Wall Street analyst Michael Nathanson last week released a note on Fox Corp. that suggested the company ought to unload its broadcast assets, meaning the network and the station group. They were, he said, a drag on the stock price, which has been hovering lately around the $26-$27 mark.
Right now, Wall Street is attributing “essentially zero value” to the broadcast assets, he said. He pegged the enterprise value of those assets at $1.6 billion, based on a 6X multiple of estimated 2021 EBITDA. Such a valuation, along with the proper credit for the far more badly undervalued Fox News Channel and other cable assets, would support his target price of $36.
However, his real message is that the broadcast assets are just not worth much relative to everything else in the corporate portfolio and that their real value is in selling them to a strategic buyer of some kind.
“We see no material business logic for Fox to hold onto the Fox broadcast network [and stations] given the modest value that the market is ascribing to the television segment,” he said.
Nathanson even made some suggestions for possible buyers — studio owners like WarnerMedia, linear cable programmers like Discovery or “any entity looking to use the power of broadcast to launch new DTC scripted content platforms.”
Let’s have some fun. Let’s talk about the companies Nathanson mentioned and others that might be willing to take a flyer and pay $2 billion or $3 billion for the Fox network and stations.
WarnerMedia’s Buying Prospects
WarnerMedia owns Warner Bros., a big studio always looking for new outlets for its TV shows and movies.
But it is already half owner of The CW, which has established itself as a respectable niche broadcast play and funnel for Warner Bros. product. And the other half of The CW is ViacomCBS, which might not be thrilled with its partner owning a competing broadcast network.
The other problem is with WarnerMedia’s parent, AT&T. I doubt it is any mood to take another big step into the media business. Its experience so far not been a particularly happy one.
Five years ago, the phone company decided it wanted to be in show biz in a big, vertically integrated way. So, it bulled its way in by acquiring DirecTV (distribution) for $49 billion and, after overcoming the antitrust regulators, it closed on WarnerMedia (content) for $85 billion in 2018.
Now, DirecTV is in freefall, shedding subs at an alarming rate and AT&T is reportedly looking to sell all or part of it at a big discount from what it paid.
Like those of the other old-line media companies, WarnerMedia’s linear cable networks are under direct assault from proliferating streaming services. Its own effort to compete in that arena, HBO Max, is off to a bumpy start. (I still can’t get it either through my cable provider [Comcast] or my streaming box [Roku]).
AT&T’s frustration with WarnerMedia was on full display a month ago when it bounced three of its top executives in a management shakeup.
So, I don’t see WarnerMedia gobbling up Fox.
Sony is the other big mainline studio without a major broadcast network, but because it is foreign owned, it would be barred by FCC rules from having majority interest in the TV stations. I suppose it could find a U.S. partner and work something out in Washington. I just I don’t see it. Sony has never shown much interest in owning networks.
How about Discovery? The thinking is that the cable programmer could wield Fox network as a club to get MVPDs to carry its weaker cable networks and pay a decent fee for them. It’s what the corporate parents of the Big 3 broadcast networks do: You want the good stuff? You’ve got to take the not-so-good stuff with it.
I much prefer Nathanson’s other suggestion that a streaming service might sweep in and buy Fox. I hate to say it, but streaming is the future of TV — or the least the biggest part of it.
Appeal For Amazon
Of the streamers, Amazon Video makes the most sense. Its parent has the wherewithal to buy Fox (and just about anything else it wants), it has developed into a major producer of movies and TV shows and it is deeply interested in live sports, particularly the NFL.
Since 2017, Amazon has shared with broadcast networks the rights to some Thursday Night Football games. This spring, it announced an extension of its football deal, under which its Prime Video and Twitch platforms would simulcast (with Fox and the NFL Network) 11 Thursday games this season.
What’s more, the extension gives Amazon national rights to one Saturday game this season with a carve out only for local broadcast in the markets of the competing teams.
“As our relationship has expanded, Amazon has become a trusted and valued partner of the NFL,” said Brian Rolapp, chief media and business officer for the league.
If Amazon owned Fox, it could go after a big package of NFL games, spread those games across the broadcast network and its streaming services and become the biggest purveyor of America’s favorite sport.
Owning the broadcast network would also give Amazon a distinct marketing advantage over the other streamers. The streaming world is awash in services with the same look and feel, each desperate for attention.
A broadcast network is an ideal vehicle for breaking through all that clutter. NBCU has been trying to employ NBC to that end in its effort to get Peacock off the ground despite pushback from its affiliates.
There is precedent for a station group buying a network. In 1985, Tom Murphy’s and Dan Burke’s Capital Cities Communications shocked the TV world by acquiring ABC, even though CapCities was a fraction of the network’s size.
A Broadcast Bidder?
Sinclair would be the natural broadcast buyer of Fox. It’s the largest Fox affiliate group and so would complement nicely the Fox O&O group.
Executive Chairman David Smith is certainly bold enough to consider a bid, but right now the company is weighed down by the batch of regional sports networks that it unwisely bought out of the 21st Century Fox-Disney merger. Plus, it lacks the Hollywood connections and resources needed to be a primetime player.
FCC ownership rules also would complicate Sinclair or any one of the other big station groups from acquiring Fox, but they would not necessarily prevent it. To preserve a broadcast network, the FCC, I think, would be willing to bend its rules a long way.
One broadcast executive suggested that a private equity firm could scoop up Fox — possibly an outfit like Apollo, which bought Cox Media last year for $3.1 billion. But the outside money would have to find a strategic partner to make a go of it. Sony?
This has all been fun to talk about, but I have heard nothing to suggest that the Murdochs are actually thinking of selling the broadcast assets. They didn’t need Nathanson to tell them that their broadcasting business has evolved into a no-growth, low-margin one.
It’s hard to imagine the Murdochs selling. Rupert carved out the network in the late 1990s when the conventional wisdom was that a fourth broadcast network was lunacy. The early history of the network is that of one bold move after another on multiple fronts — programming, station acquisition, regulation and finances.
Only after Rupert outbid CBS for the NFL rights in 1993 and began expanding the O&O lineup did he insure the survival of the network. The network, along with Fox News, are his greatest accomplishments.
But business is business. You can’t let one underperforming asset wreck the bottom line (and the stock price) of the entire corporation. As for the Fox affiliates, I would say it really doesn’t matter who owns the network as long as somebody does and that somebody is a big fan of the NFL.