James Murdoch, the former CEO of 21st Century Fox, resigned as a director of News Corp., citing disagreements over some of the content published by the company’s news outlets and other strategic decisions.

21st Century Fox, which was sold to The Walt Disney Co. last year, was part of the empire built by mogul Rupert Murdoch, James’ father, who continues to control Fox Corp.--owner of Fox News--as well as News Corp. James Murdoch was rumored to be joining Disney after the sale. No job emerged and he left the family business when it was sold, pocketing a share of the $71 billion price tag.

In his brief resignation letter, James Murdoch did not elaborate on which content and decisions he disagreed with.

When he was with 21st Century Fox, James Murdoch was seen as wanting to tone down some of Fox News’ conservative and pro-President Trump commentary. He was involved in removing Fox News founder Roger Ailes and high rated Fox News primetime host Bill O’Reilly amid sexual harassment allegations.

His brother Lachlan Murdoch is now CEO of Fox. 

“If James Murdoch hadn’t already left Fox Corp. last year, you would have seen him quit Fox Corp. today too,” said Angelo Carusone, CEO of media watchdog Media Matters.

“It’s hard to blame him. In this year alone, Fox News has put the lives of Americans at risk spreading dangerous medical misinformation about the pandemic, prevented effective government action to save lives and the economy, stoked racial tensions by elevating and promoting white supremacists in the network, and served as a mouthpiece for Trump’s conspiracy theories and extremism,” Carusone said.  “The Murdochs’ money comes from making America sicker, weaker, more divided, and less competitive around the world. While his action of resigning alone does not absolve him of the blood on his hands caused by decades of Murdoch deceit, it’s an important step to no longer being part of the problem.” 

21st Century Fox, with an eye toward completing the sale of certain assets to the Walt Disney Co. in the first half of the year, reported strong increases at its cable networks in fiscal Q2, while rising sports programming costs erased gains at its television unit.

Fox agreed to sell cable networks FX, FXX, National Geographic, its movie and TV studio production units, 22 regional sports networks and other assets to Disney for $71.3 billion, a deal that is expected to close in the first half of the calendar year.

For fiscal Q2, cable networks revenue was up 4% to $4.5 billion while segment operating income before depreciation and amortization (OIBDA) increased 7% to $1.45 billion. Fueling most of those gains were string increases in domestic affiliate fees (up 8% in the period) and ad revenue (up 6%), mainly at its Fox News and regional sports networks.

At its television unit, a 15% increase in ad revenue and a 21% rise in affiliate fees -- mostly through retransmission consent increases -- wasn’t enough to cancel out a 24% increase in programming expenses, mainly from increased sports programming costs.

Overall, revenue was up 6% to $8.5 billion and total segment  OIBDA was up 9% to $1.6 billion in the period.  

“These results reflect our continued commitment to excellence in all aspects of our business,” said Fox executive chairmen Rupert and Lachlan Murdoch in a press release, adding that there has been “significant progress” in closing the Disney transaction. “...Our achievements, including the value we have delivered for shareholders, are a credit to all our talented colleagues. Thanks to their hard work, we have created durable businesses for the long term, and strong momentum as we near the creation of Fox Corporation and the combination with Disney.”

Fox has been beefing up its sports rights portfolio in anticipation of the closing of the Disney deal, which will create a remaining entity focused on live sports and news. Earlier this year Fox agreed to pay $3 billion over five years for rights to NFL Thursday Night Football and nearly $1 billion over five years for WWE’s SmackDown, beginning in the fall. 

Net income at the programming giant was bolstered by the sale of its U.K. satellite operation Sky plc to Comcast. Net income for the period was $10.83 billion ($5.81 per share) compared to $1.84 billion ($0.99 per share) in the prior year. 

After nearly seven decades in the media business, beginning with a string of small local Australian newspapers in the 1950s that he built into the television, film and publishing behemoth that became News Corp. and 21st Century Fox, Rupert Murdoch again managed to shock the world with his decision last year to sell the bulk of his empire to The Walt Disney Co.

While the elder Murdoch has made a career out of going against the grain, mainly in buying assets at what others thought were exorbitant prices, this time was different. This time, Murdoch and Fox were sellers, and many pundits took their action as a sign that it may be time to throw in the media towel.

By now, Murdoch and Fox should be used to being underestimated. Whether it be the $1.58 billion the fledgling Fox broadcast network spent in 1993 to win National Football League television rights — an unheard of sum at the time, but almost quaint today — the 1996 decision to launch an all-news channel with a conservative bent (Fox News Channel) or the $5.7 billion Murdoch paid in 2007 for The Wall Street Journal (a 67% premium), there has been a common theme to his company’s actions: They knew something others didn’t.

That maverick sensibility has driven Rupert Murdoch, now 21st Century Fox’s executive co-chairman, since the beginning. It’s a trait he has passed on to sons Lachlan, also executive co-chairman, and James, 21st Century Fox’s CEO. Collectively, the three Fox leaders are the 2018 Multichannel News Executives of the Year.

Driving Up the Price

In typical Murdoch fashion, the most recent deal didn’t go down without some controversy. Disney, which had agreed to buy roughly two-thirds of 21st Century Fox in December 2017 for $52 billion, ended up paying $71.3 billion for the assets after a month-long bidding war with Comcast. After the deal is closed — expected within the first quarter of 2019 — the Murdochs will be among the largest individual shareholders in Disney and will control New Fox, consisting of 28 owned-and-operated television stations, the Fox broadcast network, cable news stalwarts Fox News Channel and Fox Business Network and national sports channels FS1, FS2 and Big Ten Network.

In one fell swoop, the Murdochs have transformed one of the world’s biggest cable and broadcast content companies into a leaner, meaner and more streamlined entity mainly focused on live news and sports.

Disney has doubled down on content under the premise that in the new streaming video paradigm, volume will win the day. Fox, though, has taken the opposite tack, focusing on live fare that will hopefully drive viewership, ratings and ad dollars its way.

The Murdochs were not available for this report. but there has been plenty written and speculated about the Disney deal and the New Fox entity that will emerge. For the most part, New Fox will be run by current 21st Century Fox co-executive chairman Lachlan Murdoch, who will be chairman and CEO of the new business. Lachlan came back into the family business in 2014 after a nine-year hiatus running an Australian investment fund, Illyria Pty Ltd.

While Lachlan will get an assist from 87-year-old father Rupert, who will be co-chairman of New Fox, James Murdoch, who had been CEO of Fox’s Sky satellite TV business in the U.K., and served as CEO of Fox for the past three years, won’t be a part of the new entity, instead opting to go off on his own, at least for a while.

Speculation has been rampant about where James Murdoch will end up. Early guesses that it would be in a senior leadership role at Disney or as chairman of electric car and aerospace company Tesla (he’s a board member) were wrong. For his part, Lachlan has said James was integral in running Fox and in making Sky plc into the leading European satellite platform — it was sold in October to Comcast after another bidding war — but that the Disney sale process was “cathartic” and that his brother decided it was time for a change.

James put it pretty succinctly himself at the Recode conference in May, months before the sale was even decided. “I think it’s time to do something new,” he said.

Comcast dropped out of the bidding for the Fox U.S. assets, but it stayed in the fray for another prized Fox property: U.K. satellite giant Sky. Fox had been trying to consolidate Sky for years (it owned 39%), but was rebuffed by U.K. regulators that feared full control would put too much power in the Murdochs’ hands. When Comcast lobbed in its $31 billion bid for Sky in February, it touched off a second bidding contest that the cable operator ultimately won with a nearly $40 billion commitment. At that price, Comcast also agreed to purchase Fox’s Sky stake for about $15 billion, further filling up the Murdoch’s coffers.

While some pundits had earlier believed the Sky stake was an asset the Murdochs would never give up, it again became a question of value. Lachlan Murdoch said the family holds no grudge against Comcast over Sky. “We don’t have skin in the game anymore,” he said at The New York Times DealBook conference on Nov. 1. “I think [Comcast chairman and CEO] Brian [Roberts] will be a great steward of Sky and they will do very well.”

To understand the impact of the Disney deal, one only has to look at Fox just four years ago when, sensing a shift in the content business, it made an unsolicited offer to buy Time Warner Inc. for $80 billion. That offer was rebuffed, but it was partially based on Fox’s belief that Time Warner properties, especially premium channel HBO, weren’t being properly utilized on the internet.

Less than a year after Fox made its offer, Time Warner launched its standalone HBO streaming service HBO Now and, a year after that, agreed to a $108.7 billion sale to AT&T.

Fox said back in 2014 that, after losing out on Time Warner, it was through with acquisitions and would instead focus on growing the business organically. Just two years later, while the AT&T-Time Warner regulatory approval dance was going on, the idea of selling assets rose to the forefront after Verizon Communications knocked on Fox’s door about a potential deal, Lachlan Murdoch said at the DealBook conference.

Though the family had been considering its moves in the new TV and entertainment landscape, Lachlan Murdoch said the prospect of being owned by a phone company was not so attractive.

“We didn’t think Time Warner would be a better-run media company because it was owned by a phone company,” he said at the DealBook conference. “We didn’t see the strategic fit.”

Lachlan Murdoch said the ultimate decision to sell was not made emotionally or lightly.

“The journey to sell such a large part of the business was one that took some time, took some time to really think about,” he said at DealBook. “To think about where the industry has gone, what the challenges were that we saw on the horizon, particularly in the entertainment business, but also about where these assets could sit to make them more viable and stronger than with us.”

A few months after the initial Verizon overture, Disney chairman and CEO Bob Iger called with a proposal, which Murdoch said “immediately made sense. My brother and I went to my father’s office and had a long conversation about it.”

When Disney announced on Dec. 14, 2017, that it had agreed to purchase the Fox assets — cable channels FX, FXX and National Geographic; the 20th Century Fox film and production studios; 22 regional sports networks; and Fox’s 30% interest in online video pioneer Hulu — it had expected to sew up the deal in a few months. But six months later, after weeks of speculation, Comcast lobbed in an all-cash bid for the assets, touching off a bidding war that made Fox and the Murdochs considerably richer.

Lachlan Murdoch hinted that even after signing the first Disney agreement, Fox knew the battle wasn’t quite over.

“Comcast was there in the beginning, they came shortly after we heard from Disney,” he said at the DealBook conference. “We couldn’t get our heads around the regulatory risk. I thought that our initial negotiation with Disney was very good, but that we could get a higher price if we could get a bidding war going. We felt there was more value.”

That bidding war lasted for about five weeks and ultimately kicked up the price for the Fox assets by nearly $20 billion. In addition, as part of the regulatory approval of the deal, Disney has agreed to sell off the 22 regional sports networks — valued by some at around $20 billion — within 90 days of closing its larger Fox deal.

Able to Buy More Assets

Now flush with cash, New Fox is expected to be on the hunt for more assets to beef up its existing lineup. So far the company has ponied up $3.3 billion over five years for rights to NFL Thursday Night Football, and another $1 billion over five years for WWE programming beginning in 2019. And there will be more.

“We will buy other things,” Lachlan Murdoch said at the DealBook conference. That could include its former regional sports networks, currently being auctioned by Disney; additional television stations; more sports assets or practically anything else. Lachlan Murdoch said the guiding principle to any additional acquisitions will be if they add to Fox’s already strong position in the industry.

“We are must-have channels for our distributors,” Lachlan Murdoch said at the DealBook conference. “What we don’t want to do is use that leverage in businesses that are not must-have.”

New Fox also appears to be bucking the trend for media companies to chase the Netflix streaming model, focusing more on direct-to-consumer offerings than on traditional distribution methods. Disney is a prime example: it launched a sports-themed DTC offering in April (ESPN+) and plans to launch an entertainment streaming offering, Disney+, next year that will include the recently acquired Fox content.

While Fox also has streaming plans — Fox News launched on-demand OTT service Fox Nation on Nov. 27 — it also realizes that an entertainment streaming service would require bulk the company simply doesn’t have.

At the DealBook conference last month, Lachlan Murdoch said Netflix really has two businesses, distribution and content generation, which both require tremendous scale to be successful.

“What we were seeing, and one of the reasons we sold to Disney, [was] for us to have scale in a direct streaming service, whether it is an FX streaming service or you could bundle some of our channels in an on-demand service, you can get to 2 [million] or 3 million subscribers, like CBS All Access, but then you get capped,” he said. “You need to have the scale of 20, 22, 30, 50 million subscribers to have enough significant scale to make that a real business.”

Although the Disney deal isn’t expected to close until next year, New Fox already has assembled much of its management team. Aside from Lachlan, who will become co-chairman and CEO of New Fox after the deal is closed (Rupert Murdoch will be co-chairman), the company has named 21st Century Fox chief financial officer John Nallen as chief operating officer, while Fox Sports chief operating officer Eric Shanks will become CEO of that unit. Fox News and Fox Business CEO Suzanne Scott and Fox Television Stations CEO Jack Abernethy will continue in those roles in the new company.

The company also poached longtime AMC Networks executive Charlie Collier to become CEO of entertainment at New Fox. Collier, who brought such scripted hits as Mad Men, The Walking Dead and Breaking Bad to AMC, on the surface seems an odd choice given the company’s expected focus on live news and sports, but Lachlan Murdoch said the different genres can reside comfortably and in a complementary manner within the new structure.

Building Around Live Programming

“We see a strength and strategic narrative in New Fox around live programming,” Lachlan Murdoch said. “Having said that, if you look, the amount of entertainment programming is declining at an incredible rate. What we can do is invest in the NFL, invest in baseball, the WWE, and use those to promote our entertainment programming as well. The way I look at is you have a tentpole with the best live news programming in the country, a tentpole with the best broadcast sports in the country, and how do you lift up the entertainment to that?”

A prime example of that strategy is the Tim Allen sitcom Last Man Standing, which Fox took after ABC cancelled the show last year. Moving the show to Friday nights allowed Fox to heavily promote the programming on Thursday nights — when it airs Thursday Night Football — into Friday. Ratings, Lachlan Murdoch said, are 80% better on Fox than they were on ABC.

News and sports has been a powerful draw for Fox and will continue to be. Lachlan Murdoch noted that during Major League Baseball’s World Series and a heavy news cycle in October, Fox networks had 50% of the live primetime U.S. television audience. He added that in late September and early October, the one-two punch of Thursday Night Football and the Senate confirmation hearings of now-Supreme Court Justice Brett Kavanaugh meant that 74% of live viewers in the country were watching live content on a Fox platform.

The Murdochs aren’t the only cheerleaders for New Fox. The Disney deal helped drive 21st Century Fox stock to new highs, with shares up by more than 40% for the year. Some analysts believe there is even more room for growth.

Morgan Stanley media analyst Ben Swinburne estimates that with a leaner, meaner New Fox, the Murdochs will be able to grow affiliate fees for the remaining cable networks by 7% to 8% and retrans fees by about 18% annually.

“Secular headwinds in traditional TV are well known, and we believe Fox’s focus on exclusive sports and the ratings success at Fox News support its ability to drive higher affiliate revenue growth as a smaller portfolio of U.S. networks,” Swinburne wrote in a recent note to clients.

Overall, Swinburne predicts New Fox can generate about 10% adjusted cash flow growth annually, after a flattish fiscal 2019 due to increased sports investments, through fiscal 2023.

Sports will be key to that success. While the news division has driven strong growth over the years — Swinburne estimates that Fox News has grown its share of C3 household ratings from 3.5% in 2010 to 5.3% in 2018 — Fox’s 2013 decision to convert its Speed and Fuel TV networks to FS1 and FS2 helped drive a 40% increase in affiliate revenue between 2014 and 2018. Over the next five years Swinburne sees the sports channels growing affiliate revenue between 7% and 8% annually.

Room to Grow Fees, Retrans Cash

MoffettNathanson media analyst Michael Nathanson, although bearish on linear TV prospects in general, also noted in a recent research report that Fox has ample runway for affiliate fee and retrans gains.

While operating profits in fiscal 2018 were down significantly at the television unit — $362 million, compared to $894 million in the prior year — and will continued to be pressured in fiscal 2019 as increased sports costs are factored in, Nathanson said it would be a mistake to use that as a benchmark for the future.

That massive investment in sports “equates to an unrivaled negotiating hand that will lead to accelerated revenue growth over the next five years,” Nathanson wrote.

At current valuations, most analysts peg New Fox at between $9 and $13 per share, based on the $38-pershare price Disney is paying for the other Fox assets. But most see that valuation — roughly nine times estimated 2018 earnings — as missing the point.

In his report, Nathanson wrote that there is a danger that too much focus on near term numbers “clouds the view of the compelling story at New Fox,” adding that all signs point to strong growth ahead.

For Fox and the Murdochs, it’s just another case of being underestimated. We’ve all seen how that usually pans out.

It is hard to imagine that the 22 regional sports networks Disney is acquiring in the 21st Century Fox transaction are heading to auction in search of foster homes. This is the largest sports transaction in the history of modern business with a value well over $20 billion (Guggenheim Partners estimates $22 billion while others portend a quick selling discount). Further, It's the most expensive sports property to come available, even if it is 20 individual markets serving up 40 professional teams.

Related: Books Out on Fox RSNs 

Having witnessed first-hand the focus that Fox displayed in aggregating these valuable assets in the late 90's, then creating efficiencies across their collective national footprint, it's hard to believe it's all over now. The chance that one owner of all 22 networks will emerge is slim to none. In its place, a collection of competing interests will likely send RSNs scattering in multiple directions. Plenty of other business journalists have written about who has what to gain and the potential leverage they can create by grabbing at least some of these, but the truth is, times have changed. Much like a great but aging champion who has lost a step, their outside shot, bat speed or simply the nerve, so too have these once mighty RSN viewing magnets.

I grew up working in sports television and when the deal was first announced I was downright exhilarated at the prospect of ESPN actually owning and operating all 22 of these networks. The thought of these RSNs coursing through the veins of the mothership in Bristol, Conn., was exciting. ESPN has always had servicing the fan as the core mission and I absolutely believed a comprehensive sports service from the Worldwide Leader could be pro-consumer. Further, with Disney's majority stake in Major League Baseball's Advanced Media platform, it could have delivered a superior and elegant sports offering. Alas, it was never Disney's game plan and taking these RSNs as part of the 21st Century deal was probably forced by the Murdochs.... which leads us to the Hot Potato auction we now have... Here, you take them!

The strong and proven teams will take care of their own houses. YES Network will head back to their Bronx, N.Y. birthplace, the Cubs will launch their own long dreamt RSN and Guggenheim Partners (and/or Charter-Spectrum) may very well use the Los Angeles RSNs to cure their Dodger distribution woes. It's also highly likely the powerhouse private equity groups have recruited the gray hairs who first built the RSN business and will choose a broadcast partner (or partners) to leverage the other RSNs. Finally, the idea that FAANG scoops these up as a way to promote their varied interests seems too otherworldly for this aged industry observer: Buy a new iPhone XS Max and get your local RSN free? Amazon Prime Sports Plus+, maybe ?

Related: Yankees Said to Be In Talks To Buy Out Other YES Network Holders 

Perhaps the executives at Fenway Sports Group have the best model as they've grown the long dominant and independent New England Sports Network into the centerpiece of a powerful ownership group with multiple interests across the sports ecosystem. There very well could be an expansion strategy on the horizon led by the master RSN craftsmen of NESN. One group however appears committed to staying on the sidelines and out of this auction fray: Comcast-NBC Sports. With a strategic collection of 8 RSNs that synch-up to their Xfinity cable markets, it appears they're content and will instead focus on their pending Sky acquisition... At least until such time as a new RSN ownership group comes knocking with an old RSN play... the Joint Venture.

Yes, there will be a plethora of pro-formas and various visions of leverage in play as RSN draft day draws closer. But my parting thought is that when it's all said and done, the consumer will be more in charge than ever. More to the point, do the hometown fans who built the RSNs still care enough to spend 3+ hours watching a major league baseball game, NBA super-teams, or those NHL players who battle with such heart but enjoy only fractional RSN audiences?

More critical, as cord cutting trends continue depleting the once-mighty cable and satellite television subscriber universe, will fans fully abandon the RSNs and grow their habit for snacking on sports via social media?

It is quite the curious case indeed but the new cast members for the RSN Redux are just an auction away.

Matt Cacciato is a former affiliate distribution executive for SportsChannel NY, ESPN, Fox and YES Network. He's currently Director, Masters of Sports Administration program and Executive in Residence at Ohio University. He can be reached at cacciato@ohio.edu.

Volatile retransmission-consent showdowns, fueled by what many analysts had feared would be ultra-aggressive pricing increases from a newly slimmed-down 21st Century Fox, may wait a bit, as higher NFL ratings and the continued flow of money from SVOD could be making negotiations more reasonable.

Many analysts feared that Fox would turn up the pressure on retrans with its $71.3 billion asset sale to The Walt Disney Co. set to close in the first quarter, shifting its focus to live sports and news. Some had estimated that rates could double.

According to some estimates, Fox is getting an average of $2 to $3 per month, per subscriber for its 28 owned-and-operated TV stations across the country. That could rise to as much as $3 to $4 per month, per subscriber, according to MoffettNathanson media analyst Michael Nathanson.

Fox Isn’t Alone

Fox isn’t the only network angling for bigger increases. CBS, which has 28 O&O stations across the country and has been notoriously aggressive on rates, said in 2016 it was asking for as much as $3 per month, per subscriber for retrans and $2 per month from its affiliate stations in the form of reverse compensation. The broadcaster has stated that it plans to tally total retrans and reverse comp revenue of $2.5 billion by 2020.

The first test of that new aggressive stance was supposed to be Altice USA, whose retrans deal with Fox expired on Oct. 1. For more than a week before that deadline, Fox had warned Altice’s Optimum and Suddenlink subscribers that they could lose key programming, including the World Series and National Football League games, if an agreement couldn’t be reached.

That deadline passed without a deal, but the partie continued negotiations — with the stations still available to subscribers — and finally hammered out an agreement on Oct. 5. No blackout, no battle, no problem.

Terms of the deal weren’t disclosed, and neither side would hint as to what exactly made the talks go so smoothly. But some analysts have speculated that rising ratings for the NFL — Fox airs mainly National Football Conference games on Sundays, as well as Thursday Night Football — could have played a role.

Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said Altice USA had already estimated its programming costs would rise by the high-single-digit percentages this year, and it appears the Fox agreement keeps them within that guidance.

“I think, in the end, the Fox-Altice deal turned out to be nothing and within what Altice management was expecting,” Wlodarczak said. “The irony of the better NFL ratings and the development of SVOD, which I still remain somewhat skeptical of, is there may be less pressure on the content players to ask for particularly egregious increases.”

According to Ad Age, citing Nielsen live-plus-sameday data, NFL broadcasts were averaging about 15.8 million viewers in the first four weeks of the 2018 NFL season, up about 1%, while household ratings rose 2%. While that doesn’t seem like much, it is a huge improvement over last year at the same time, when ratings were down by about 9% compared to 2016, which, in turn, were down 14% compared to 2015.

And Fox seems to be faring better than other broadcasters. Fox averaged 22.8 million viewers for its first two Sunday NFL broadcasts this year, beating CBS’s Sunday game (20.9 million viewers) and NBC’s Sunday Night Football at 19.8 million, according to reports.

Better ratings could also mean broadcasters would use that leverage to turn up the retrans heat, he added.

“My concern historically is that media companies could cut their nose off to spite their face by pushing through super-aggressive price increases to try to offset weakness in their core business,” Wlodarczak said. That could have several implications, including “exacerbating the main reason people leave pay TV — it simply costs too much relative to emerging cheaper alternatives.”

Clock Is Ticking

For some distributors, it may be just a matter of time. According to Nathanson, Fox’s retrans deal with AT&T and DirecTV expire later this year, followed by Charter and Dish Network in 2019, Comcast in 2020 and Verizon in 2021.

That’s not to say the year has been dispute-free. Spanish language broadcaster Univision went dark to nearly 13 million Dish Network subscribers in June, and is still unavailable to those customers. According to sources familiar with both companies, negotiations are not currently active.

As a side note, Altice USA also reached a renewal deal with Univision in October, even agreeing to expand carriage of the broadcaster’s El Rey Network and Fusion TV.

Fox may just be biding its time. Executive chairman Lachlan Murdoch said in February that there was ample opportunity to be more aggressive on rates, and there is no reason to believe he won’t make good on that promise. And with a focus on sports and news also comes higher costs. Earlier this year Fox agreed to pay $3.3 billion over five years for NFL Thursday Night Football and another $1 billion for WWE programming; the pro-wrestling deal begins in 2019.

Nathanson estimated that last year Fox accounted for 12% of total television viewership, but only received 3% of total affiliate fees.

“Given the high demand for Fox content and the major investments in premium sports content, we would expect Fox to start getting compensated more fairly going forward,” he wrote.

With Comcast’s abandoning its pursuit of 21 Century Fox programming assets a reality, influential media analyst Craig Moffett has another suggestion for the cable giant: drop your bid for U.K. satellite company Sky, too.

Comcast said early Thursday that it would no longer pursue the Fox assets, giving The Walt Disney Co., a clear path toward completing its deal with the content company. Instead, Comcast said it would focus on purchasing Sky – which is 39% owned by Fox. Comcast already is locked in a bidding war with Fox over that asset – it bettered Fox’s $32.5 billion bid for the company on July 11 with a $34 bid just hours later. 

Comcast sees the Sky assets as a way to diversify into the growing international content and distribution markets. In announcing its first bid for Sky way back in April, Comcast chairman and CEO Brian Roberts called Sky “a great fit with Comcast.”

But Moffett, who has been a critic of Comcast’s run at the Fox programming assets in the past, is no fan of the Sky pursuit either. To Moffett, Comcast is confusing what Sky couldbecome with what it is.

“…[W]hat Sky actually is, is a satellite TV provider, with all the shortcomings that that implies (most probably technological obsolescence),” Moffett wrote in a blog post. “For what it’s worth, Sky’s growth rate is about the same as DirecTV’s was when AT&T acquired it. [Investors will recall that, at the time, AT&T fancied DirecTV to be a platform-agnostic content aggregator that could easily become the bass of a global OTT brand…but we digress].”

Related: Analyst Says Disney Could Outlast Comcast in Fox Fight 

Moffett noted that Sky has an impressive list of content assets – Premiere League Football rights, exclusives with programmers like HBO, Fox, Disney, NBCU and Showtime. But, while those deals create some protection against the increasing competitive threat from OTT and SVOD providers, they can’t be counted on to last.

Disney has already announced plans to go direct-to-consumer with some of its offerings, and HBO, recently purchased by AT&T, and CBS’s Showtime will probably do the same at some point.

On the soccer front, Facebook recently purchased Premiere League rights for Vietnam, Laos, Cambodia and Thailand, and Moffett believes it isn’t much of a stretch to think they would try the same for Western Europe once those rights come up for renewal. 

“Knowing this, if Comcast does acquire Sky, they would have to rapidly wean it from its dependence on licensed content, just as Netflix had to begin doing five or so years ago when it became clear that they faced the same crisis,” Moffett wrote.

Moffett has always thought that the man driver for Comcast’s bids for Fox programming was the TV and movie studio. Distribution is all well and good, but to Moffett, Comcast saw that producing more compelling content would determine the winners in the battle for consumer entertainment dollars. Now, with the studio out of the picture, Comcast will instead have to ramp up production at its existing Universal Studios. But there’s some risk involved in that too.

“If they can’t manage to ramp up their studio slate fast enough, they will be left with what is at best a declining distribution platform that will serve as a drag on growth of whatever it is they try to build in its place,” Moffett wrote. “And even if they can ramp the production slate fast enough (with only their Universal Studios) they will have to spend like drunken sailors to do it.”

And Comcast should be careful what it wishes for. Moffett notes that Netflix has a lot of subscribers – about 130 million globally, at last count – that are losing a lot of money.

"Would Comcast ever be ascribed anything remotely like a Netflix –like valuation if they were to achieve something like Netflix-like metrics?” Moffett asked. “We (strongly) doubt it.”

Moffett also dismisses the notion that Comcast’s pursuit of Sky – or for Fox programming assets for that matter – was a reflection on its displeasure with the distribution business.

“Instead, they are a commentary on Comcast’s view of NBCU,” Moffett wrote. “Comcast rightly believes that being a player in media will require enormous scale. Now that they own NBCU, they’ve got to feed the beast.”

Comcast could sell its programming unit and let someone else deal wit the scale issue, but Moffett and most other analysts don’t believe that will ever be considered.

And Moffett commends Comcast for its forward-looking attitude in what is an increasingly scary future.

“The problem isn’t with the vision,” Moffett wrote. “It’s with the asset (Sky) they are trying to shoehorn into that vision. And with the expectation that shareholders will be rewarded for their pursuit of that vision, even if they achieve it.” 

Comcast investors were apparently pleased that the cable operator has dropped its months long pursuit of 21 Century Fox assets, driving its shares up by more than 3% on Thursday.

Comcast stock went as high as $35.29 each on July 19, up 3.7% or $1.25 per share. It was the highest point for Comcast stock since March. The stock was trading at $35.19 each (up 3.2%) at about 10:26 a.m. Thursday.

Shares of The Walt Disney Co. also rose sharply on July 19 – up as high as $114 (3% or $3.31 per share) in early trading. The stock was priced at $113.75 (up 2.7%) at 10:26 a.m. July 19.

Now that the bidding war for its programming assets is over – and the battle for British satellite giant Sky is heating up – 21st Century Fox shares dipped about 2% (91 cents each) to $45.77 in early trading Thursday. The stock rose slightly to $45.82 (down 1.9%) at 10:26 a.m. July 19.

Related: The Hunt is On

Comcast ended its months-long bidding war with Disney earlier Thursday, saying it would drop its pursuit of the Fox assets and focus its attention on Sky. 

Fox owns a 39% interest in Sky and has been trying to consolidate the asset, only to be outbid by Comcast. With Comcast's attention fully focused on the U.K. satellite company, the potential for that ongoing battle to heat up has increased. 

AT&T chair and CEO Randall Stephenson, a day after the U.S. Dept. of Justice said it would appeal a federal court decision that helped clear the path to its merger with Time Warner Inc., told CNBC Friday morning that the DOJ’s action could affect another potential mega-media merger: Comcast’s pursuit of 21 Century Fox assets.

Related: DOJ to Appeal AT&T-Time Warner Merger 

Comcast was expected to raise the ante again for certain Fox programming and studio assets pledged to The Walt Disney Co. Comcast had outbid Disney’s original $52.4 billion equity offer for the assets in June with a $65 billion all-cash proposal, only to be bested by another cash and stock offer from Disney worth $71.3 billion. The DOJ approved the Disney deal on June 27. 

Speaking to CNBC’s Squawk Box on Friday from the Allen & Co. conference in Sun Valley, Idaho, Stephenson said the DOJ’s plans to appeal the Time Warner purchase came as little surprise, adding that it probably isn’t great news for Comcast’s pursuit of Fox.

“[It] probably can’t help it,” Stephenson told CNBC, according to a transcript. Stephenson said he didn’t want to speculate on the government’s motives for appealing his merger, but said it could affect the Comcast-Fox “process.”

Related: AT&T, Time Warner Cleared to Merge 

“You’re in a situation where two entities are bidding for an asset, and this kind of action can obviously influence the outcome of those actions,” Stephenson said. “But who knows whether that’s behind us.”

The AT&T chief stressed that the appeal process – which he speculated could take five-to-six months to complete -- will have no effect on the way AT&T and Warner Media run their businesses.

“This changes nothing,” Stephenson said. “This changes nothing we’ll be doing over the next 30 days or the next 12 months. We’re about executing our plan. We think the likelihood of this thing being reversed and overturned is really remote. It’s a very narrow path that would have to be traveled to get this thing reversed in any way. So we’re about executing our plan. The merger is closed. We own Time Warner.”

Related: AT&T Completes Time Warner Purchase 

Stephenson said as part of the original agreement, AT&T would run Warner Media separately and independently, and the company has no intention of changing that.

“I mean, when you have content players who are both suppliers and customers, you just have an obligation to treat them that way anyway,” Stephenson said. “So this changes nothing about how we operate the business. It changes nothing about products we will launch. It changes nothing about other M&A we need to do like Appnexus.”

Related: AT&T to Acquire AppNexus as Start of TV Ad Marketplace

And while the AT&T chief said the appeal could pose some problems for Comcast-Fox, he doesn’t see the same chilling effect on other potential mergers.

“If [I] were a CEO looking at media acquisitions and deals, I don’t think I would be looking at them today any differently than I did yesterday,” Stephenson said. “I think this is a process that will play itself out. But I think there is such a slim chance of this thing being altered in some way that it wouldn’t affect my thinking much at all.

But he added that most other companies shouldn’t have been looking to the AT&T-Time Warner ruling as a regulatory template in the first place, because Judge Leon’s ruling was so specific to that transaction.

AT&T has come under fire lately over how it would run Warner Media, specifically a Town Hall meeting with HBO employees where Warner Media chief John Stankey appeared to want the premium network to be more like Netflix. Stephenson said that Stankey’s message of increasing engagement is a strong one. 

“At the end of the day that’s what this is all about, engaging the consumer,” Stephenson said. “Because the more engagement you have, the more opportunity you have to create value.”

More engagement could mean “pumping more content into HBO,” but it also means spreading it across AT&T’s other digital properties like DirecTV Now, WatchTV and online sites like CNN.com.

Still, the AT&T chief said the company is aware of the potential for culture clashes between Warner and other AT&T units, but added he wasn’t concerned about it.

“I’m conscious of it and we’re being very, very careful and mindful of that.” Stephenson said. “The way we’ve organized the business, it will be run separately, very independently. It’s important that we preserve the culture.” 

A British regulator has approved 21st Century Fox’s proposed acquisition of Sky as the bidding war between Fox and Comcast over the European satellite broadcaster escalated.

With the approval of the U.K. Secretary of State for Digital, Culture, Media and Sports, Fox said in a statement that all regulatory preconditions to its acquisition have now been satisfied and waived. A committee of independent Sky directors waived the preconditions on their merger agreement, Fox said.

Fox is looking to acquire the 61% of Sky it does not already own.

Comcast might still be standing in the way. After the close of trading on Wednesday (July 11), the cable company raised its bid for Sky to 14.75 British pounds sterling, or $34 billion.

That topped Fox’s latest bid, made Wednesday morning, for 14 pounds per share, or $32.5 billion. Fox’s new bid was 30% higher than its previous offer.

The battle for British satellite giant Sky just got hotter as 21 Century Fox upped its bid for the company to $32.5 billion, besting a rival offer for the company from Comcast and clearly putting the ball in the cable operator’s court.

Fox was widely expected to increase its offer for Sky after Comcast made a $31 billion unsolicited bid for the company in April. In making its latest offer, Fox said the all-cash deal values Sky at £14 per share (about $18.57 per share) and bests Comcast’s £12.50 per share bid by 12%.

Related: Comcast Formalizes Sky Offer 

In a statement, Fox said the offer represents an 82.1% premium to Sky’s closing price on Dec. 6, 2016, when it made its original offer to purchase the 61% of Sky it didn’t already own. The deal is conditioned on a positive ruling on the purchase from the U.K. Secretary of State, who has said he will make a decision on the deal on July 12.

Fox was widely expected to make the higher offer. 

Related: Fox Adding Ammo to Sky Battle 

Sky is expected to be part of a separate deal between Fox and The Walt Disney Co., for certain programming assets. Disney has already agreed to purchase Sky News – which had been a sticking point with regulators – and will assume control of the satellite company once its larger deal is closed.

Related: Disney Pledge to Buy Sky News Unit Clears Regulatory Path for Fox Consolidation 

“As the founding shareholder of Sky, we have remained deeply committed to bringing these two organizations together to create a world-class business positioned to deliver the very best entertainment experiences well into the future,” Fox said in a statement. “We strongly believe that a combined 21CF and Sky will be a powerful driver for the continued growth and vibrancy of the UK and broader global creative industries. The enhanced scale and capabilities of the combination will enrich Sky’s ability to continue on its mission for years to come, especially at a time of dynamic change in our industry. This transformative transaction will position Sky so that it can continue to compete within an environment that now includes some of the largest companies in the world, but none of whom have demonstrated the same local depth of investment and commitment to the UK and to Europe.”

Comcast’s $65 Billion bid for certain 21st Century Fox assets wasn’t the “shock and awe” offer that many were expecting, but it solidified what everyone in the industry already kind of knew: Brian Roberts is dead serious about adding content scale.

Comcast’s chairman and CEO had in the past expressed interest in the Fox assets — cable channels FX, FXX and National Geographic; TV and movie production studio 20th Century Fox; 21 regional sports channels; and Fox’s 39% interest in U.K. satellite company Sky and 30% interest in online video pioneer Hulu.

In December, Comcast offered Fox about $34 per share in stock, a bid that was higher than the ultimate winner, The Walt Disney Co., but was rejected because of regulatory concerns and the lack of a breakup fee. In its new $35-per-share deal offered up June 14, Comcast has matched Disney’s $2.5 billion breakup fee and has offered to pay Fox’s $1.5 billion termination obligation, should it scuttle the Disney deal.

Comcast telegraphed in May that it was in the “advanced stages” of making a formal all-cash offer. The bid is expected to touch off a potentially bloody bidding war with Disney, which in December announced a deal valued at about $55 billion (not including assumed debt) for the same assets.

Disney has so far been silent on the Comcast offer, and Fox said last Wednesday (June 13) that its board of directors has received the proposal and will review it. The company has not decided whether it will need to cancel the July 10 special shareholders meeting to vote on the Disney proposal. That could perhaps be decided at a previously scheduled meeting of the Fox board of directors on June 20.

Related: Disney, Fox Set July 10 Special Meeting

While the Comcast bid is about 20% more than the Disney offer — but still short of the 25% or higher premium many analysts expected — Pivotal Research Group CEO and senior media and communications analyst Jeff Wlodarczak said a knockout offer would have probably driven Comcast stock into the cellar, and besides, Roberts may believe that Disney won’t be as aggressive as everyone thinks. Comcast shares were already down about 20% this year, mainly because investors feared Comcast and Roberts would do just what they did on Wednesday.

“Sentiment in cable is god awful and massively overdone in my view, which sets the table for significant short squeezes in both Comcast and Charter and Disney,” Wlodarczak  said. “Investors are pricing these names as if the world is falling apart, and Comcast is doing something incredibly stupid, which is simply not the case. Even if Comcast were to pay materially more — say $15 billion — the stock is still dirt cheap and there is logic to a deal.”

Comcast stock actually rose 4.6% ($1.50 each) to $33.82 per share on June 14, signaling that perhaps that sentiment is easing a bit.

Both sides are expected to fight hard for the assets. Disney chairman and CEO Bob Iger has said the Fox deal is a critical piece of his company’s overall direct-to-consumer strategy, giving the content giant more compelling programming and reuniting film properties in the vastly popular and profitable Star Wars franchise (Fox owns Episode IV: A New Hope, the initial 1977 film) and the Marvel Comics universe (Fox holds the film and TV rights to the X-Men and other characters). Iger is not one to back down from a fight, and both sides have the resources to sweeten their offers.

“Release the hounds. The Fox chase is on,” wrote MoffettNathanson principal and senior analyst Craig Moffett in a blog post.

In a conference call with analysts to announce the deal, Comcast focused a lot on its international aspects— it would boost international revenue from 9% of total sales to 27% — but that also could have been for regulators. While the business is truly becoming global, Roberts’s brief explanation of the state of the pay TV industry probably showed his own mindset the best. “We firmly believe that the truly great media companies of the next century will be large integrated entities with multiple growth engines across a wide swath of the global entertainment industry,” Roberts said.

NBCUniversal CEO Steve Burke, under whose purview the Fox assets, if acquired, would fall, said the deal reflects the changing landscape and Comcast’s willingness and ability to adjust to it.

“One thing we know for certain is that more video is being consumed across more platforms than ever before,” Burke said. “We think that will continue for years to come.”

Burke believes not only will the best companies create and broadly distribute their own content, they will sell it to a global audience. “The Fox assets will make us stronger,” he said.

On the conference call after the deal was announced, Roberts praised Fox’s ruling Murdoch family for its excellent stewardship of the assets, comparing Rupert Murdoch’s vision to that of his own father, the late Ralph Roberts, with both building media empires essentially from scratch. “We are, in our minds, the right buyer,” he said on last Wednesday night’s call.

Related: Murdoch Calls Disney Deal a ‘Momentous Occasion’

Both Comcast and Fox have grown their businesses by acquisition, but have taken slightly different tacks. Murdoch is famous for bidding way too much for content assets — like his offer for National Football League rights in the 1990s, which was $100 million higher than the next bidder but put the Fox broadcast network on the map, and more recently buying The Wall Street Journal at a 67% premium. Roberts has taken a more careful approach, seeking out troubled companies that could be snapped up for bargains and turned around quickly like AT&T Broadband and NBC Universal.

Roberts touted those past deals as proof that Comcast knows how to integrate large purchases. But AT&T Broadband was in trouble and managed poorly — the telco had concentrated on phone service while its video operation dwindled. And NBCU had a disinterested owner (GE), a fourth place broadcast network in a four-player field, and a slew of cable networks that were basically neglected. There was a lot of upside for an owner that knew had to run a pay TV business, and Comcast took full advantage.

That philosophy has served Comcast well. Since its IPO in 1972, the average return for Comcast shareholders has been 17.1% per year, Roberts said, far outpacing the S&P 500 Index. To put it more bluntly, $7,000 invested in Comcast stock in 1972 would be worth about $10 million.

“This is our formula, and I’m proud of our 45-year track record,” Roberts said.

But the Fox assets are not in trouble. There aren’t as many clear, major improvements that Comcast can make to boost returns as it did in its other mega-deals.

Related: Roberts Says Comcast Is the ‘Right Buyer’ for Fox

On the conference call, Burke acknowledged the Fox assets were different, but said there is ample room to grow. “[I]t’s more about complementarity; it’s about the fact that we’re very strong in distribution and content in the United States and not as strong in places like India and Europe,” he said.

But to service its new debt, Comcast will need big returns. If its current bid is accepted, the combined company’s overall leverage would balloon to about $170 billion, or about 4.25 times forward-looking cash flow, per Moody’s Investor’s Service. That is about twice its current leverage of 2.75 times, and could jeopardize its investment-grade rating — i.e., its ability to borrow cash cheaply.

The combined entities are expected to have enough free cash flow to repay debt maturities as they come due, which Moody’s said was “very important given the amount of outstanding debt, secular pressures on linear pay TV and slowing cable industry growth.” But the credit rating agency added Comcast’s willingness to increase leverage so much is “a major shift in financial policy.”

Roberts called the extra leverage as a result of the deal “temporary,” adding that his best answer to the debt service question is the performance of the overall business.

“We have a business plan and a momentum,” Roberts said. “With a changing world, we make adjustments.”

Analysts are split as to who may emerge victorious in this modern-day Fox hunt. Greenfield believes Comcast, smarting after backing off its bid for Disney in 2004 and abandoning its pursuit of Time Warner Cable in 2015, doesn’t want to lose a third time and will be very aggressive. Moffett believes if Disney can put together an attractive package of cash and stock, it could end up the victor. Wlodarczak believes Comcast needs Fox more than Disney, and therefore would do whatever it takes to obtain the assets.

But Moffett added that no matter which suitor comes up with the highest bid, there is only one true winner in the deal. “It’s good to be Fox,” he wrote.

The British government is allowing 21st Century Fox to acquire satellite broadcaster Sky — as long as Fox sells Sky News.

21st Century Fox already owns 39% of Sky, and its $25 billion bid to buy the remaining stake has been held up by a long government review to determine if Fox would be a fit owner for Sky.

The Walt Disney Co., which has agreed to buy most of Fox’s assets, has said it is interested in buying Sky News.

Related: Fox Offers to Sell Sky News to Disney to Satisfy Regulators

But Comcast has weighed in with a bigger bid for Sky and has said it is preparing a richer bid for the other Fox assets, which include its entertainment cable networks and movie and television studios.

Related: Comcast’s Manifest Destiny

Fox has been trying to convince British regulators to let it buy Sky, including Sky News, but Matt Hancock, the U.K. culture secretary, said owning Sky would give Fox and Rupert Murdoch too much control over the British media.

Hancock told Parliament Sky News could be sold to Disney or to another buyer, as long as it remains viable

"I need to be confident that the final undertakings ensure that Sky News remains financially viable over the long-term; is able to operate as a major U.K.-based news provider; and is able to take its editorial decisions independently, free from any potential outside influence,” Hancock said in his report to Parliament.

The Walt Disney Co. is reportedly lining up banks to provide a substantial cash boost to its offer for 21st Century Fox assets it previously agreed to purchase, in an effort to best any competing bids from Comcast, CNBC’s David Faber said Tuesday (May 29).

Citing sources familiar with the company, Faber said on CNBC’s The Faber Report  that Disney is prepared to add “significant cash” to its all-stock bid for the assets, currently valued at about $68 billion.

Comcast made public its intentions for the Fox assets, issuing a formal statement May 23 that is considering an all-cash offer that would be superior to the Disney bid. While Comcast did not specify how big that bid would be, some analysts have speculated it could be as much as $10 billion more than the Disney offer. 

But that bid apparently hinges on the outcome of AT&T’s proposed $108.7 billion takeover of Time Warner Inc. That deal, which the U.S. Dept. of Justice sued to block in November, is expected to receive a ruling from U.S. District Court Judge Richard Leon on June 12. If the deal is approved, and most analysts expect it will, Comcast is anticipated to make its offer shortly after.

Fox agreed in December to sell its cable channels FX, FXX, National Geographic; its movie and TV production studios 20 Century Fox, 21 regional sports networks, its 30% interest in Hulu and its 39% interest in British satellite TV company Sky to Disney in a deal valued at $66.1 billion at the time. Fox will keep its broadcast network, as well as its cable channels Fox News Channel, Fox Business Network and sports networks FS 1, FS 2 and the Big Ten Network. In April, Comcast made a formal offer for all of Sky for $31 billion. Sky is still evaluating the offer although British regulators said earlier this month they would likely have no difficulty in approving a deal.      

After reviewing Securities and Exchange Commission documents, Comcast confirmed what the rest of us have been expecting all along — it is seriously considering a competing bid for 21st Century Fox assets currently pledged to The Walt Disney Co.

Comcast has already made a competing bid for British satellite giant Sky — 39% owned by Fox and also part of the Disney deal — and most analysts expected the cable giant to make a play for the other Fox assets in the Disney deal. But most had expected Comcast to wait for a favorable ruling in the pending AT&T-Time Warner merger before pulling the trigger on a bid. Apparently Comcast is either very confident that deal will be approved or is fearful another player may enter the fray.

Related: With Rival Bid, Comcast Complicates the Fox Hunt [subscription required]

In a statement issued early Wednesday, Comcast confirmed that as Fox and Disney shareholders ready to vote on their deal, the cable company is “considering, and is in advanced stages of preparing, an offer for the businesses that Fox has agreed to sell to Disney (which do not include the Fox News Channel, Fox Business Network, Fox Broadcasting Company and certain other assets). Any offer for Fox would be all-cash and at a premium to the value of the current all-share offer from Disney.”

The Disney deal, including debt, is valued at $66.1 billion. No word on whether an all cash deal from Comcast would include its already on the table $31 billion cash offer for Sky, or if that latter deal will be separate. UK regulators have already hinted that a Comcast takeover of the satellite company would probably receive little resistance.

Related: U.K. Culture Secretary Says Unlikely to Block Comcast-Sky

Comcast said that it still could decide to not make a bid, but also seemed to confirm past reports that it was lining up banks for a Fox offer.

“While no final decision has been made, at this point the work to finance the all-cash offer and make the key regulatory filings is well advanced,” Comcast said

Moody’s Investors Service crunched the numbers on a possible Comcast-21 Century Fox combination, determining the deal would dramatically increase its debt load, making it the second highest leveraged company behind AT&T.

Comcast has made a formal offer for British satellite company Sky – of which Fox owns 39% -- for $31 billion, but it hasn’t done the same yet for Fox assets currently betrothed to The Walt Disney Co. Comcast is expected to crash that wedding only if AT&T’s pending $108.7 billion purchase of time Warner Inc. is approved by regulators.

But Comcast has been said to be lining up banks for a possible bid, and reports have estimated the cable giant will offer about $60 billion in cash for the Fox assets.

In a note Tuesday, Moody’s said a debt-financed (all-cash) bid for Fox would be a big departure from Comcast’s existing fiscal policy, ticking up its leverage ratio to about 4.1 times cash flow. Comcast’s current leverage ratio is about 3 times cash flow, but Moody’s said that a target of 2.75 times is more appropriate for its current rating.

“Adding a cash bid for Fox on top of the company's debt-financed $31 billion bid for Sky Plc, means pro forma consolidated debt would increase the company’s consolidated debt from just under $65 billion to a staggering $164 billion, pro forma for the acquisitions, excluding any cash flow that Comcast would generate before the transactions would close,” Moody’s wrote.

That $164 billion obligation would be second only to AT&T’s potential $185.3 billion debt load after the Time Warner deal closes. And Moody’s said the Comcast leverage is after about $3 billion in cost synergies are considered. To get back to the recommended 2.75 times mark suggested for its investment grade A3 debt rating, Moody's says Comcast would have to pay off about $50 billion in debt. Given it is expected to generate about $10 billion to $11 billion in free cash flow annually, that could take more than four years.

Moody’s noted that Comcast has been consistent in its approach to debt in past acquisitions – its purchase of the remainder of NBC Universal from General Electric briefly stretched debt metrics. But it agreed to purchase Time Warner Cable with all-stock (a deal that was scrapped over regulatory issues), and bought DreamWorks Animation and purchased stakes in its theme park ventures with cash on hand or minimal leverage.

“When assessing creditworthiness, we consider both the willingness of management and the company's ability to attain and sustain credit metrics as equally important,” Moody’s wrote. “… Sharp departures from past practice and stated commitments, particularly as companies move up the rating scale, create significant doubts about commitments in the future.” 

Cable investors have a new obsession when it comes to battles between networks and distributors — determining which one will shoot first.

Comcast was the first to flash its weapons by lining up banks for a hostile run at 21st Century Fox assets currently pledged to The Walt Disney Co. Comcast, according to reports, is readying an all-cash offer for the Fox assets, which include cable channels FX, FXX, National Geographic, the 20th Century Fox TV and movie studio, 22 regional sports networks and U.K. satellite assets. 

Comcast is reportedly set to fork over about $60 billion in cash for the Fox assets, above Disney’s $52.4 billion all-stock proposal. When about $13.7 billion in assumed debt is factored in, the Comcast bid could be worth about $74 billion, a 12% premium to Disney’s $66.1 billion offer.

Whether Comcast is serious or is simply trying to tweak Disney’s nose by forcing it to pay more for the Fox assets — it also has made a separate $31 billion offer for U.K. satellite TV company Sky, 39% of which is owned by Fox — isn’t clear. 

Related: Comcast Bid May Spark  War for Sky

The Comcast bid is contingent on a favorable outcome to the government’s efforts to block the AT&T-Time Warner merger. Most analysts believe that deal will go through, and a ruling in the antitrust court case around that merger is expected June 12. Meanwhile, Comcast has some regulatory baggage of its own.

As the largest U.S. cable operator with 22 million subscribers, Comcast already owns a movie studio (Universal), broadcaster NBC and about 13 cable networks — including USA Network, Bravo and Syfy — through NBCUniversal. Adding Fox’s channels and studios could prove too much for the government to bear. And while some have said the government honed in on the Time Warner deal because its news network, CNN, is critical of President Donald Trump, NBC is the network that said, “You’re fired” to the president on its The Apprentice reality show in 2015. Many observers have noted that there is little love for the programmer, or desire to make its path easier, in Washington.

Unquestionable Growth

In a note to clients, MoffettNathanson senior research analyst Michael Nathanson noted that Disney executives didn’t take a single question about affiliate fees or subscriber trends on the company’s fiscal second-quarter earnings call May 8, normally the main topic of conversation in such events. That was a shame, because Disney’s numbers were good — ESPN’s affiliate-fee growth of 5.2% was its best such mark in two years, and subscriber declines appear to be slowing.

“The declines this quarter were less than the declines we’ve seen in the prior two quarters,” Disney CEO Bob Iger told CNBC before the earnings call, adding that it is mainly due to growth with virtual multichannel video programming distributors. “That’s great for a number of reasons because they carry all of our channels and it’s a consumer-friendly proposition. The growth of those is offsetting, to some extent, the losses on the more traditional platforms.”

Fox, which reported earnings on May 9, also deflected any questions about the Disney deal.

“We are committed to our agreement with Disney and are working through the conditions to bring it to a closing,” Fox co-executive chairman Lachlan Murdoch said on its fiscal third-quarter conference call with analysts. “In addition, our directors are of course aware of their fiduciary duties on behalf of all shareholders.”

In a note to clients, Nathanson wrote that he too expects the Disney-Fox deal to be completed, adding that Iger has never backed away from what he considered to be the right move simply over price. “From the moment he bought Pixar to building Shanghai Disney Resort, Iger has invested whatever it takes to do what is strategically right in the long run,” Nathanson wrote, adding that with leverage low at 1.2 times cash flow and free cash flow of nearly $9 billion, Disney has the resources to raise its bid.

Sanford Bernstein media analyst Todd Juenger wrote in a note to clients that he expects Comcast to bid and bid hard for the Fox assets, adding that it is becoming increasingly apparent that Disney, Fox and Comcast believe the future of the content business lies in increasing scale.

“We think Disney and Comcast increasingly view Fox as the seminal defining point, and this the moment in time, in determining which company ascends to that role,” Juenger wrote. “And therefore, we think both Comcast and Disney are likely to pay a high price.”

But not everyone is convinced Disney is up for a fight. BTIG media analyst Rich Greenfield, a frequent critic of Disney, wondered in a blog post why the entertainment giant continued to repurchase its stock if it was expecting a bidding war with Comcast.

Best Bids

“Disney may need to dramatically sweeten its offer for Fox with stock or part/ all cash and make an all-cash offer for Sky to fend off Comcast and likely needs to invest far more heavily in its consumer offerings,” Greenfield wrote. “We wonder if Disney is really prepared for a bidding war against Comcast.”

For Fox, a Comcast bid would present different problems. Comcast was involved in the initial bidding process with Disney last year, and even submitted a higher offer, only to be rejected. According to reports, Fox chief Rupert Murdoch preferred Disney shares to Comcast stock — he believed it was less volatile — and wanted an all-stock deal to lessen the tax burden of the sale. An all-cash offer from Comcast would be constructed solely to appeal to shareholders outside of the Murdoch family, which some observers believe puts the Murdochs in a tough position.

At Kagan, a unit of S&P Global Market Intelligence, analyst Derek Baine said if Comcast goes through with a hostile bid, “Fox management will be in a pickle.” He added that rejecting a higher all-cash bid just to get a better tax profile would open the programmer to “a flurry of shareholder lawsuits, only further serving to distract management in the midst of a major restructuring of its assets.”

Pictured: Disney's The Fox Hunt (1938)

Murdoch family scion and 21 Century Fox CEO James Murdoch will likely not join the Walt Disney Co. in the event their deal is completed, according to a report in the Wall Street Journal, and instead will head his own company, possibly in the financial arena.

The Journal, citing people familiar with the matter, said James Murdoch will most likely start a venture capital fund to invest in start-ups in the digital and international media business if Fox's deal with Disney comes to fruition.

The report ends speculation that James Murdoch was being considered as a possible replacement for Disney chairman and CEO Robert Iger. Iger signed a two-year extension to his employment contract after Disney announced its $66.1 billion agreement to purchase certain Fox assets. In announcing the deal Iger said James Murdoch would assist with the integration of the two companies and after that the two would  continue discussions as to whether there was a role for Murdoch in the combined entity. 

James Murdoch is considered to be a tech savvy and astute businessman, and many would have considered him the logical choice for an executive role at Disney. But according to the Journal, lately James Murdoch has been telling associates that there would be no role for him at the combined company.

There is no guarantee that the Disney deal will go through. While the transaction has been approved by the Fox and Disney board of directors, it still needs to pass muster from shareholders and federal regulators. And Comcast, which had bid on the Fox assets before but was bested by Disney, is said to be lining up banks to makes its own competing all-cash offer.

If the Disney deal wins out, Fox will concentrate on its broadcast, sports and news assets and be run by James’ brother Lachlan Murdoch, who returned to the family business in 2014 after nearly a decade running his own Australian investment company. 

And Disney made moves to solve its succession problems in March, reshuffling management and elevating former chief strategy officer Kevin Mayer as chairman of a newly formed direct-to-consumer and international segment, and adding products responsibility to parks chief Robert Chapek’s duties. 

Comcast formalized its $31 billion takeover offer for British satellite TV service provider Sky, setting in motion what could be a battle for the company with its current biggest stakeholder, 21 Century Fox.

Sky was to be part of Fox’s $66.1 billion deal to sell certain assets to The Walt Disney Co. Fox, which already owns 39% of Sky, had been trying to purchase the remainder of the company, but had faced some resistance from U.K. regulators. Comcast’s offer for 100% of Sky is a 16% premium to Fox’s previous bid.

“We are delighted to be formalizing our offer for Sky today,” Comcast chairman and CEO Brian Roberts said in a statement. “We have long believed Sky is an outstanding company and a great fit with Comcast. Sky has a strong business, excellent customer loyalty, and a valued brand. It is led by a terrific management team who we look forward to working with to build and grow this business.”

He added that the addition of Sky would boost Comcast’s total customer base to 52 million and allow the combined company to invest more in original and licensed programming as well as innovation.

“We look forward to receiving the necessary regulatory approvals,” Roberts continued in his statement.

In making its formal bid, Comcast also pledged to:

· Maintain annual expenditure in Sky News for ten years, at a level not less than incurred in Sky’s 2017 financial year;

· Establish an editorial Sky News board with the responsibility to ensure the editorial independence of Sky News for ten years;

· Maintain Sky’s UK headquarters in Osterley for five years; and

· Not acquire any majority interest in UK newspapers for five years.

The company also reiterated the promises it made to regulators in its February bid, including:

· Continue to support the creative industries in the UK and increase investment in UK film and TV production;

· Support innovation in the UK by continuing to support Sky’s technology hub in Leeds;

· Continue to support young people in the UK by maintaining Sky’s Software Engineering Academy scheme; and

· Continue to support Sky’s local community sports programs in the UK.

Whether Comcast makes a formal offer for British satellite giant Sky or decides to find another means to acquire scale could all come down to the MSO's stock price, MoffettNathanson principal and senior analyst Craig Moffett said in a note to clients Wednesday.

Moffett said it has been about 30 days since Comcast made public its intention to buy Sky for $31 billion – it has yet to make a formal offer for the company – and since then Comcast's stock has fallen about 16.6%. The analyst likened the current situation to Comcast’s 2004 unsolicited bid for The Walt Disney Co., which was withdrawn after about 10 weeks when the MSO's stock plunged as investors made clear their displeasure with the deal.

The current state of Comcast stock could in part be attributed to the Sky bid. Some investors see it as an indication that Comcast has lost faith in the U.S. cable business, and many see the Sky move as a precursor to a bid for the 21st Century Fox assets currently betrothed to Disney.

And then there is the overall erosion of cable fundamentals. Continued video customer declines – Moffett predicted Comcast will lose 309,000 video customers in 2018 (more than double what it lost in 2017) – increased pressure from cord-cutters and over-the-top services and slowing broadband growth have weighed on the entire sector. But Moffett predicts that if the stock price declines continue much longer, Comcast may be forced to walk away.

Clearly there are differences between the Sky and Disney bids. Comcast’s 2004 $59.9 billion bid for Disney was an all-stock offer, and the further Comcast’s stock fell, the more expensive it became for Comcast shareholders. The Sky bid is an all-cash deal, and therefore the stock decline may not matter in the context of the transaction.

To move ahead with the deal, Comcast would have to make a formal offer to U.K. regulators, but isn't required to do so until seven days after Sky wins U.K. government approval for Fox's own bid to acquire the full company (Fox already owns 39%) and holds its own shareholder meeting to vote on the deal. That could take up to two months to complete, but Moffett believes Comcast may make a final decision before then.

“[W]e would argue that Comcast’s sharp selloff could well lead management to reconsider withdrawing from its pursuit of both Fox and Sky, much as they did in 2004,” Moffett wrote. “We ourselves have pointed to resolution of the AT&T-Time Warner case as a potential catalyst for Comcast’s final decision, but the decline in Comcast’s share could trigger a decision even earlier than that.”

Comcast stock was up slightly (27 cents, or 0.8%) to $33.26 in early trading Wednesday.

Comcast senior executive vice president and chief financial officer Mike Cavanagh responded to critics of its unsolicited bid for European satellite TV giant Sky at an industry conference Monday, adding that for a company looking for quality scale in today’s markets, the deal “checks important boxes.”

Speaking at the Deutsche Bank Media, Telecom & Business Services conference in Palm Beach, Fla., Cavanagh said Sky’s scale – 23 million customers in Europe – its sports and original content assets and its growth prospects – all make it a compelling buy.

“It’s got market leadership positions, it’s got good management and solid momentum. It’s not a turnaround project,” Cavanagh said. “We don’t see it as a satellite platform. What satellite provider, in the U.S. context, has the networks that Sky programs that command close to 50% of the viewing by subscribers?”

Comcast made an unsolicited bid for Sky on Feb. 27 that values the company at about $31 billion. Comcast’s offer is about 16% higher than an earlier proposal by 21st Century Fox, which already owns 39% of the satellite company, for the remaining 61%.

Sky is considered to be a strong player – it is the largest pay TV operator in Britain and has deep content holdings.  But some have feared that Comcast’s Sky bid could touch off a war with Fox over the asset, as well as being a precursor for a separate bid for certain Fox assets. Fox agreed to sell cable channels FX, FXX and National Geographic, its TV and movie production studios, its regional sports networks, and its interests in Sky and online video pioneer Hulu to the Walt Disney Co., in December. Whether Comcast’s bid will jeopardize that deal is unclear. Disney hasn’t commented on Comcast’s bid, and Fox has said Comcast hasn’t yet made a formal offer. It may comment later if it deems appropriate.

Comcast has raised eyebrows with its unsolicited $31 billion bid for U.K. satellite giant Sky, a move that both threw sand in the face of 21st Century Fox executive chairman Rupert Murdoch — who has been trying to consolidate the asset for years — and could solidify the U.S. MSO’s stature as king of all media.

Sky is the largest pay TV operator in Europe, with 23 million customers in the U.K., Germany and Italy. It owns original and licensed content and sports, including the coveted domestic rights to English Premier League soccer games. (Comcast’s NBCUniversal is the league’s U.S. rightsholder.)

Sky fits almost every criterion for a Comcast takeover — it’s a leader in its field, it is underappreciated, and perhaps more importantly it has ownership that is under pressure.

Fox, which owns 39% of Sky, has tried to consolidate the company for years. It first tried in 2011, but pulled its offer after a hacking scandal at its British tabloid newspapers made it unlikely a deal would be approved. Fox returned with a sweeter offer in December 2016, valued at £10.75 per share, but has run afoul of British regulators concerned with placing too much power in one company’s hands. Comcast’s bid, at £12.50 per share, represents a 16% premium to Fox’s offer.

Key to Disney Deal
Sky is an integral part of Fox’s sale of certain assets to The Walt Disney Co. — its content and sports assets jibe well with Disney’s own content holdings, many which are already distributed on the platform. Sky also has a compelling OTT product — Sky Now — which fits with Disney’s direct-to-consumer strategy, and Disney chief Bob Iger has called the satellite service a “crown jewel” among the Fox assets.

Fox had hoped to finish the Sky consolidation before the Disney deal closed and to transfer full ownership to the content giant once the deal was completed.

But now that is in limbo. According to BTIG media analyst Rich Greenfield, Fox has four choices: 1) increase its Sky offer and start a bidding war with Comcast; 2) start a conversation with Comcast for all of the Fox assets, while Comcast bids for the remaining 61% of Sky; 3) get Disney to work out a compromise with Comcast, like offering up its stake in Hulu, the Fox production studios (minus the Marvel content) and cable channel FX to back off; or 4) refuse to increase its bid, leaving Disney with the option of either selling its stake in Sky or being a minority partner with Comcast.

Options one and three seem most likely, Greenfield said.

Fox has said publicly that it stands by its December 2016 offer for Sky and hopes it will pass regulatory muster, while noting that Comcast hasn’t actually made a formal bid. Comcast, in announcing the deal publicly, said its bid was the first stage in the process and it hopes to work with Sky’s independent directors to hammer out a proposal.

The prospect of a mogul war between Comcast chairman and CEO Brian Roberts and Murdoch seemed not to sit well with some of the cable firm’s investors, who drove the stock down about 7% after the Feb. 27 announcement. But they seemed to settle down — the stock has started to slowly crawl back in subsequent trading — when it became apparent the deal makes more sense than they might have initially thought.

Gaining Global Reach
Sky would give Comcast tremendous scale, and scale is key to Comcast’s desire for Sky, Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said. With Sky’s 23 million customers, its set-top box technology and its content, Comcast could create a pan-European virtual MVPD and then further leverage its position as the No.1 distributor in the U.S. and Europe to launch a global service.

National Geographic Partners, a joint venture between 21st Century Fox and the National Geographic Society, has named Gary Knell president and CEO.

Knell, who has been president and CEO of the National Geographic Society since 2014, succeeds Declan Moore, who is leaving the venture.

In his new role as CEO of National Geographic Partners, effective March 1, Knell will oversee all of National Geographic’s global storytelling assets, including the television, magazine, print and digital operations, licensing and travel expeditions

The National Geographic Channel is one of the assets 21st Century Fox has agreed to sell to the Walt Disney Co.

“Declan has been a tremendous champion of National Geographic, and his steady leadership in the founding of National Geographic Partners has created a foundation for it to thrive as one of the world’s most iconic media brands for years to come,” said Peter Rice, president of 21st Century Fox. “Gary is ideally situated to build on that momentum. Nobody understands National Geographic better than Gary, and his breadth of media experience, strategic mindset and global perspective make him the perfect leader of the organization at this exciting time of transformation.”

21st Century Fox executive chair Lachlan Murdoch put into words what most pay TV  operators feared in the wake of the programmer’s plans to pare down to select broadcast and cable assets while beefing up on sports rights – when the dust settles distributors can expect retransmission consent fees for its broadcast stations to rise.

Fox agreed in December to sell its film and TV production studios, regional sports networks and FX, FXX and National Geographic cable networks to The Walt Disney Co. for about $66.1 billion, while keeping its broadcast network, TV stations, and cable channels Fox News Channel, Fox Business, FS 1 and FS 2 and the Big Ten Network. More than a month later, the programmer agreed to pay $3.3 billion over five years for rights to Thursday Night Football games.

“We see great potential to increase our retransmission revenue quite aggressively,” Lachlan Murdoch said on a conference call to discuss fiscal second quarter results. “We think that for two reasons, one obviously is the focus and investment in sports with the new NFL Thursday night packages, but also being a more focused company with fewer channels in our bundle [we] will be able to drive our retrans for the stations quite aggressively.”

His brother, CEO James Murdoch, was equally encouraged by the retrans potential of the deal.

“It’s still a growth trajectory in  terms of getting what we think is a fair price, given the strength of the network, the strength of the stations and the size of that audience,” James Murdoch said.

And although the premium paid for Thursday Night Football was high -- nearly 50% -- for content that has suffered declining ratings, Fox believes adding the Thursday night games to its existing Sunday NFL package could grow viewership.

“When you look at the licensing that the NFL has undertaken, with expanding to Thursday night and we’ve talked in the past about what fragmentation can do to the overall audience on each individual day,” he continued. “We think the right answer is to concentrate that audience and to have Fox be the clear leader in NFL broadcasting.”

He added that having the extra night of football will help Fox’s other shows in terms of promotion and will also solidify the network’s position as a sports leader.

“In general, as the scarcity value of large audiences coming together around national events continues to rise, we really want Fox to be the home of that kind of compelling product,” James Murdoch said.

European media regulators have tentatively concluded that 21st Century Fox's purchase of Sky is not in the public interest, saying it would give the company too much control over UK news across all platforms--TV, radio and online--but it found there were no broadcast standards issues with the deal.

That was the provisional conclusion of UK communications regulator Ofcom's Competition & Markets Authority (CMA), which has been looking at that issue as part of its six-month review of the proposed deal. It said the Murdoch Family Trust (MFT), which controls Fox and parent News Corp., would have too much influence "over public opinion and the political agenda."  A final report on the deal is due out in May, so Fox has more time to make its case of adjust the deal.

Related: UK Authority Rules Against Hannity, Carlson

21st Century Fox has defended the deal to CMA last November, saying it would not result in a loss of diversity of viewpoints, in part because after the deal there will remain several more trusted viewpoints than either Sky News or some of News Corp.'s outlets. Loss of viewpoint diversity is one of the key issues Ofcom's Competition & Markets Authority (CMA) is looking at in its six-month review of the proposed deal.

In December 2016, 21st Century Fox agreed to pay $14.8 billion for the balance of the pay TV service it did not already own. Sky has 22 million subs in five countries -- Italy, Germany, Austria, the U.K. and Ireland.

21st Century Fox was putting the best face on it, pointing to the fact that CMA had concluded there were no broadcast standards issues, the other key issue it was vetting. As to whether Fox and Sky have a "genuine commitment to broadcasting standards in the UK," CMA provisionally concluded that "Fox taking full control of Sky is not likely to operate against the public interest."

"The CMA also provisionally found that Sky has a good record in this regard, consistently complying with broadcasting regulation," CMA said. "It also has comprehensive and effective policies and procedures in place to ensure broadcasting standards are met."

Fox's statement on the CMA tentative conclusion led with the broadcast standards finding. "Today’s provisional findings move our proposed Sky transaction forward to the next phase of the regulatory review process," it said. "We welcome the CMA’s provisional finding that the Company has a genuine commitment to broadcasting standards and the transaction would not be against the public interest in this respect."

Related: CMA Outlines Review of 21st Century Fox Deal

"Regarding plurality, we are disappointed by the CMA’s provisional findings," said Fox. "We will continue to engage with the CMA ahead of the publication of the final report in May." Fox also said it still thought the deal would get done, and by June.

The rollercoaster ride for Viacom and CBS investors continued Wednesday after the Wall Street Journal reported that one of the biggest shareholders of both companies – CBS and Viacom vice chair Shari Redstone – is attempting to add new directors to the broadcaster’s board as she continues to try to push a deal through.

Viacom stock was up nearly 4% ($1.29 each) to $32.60 per share late Wednesday on the news. CBS shares rose slightly (9 cents) to $59.52 each in late afternoon trading.

According to the Journal, Redstone, who had pulled back her attempt to merge the two companies in 2016, reached out earlier this month to CBS chairman and CEO Les Moonves, who has in the past resisted a merger, to serve as a catalyst toward a recombination.

The paper said she is gathering a slate of possible directors ahead of CBS’s May annual meeting of shareholders, where several directors are expected to be replaced.

Moonves has resisted past attempts to put the two companies together because like other analysts, he sees little benefit for CBS, according to reports. But with large media companies moving to get larger – like Disney’s pending $66.1 billion purchase of certain 21st Century Fox assets and Discovery Communications $14.6 billion buy of Scripps Networks, expected to close in the first quarter, the urge to merge is greater than ever.       

Viacom and CBS split in 2006 in an effort to unlock value at both companies. But since then, CBS has flourished, growing into the top rated broadcaster in the country with a strong OTT service (CBS All Access) and a steady premium channel (Showtime). Viacom, which endured some extreme management turmoil over the past few years, has struggled to get back on track as its networks have slipped in the ratings and the ad market has dwindled.

TheWrap first reported that Redstone was eyeing a reconstituted CBS-Viacom on Friday. That resulted in a 7% runup in Viacom’s stock price on Jan. 12 that was eroded on Jan. 16 after reports surfaced that no formal talks were being held.

The Walt Disney Co. made its video domination aspirations official Thursday, agreeing to buy key assets from 21st Century Fox in a $52.4 billion all-stock deal ($66.1 billion including debt) that will make the world’s biggest content creator even bigger, fueling its plan to become a streaming video and traditional programming powerhouse.

UPDATE: Iger Says Fox Will Help Accelerate Direct-to-Consumer Plans

When the dust settles, Disney will control the 20th Century Fox movie and television production studios, cable channels FX, FXX and National Geographic, 22 regional sports networks and Fox’s 39% interest in European satellite TV service Sky and its 30% interest in streaming service Hulu, in addition to its Disney studios, cable networks ESPN, Freeform and Disney Channel.

Fox, which stands to become a major Disney shareholder as a result of the deal (Disney plans to issue 515 million new shares for the transaction, giving Fox shareholders a 25% pro forma stake in the content giant), will retain its Fox broadcasting operations, Fox News Channel, Fox Business Network and sports channels FS1, FS2 and the Big Ten Network, which will be spun to shareholders prior to he deal closing to ease the tax burden.

Related: Murdoch: Disney Deal a ‘Momentous Occasion’

Under the terms of the deal, Fox shareholders will receive 0.2745 Disney shares for every 21st Century Fox share they hold. Disney will also assume $13.7 billion of 21st Century Fox debt. Overall, the transaction implies a $66.1 billion value for Fox

Disney chairman and CEO Bob Iger has agreed to stay in that role through 2021, adding another year to his employment deal. Iger was originally scheduled to retire in 2019.

“The acquisition of this stellar collection of businesses from 21st Century Fox reflects the increasing consumer demand for a rich diversity of entertainment experiences that are more compelling, accessible and convenient than ever before,” Iger said in a statement. “We’re honored and grateful that Rupert Murdoch has entrusted us with the future of businesses he spent a lifetime building, and we’re excited about this extraordinary opportunity to significantly increase our portfolio of well-loved franchises and branded content to greatly enhance our growing direct-to-consumer offerings. The deal will also substantially expand our international reach, allowing us to offer world-class storytelling and innovative distribution platforms to more consumers in key markets around the world.”

Also as part of the deal, Fox will continue to pursue the purchase of the remaining 61% in Sky it doesn’t own. Once that deal is completed, assuming it is done before the Disney deal is closed, Disney would assume full ownership of Sky.

With the Fox assets, Disney will be able to pursue its direct-to-consumer strategy full bore. An ESPN-branded offering, ESPN Plus, is scheduled to debut in 2018 with a Disney content product expected the following year. With the Fox studio assets, that Disney-branded product just got more robust.

The acquisition is expected to yield at least $2 billion in cost savings from efficiencies realized through the combination of businesses, and to be accretive to earnings before the impact of purchase accounting for the second fiscal year after the close of the transaction.

“We are extremely proud of all that we have built at 21st Century Fox, and I firmly believe that this combination with Disney will unlock even more value for shareholders as the new Disney continues to set the pace in what is an exciting and dynamic industry,” said 21st Century Fox executive chairman Rupert Murdoch in a statement. “Furthermore, I’m convinced that this combination, under Bob Iger’s leadership, will be one of the greatest companies in the world. I’m grateful and encouraged that Bob has agreed to stay on, and is committed to succeeding with a combined team that is second to none.”

Media consolidation critic Public Knowledge was quick to call for a tough government review of the Disney-Fox deal, which it said would combine must-have programming, notably sports, and which it also said would lead to higher prices for video content.

“Antitrust authorities should thoroughly examine the incentives and power a combined Disney-Fox may have to harm consumers and competition," said PK senior policy counsel Phillip Berenbroick.

"Disney’s acquisition of Fox’s regional sports networks, which carry thousands of local NBA, MLB, and NHL games, as well as college athletics, is also a cause for concern," Berenbroick added. "Disney’s ESPN-family of networks is already the most valuable, and most expensive, sports programming network in the cable bundle. The addition of Fox’s regional sports programming may significantly increase Disney’s bargaining power over local cable providers because consumers demand access to their local professional and college athletics.

"The combination of these assets may also give Disney the power to negotiate even higher prices and more preferential treatment for the rest of its video programming, as well as unprecedented control over both national and local televised sports." he said.

The C3 commercial ratings used to buy and sell advertising fell 13% among adults 18 to 49, according to an analysis of Nielsen data by Wall Street analyst Michael Nathanson of MoffettNathanson Research.

Cable ratings were down 11% and broadcast was down 16%, Nathanson said.

TV ratings got a boost in 2016 when Nielsen switched to a bigger sample size.

“Ratings declines in 2017 were even worse than we imagined, with seven of the past 11 months declining double digits,” Nathanson said in a report.

Nielsen and the networks do not release C3 figures.

21st Century Fox’s networks were the biggest decliners among cable channels. A+E Networks and Disney were the only cable network owners to post gains in primetime among 18-to-49 year-olds.

Related > Disney-Fox: Hell Freezes Over

Among individual cable networks in total-day C3 ratings, Nathanson said A&E was up a whopping 40% for the month. Also posting gains were Hallmark Channel, up 12%; History, up 9%; MSNBC, up 8%; and Freeform, up 7%. Viacom’s MTV was flat.

The biggest decliner was Fox News Channel, followed by Viacom’s Nick at Nite. It's worth noting that Fox News uses live-plus-same-day ratings as it primary ad sales metric. The network recently noted that it has had its highest rated year in its history on a total-day basis.

The declines by the broadcast networks came against the backdrop of the presidential election a year ago, which brought viewers to their sets. Fox, which had a huge World Series finale a year ago, was the biggest decliner.

”Given the challenged ratings trends we have seen and expect to continue, we remain cautious on the TV advertising market’s ability to grow dollars by offsetting these declines with higher CPM inflation,” Nathanson said.

Comcast has officially dropped out of the running for 21st Century Fox assets, saying in a statement that it did not receive the “level of engagement” it believed necessary to make a serious offer, and clearing a path for The Walt Disney Co. to make a bid for the properties later this week.

The news was first reported by Reuters.

Comcast has been in talks for weeks about purchasing a mix of assets including the 20th Century Fox film and TV production studios, cable channels FX and National Geographic and Fox’s 39% interest in European satellite TV company Sky. Those are the same assets being pursued by Disney, and now with Comcast out of the picture, the programmer could strike a deal for the assets later this week.

“When a set of assets like 21st Century Fox’s becomes available, it’s our responsibility to evaluate if there’s a strategic fit that could benefit our company and our shareholders,” Comcast said in a statement. “That’s what we tried to do and we are no longer engaged in the review of those assets. We never got the level of engagement needed to make a definitive offer.”

21st Century Fox CEO James Murdoch’s flirtation with the top spot at The Walt Disney Co. may have to wait a bit, after a report in the Wall Street Journal said current Disney chair and CEO Bob Iger would likely extend his employment deal at the company should it acquire certain assets from Fox.

Disney is reportedly in deep discussions with Fox concerning the purchase of its movie studio, regional sports networks, cable channels FX and National Geographic and other assets valued at more than $60 billion.

Related > Report: Disney, Fox Close in on Deal

According to reports, people familiar with the matter speculated that one of the benefits of the deal would be that Murdoch could step in to replace Iger as CEO, thus solving a nagging succession problem at Disney over the past several years. Iger had originally intended to retire as chairman and CEO at Disney in 2015, but has extended his deal each year – he is scheduled to step down in 2019 – as a successor has been hard to find.

Former Disney chief operating officer Thomas Staggs was the last serious candidate considered for the role,  but he resigned from the company in 2016 after it became apparent that he did not have the support of the Disney board of directors.

The deal, which could be announced as early as next week, would likely take until the end of 2018 to obtain all the necessary federal approvals, the Journal said. Integrating the assets could take up to another year, and would be even more difficult with a new CEO at the helm, adding to the need for Iger to extend his current contract. It is plausible that James Murdoch could take over as Disney CEO in 2020, once the integration is complete.  

Murdoch has reportedly been under pressure at Fox after weathering sexual harassment scandals at its Fox News unit and a phone-hacking scandal at its U.K. tabloid newspapers in 2012.  According to an earlier report in the Journal, Murdoch has at times “felt like a CEO in title only.”

With rumors that a major sale of television assets is imminent, 21st Century Fox CEO James Murdoch said it would be wrong to comment on market speculation.

Speaking at the UBS Communications Conference in New York Tuesday (Dec. 5), Murdoch declined an invitation to discuss the asset sales reports, which indicate that Fox would sell assets including its cable networks, movie and TV studios, some of its international business and its regional sports networks to The Walt Disney Co.

Related > Report: Disney, Fox Close in on Deal

“It would be wrong to comment on market speculation,” said Murdoch, citing company policy, "so there’s nothing to add to that.”

But he added that “the way we’re running the business is about value, long-term value.”

Related > Would a Mouse Eat a Fox?

He added that the shape of the business that management was aiming for was “what’s going to create the most value for our shareholders.”

The Walt Disney Co. and 21st Century Fox held earnings calls last week, but quarterly returns weren’t among the most pressing questions from analysts.

Most of all, Wall Street wondered aloud if the two iconic companies would merge. As deal speculation swirled around both media giants, executives seemed eager to highlight the success of their cable and content properties while acknowledging the changing landscape.

Fox stock surged nearly 15% after reports that it had held talks, since ended, to sell off its 20th Century Fox studio, cable networks FX and National Geographic Partners, and its 39% interest in European satellite TV company Sky to Disney. In that scenario, Fox would have kept Fox News Channel and Fox Business Network, and its regional sports networks, broadcast operation and TV stations.

On Fox’s fiscal first-quarter conference call, executives were quick to point to the success of their cable operations — revenue at the cable unit was up 10% in the period, and affiliate fees rose 11%. Fox said the gains were due to growth across the portfolio.

But despite that success, Fox left the door to any possible deals or divestitures slightly ajar.

“We told you many years ago that innovative disruption would come to our industry,” 21st Century Fox co-executive chair Lachlan Murdoch said on the call. “We moved early to jettison our thin brands and went deep with investments for our rich distinctive brands, when many market pundits were skeptical of this approach.”

Whether that means more “thin brand” paring is due or it was just an attempt to give analysts historical perspective is open to interpretation. But Fox was adamant it has the scale and the assets to execute on its strategy.

At Disney, which escalated the cord-cutting conversation two years ago when it revealed flagship sports network ESPN was losing subscribers, some evidence suggested that erosion may be slowing. On a conference call with analysts Nov. 9, Disney chair and CEO Bob Iger said subscriber losses at ESPN were “not as deep” as they had been in prior quarters, in part because of deals with new over-the-top service providers.

Disney’s fiscal fourth-quarter results were mixed. Iger pointed to two-week Nielsen data that showed when live consumption of sports includes streaming and OTT platforms, ratings rise 25% to 29%, an encouraging trend. But broadcast revenue was down 11% in the quarter, and cable revenue was flat.

While neither Disney nor Fox did much to totally squelch speculation, it appears that the lines drawn in the initial reports — that Disney was doubling down on content and Fox was throwing in the towel — are much more nuanced.

Iger said Disney’s focus is on monetizing high-quality programming, and though he conceded that “some improvement from a quality perspective would be helpful,” he also pointed to the company’s strong production and creative capabilities. Disney has a live-action Star Wars series in development as well as midseason shows that should attract audiences.

“Our intention as a company is to take advantage of opportunities that exist out there today for good television and to produce more of it,” Iger said.

That could point to a deal with Fox, or another programmer. FX is known for high-quality content, and Fox’s TV production studios have cranked out perennial hits like The Simpsons and Family Guy for its broadcast unit, as well as Modern Family for Disney’s ABC.

Deal Wouldn’t Be Disney Cure-All
But not everyone was convinced that a Fox deal would solve Disney’s problems. BTIG media analyst Richard Greenfield, a staunch critic of Disney over the years, wrote in a blog post Nov. 7 that Disney should focus more on companies like Activision for gaming, Spotify for mobile subscriptions and Twitter “to capture the SportsCenter of the future.”

Sanford Bernstein media analyst Todd Juenger, another critic of the pay TV content model, said in a research note that “the chances of a Disney-Fox deal, as described, are very low.”

Lachlan and James Murdoch sure didn’t sound like two media chiefs hot to unload their programming assets Wednesday, spending a good portion of 21st Century Fox’s fiscal first quarter earnings call touting the growth prospects for their cable and satellite operations.

But while neither executive would directly address speculation around their desire to sell assets, they didn’t quite squash all of chatter either.

Fox was said to be in talks, since ended, to sell its movie studio and cable assets like FX Networks and National Geographic channel as well as its 39% stake in European satellite company Sky to The Walt Disney Co. While Fox co-executive chairman Lachlan Murdoch opened up the earnings call telling analyst he would not respond to media speculation, he had plenty of wind left to tout the company’s ongoing operations.

Overall results were strong – revenue was up 8% in the fiscal first quarter and affiliate fee revenue for its cable channels rose 11%, due to contractual increases across all of its brands.

“We told you many years ago that innovative disruption would come to our industry,” Lachlan Murdoch said on the call. “…We moved early to jettison our thin brands and went deep with investments for our rich distinctive brands, when many market pundits were skeptical of this approach.”

He added that because of that strategy, Fox’s brands have full carriage on all traditional and newly launched platforms.

“There is a lot of talk about the growing importance of scale in the media industry. And let me be very clear, Fox has the required scale to continue to both execute on our growth strategy and deliver increased returns to shareholders,”  Lachlan Murdoch said. “We are specifically seeing this in our affiliate fee growth again this quarter and the success of Hulu and our inclusion in all of the emerging MVPDs. We are excited about all of our brands and the breadth of opportunity they continue to offer.”

Asked if the changing landscape Fox is rethinking its asset mix and whether scale matters less or more today, CEO James Murdoch said that the company has changed its portfolio over the past several years.

“We’ve really simplified our operating model, we’ve got a great set of brands and a great set of assets that we really like,” James Murdoch said. “And as you can see from these quarterly results and from the past couple of quarters I hope, a real trajectory of good performance.”

James Murdoch also commented on plans to fully consolidate the Sky satellite TV business, adding that the company continues to work with U.K regulators and hopes to receive approval of the transaction by the middle of 2018.

21st Century Fox said it has promoted Peter Rice to president of the media company.

Rice will continue to serve as chairman and CEO of the Fox Networks Group, which means he oversees Fox Broadcasting, Fox Sports, FX Networks National Geographic, 20th Century Fox Television and the Fox Networks Groups in Latin America, Europe and Asia.

The move makes Rice the most senior executive outside of the Murdoch family since Chase Carey.

“As part of our ongoing work to evolve and expand the 21CF leadership structure, we’re pleased to name Peter to this newly created position, CEO James Murdoch and executive chairman Lachlan Murdoch said in a statement.

“Peter has driven exceptional growth at Fox Networks Group during a time of real transformational change in the business, expanding our audiences and innovating new distribution models, from which the Company, our shareholders and our customers have benefited greatly. Peter’s impact on the business is immense and we are incredibly fortunate to have him with us in this expanded role during this exciting next chapter of the Company,” the Murdochs said.

Stacey Snider, chair and CEO of 20th Century Fox Film, will continue to report directly to Lachlan and James Murdoch. Fox News Channel will continue to report directly to Rupert Murdoch, Executive Chairman of 21st Century Fox, and Executive Chairman of Fox News Channel.

Related: Fox News Continues to Dominate Cable Ratings Charts

Before being named as head of Fox Networks Group, Rice was chairman entertainment for Fox Network Group. Prior to that he was president of Fox Searchlight Pictures and executive VP production for Twentieth Century Fox.

21st Century Fox reported lower fourth-quarter profit despite gains at its cable programming operations.

Net income fell 16% to $476 million, or 26 cents a share, from $567 million, or 30 cents a share.

Revenue rose 2% to $6.75 billion in the quarter.

Earnings were a hair above Wall Street forecasts, but revenue fell short.

Operating income increased 19% to $1.44 billion at the company’s cable network programming unit. Revenue rose to $4.329 billion from $3.921 billion.

Domestic affiliate revenue rose 10% on increased rates at Fox News Channel, FX, FS1 and the regional sports networks.

Related: Fox News, ‘Game of Thrones’ Stay Hot in Weekly Cable Ratings Race

Domestic advertising revenue was up 6% because of higher ratings at Fox News and increases at National Geographic Channel.

At Fox’s television unit, which includes the Fox Broadcasting Co., fourth-quarter operating income fell by $7 million to $137 million. Revenue dropped to $137 million from $144 million.

National and local advertising was down, offsetting gains in retransmission payments. Expenses were 3% lower because of lower entertainment programming costs.

Read more at broadcastingcable.com.

British regulators are scheduled to decide whether 21st Century Fox can fully consolidate satellite TV provider Sky next week, a move that will likely include at least some concessions, according to Telsey Advisory Group media analyst Tom Eagan.

The British Office of Communications (Ofcom) and the Competition and Markets Authority handed their recommendations on whether Fox will be allowed to purchase the remaining interest in Sky it doesn’t already own (about 61%) to culture minister Karen Bradley, who has the final say on the matter, on Tuesday. Bradley said she would make her decision public on June 29.

In a note to clients Tuesday, Eagan wrote that it is likely the British government will ask for at least some concessions if it approves the deal. But Eagan expects regulators to take a “middle-case” approach, perhaps independent governance of its Sky News operation.

Fox has been trying to consolidate its Sky stake for years. In 2011, it dropped its efforts to consolidate the company when it became apparent it would not be approved by regulators after its British tabloids were involved in a phone hacking scandal. The company earlier shut down its News of the World tabloid – the focus of the hacking investigation – and later separated its newspaper and television assets into two separate companies – News Corp. and 21st Century Fox. Fox has said the split was not connected to the phone hacking scandal. 

Fox’s latest scandal involves sexual harassment of female employees that led to the ouster of Fox News chief Roger Ailes – who died in May – and on-air personality Bill O’Reilly. Other executives left the company in the wake of the scandal, which some believe will weigh heavily on the British government’s decision.

Fox again proposed to take in the remaining 61% interest in Sky in December in a deal valued at about $14.5 billion. In April the European Commission approved the deal without conditions.

As if there were any lingering doubts, the two largest cable-network groups confirmed what many analysts have been saying for months (and years): Cord-cutting is real, pay TV subscribers are declining at a faster pace than expected and content providers aren’t really sure what to do about it.

21st Century Fox was the last major programmer to release results last week, and they showed that having the most-watched network in the country — perennial ratings winner Fox News Channel — isn’t enough to stop the bleeding.

Fox is losing about 1.5% of its pay TV subscriber base to cord-cutters, cord-nevers and skinny bundles, compared to about 3% for peers such as The Walt Disney Co. and Time Warner Inc.

Overall, pay TV networks had been losing about 2% of their subscriber base in past quarters.

Fox echoed what other big programmers have said in the recent past: the losses could have been worse if not for deals with over-the-top providers like DirecTV Now, Sony PlayStation Vue and Sling TV, which (depending on who you listen to) have either already taken over the pay TV distribution business or are about to.

The reality lies somewhere in between. 21st Century Fox CEO James Murdoch told analysts the impact of over-the-top providers such as DirecTV Now and Sling TV has been small so far, mainly because they have only been in existence for a short period of time. As other OTT services emerge — Hulu Live has just launched and YouTube TV debuted in April — Fox believes they could have a broader impact going forward.

Murdoch was light on details, though, saying it’s still “early days” for OTT carriage and that Fox’s success with new distributors can be tied to continued investment in its brands.

FOX’S HIDDEN EDGE
Not every analyst was convinced Fox had the solution to subscriber declines. In a research note, Sanford Bernstein media analyst Todd Juenger said it was more likely that minimum subscriber clauses in its distribution agreements are propping up Fox’s numbers.

“It’s a head-scratcher how Fox claims to have lost only -1.5% subs from their fully distributed cable networks, about 125 [basis points] better than Disney — unless Fox is benefitting from minimum guarantees that Disney is not,” Juenger wrote. “But minimum guarantees aren’t sustainable without subs.”

In a client note, Morgan Stanley media analyst Ben Swinburne said Fox’s younger-skewing networks such as FX, national sports channels FS1 and FS2 and its regional sports networks, “which have very high carriage minimums,” helped to temper losses.

Juenger said ratings at the Fox networks outside of Fox News are nothing to cheer. Overall, household rating were up 6% in the period but ratings among persons 2-plus rose 5% almost solely on the back of Fox News.

On the analyst call to discuss fiscal third-quarter results, Fox chief financial officer John Nallen said the most interesting aspect of the new OTT providers is that they are finding different segments of the audience to serve.

“So between DirecTV Now and Sling TV, YouTube obviously Hulu, and PlayStation Vue they all very different services and we think this is incredibly important because … many of them are designed to replace traditional MVPDs’ subscriber numbers and losses, but they’re targeting entirely new segments of U.S. households, segments that have broadband now but potentially don’t have traditional MVPDs,” Nallen said, adding that inspires confidence that the services will help stem declines and “will actually grow the universe quite significantly over time.”

At Disney, where the falloff in subscribers was first evident at flagship sports network ESPN in 2015, chairman and CEO Bob Iger also said OTT has helped temper customer losses, emphasizing again that it was still early on that front.

Iger was encouraged by the trend — ESPN plans to launch its own direct-to-consumer offering later this year, using content and rights currently not being exploited on the ESPN linear networks — but stopped short of saying the solution lies in bypassing traditional distributors all together.

RISKY SPENDING ON SPORTS RIGHTS?
On the Disney earnings call, Iger pointed to Disney’s direct- to-consumer offering — which some analysts have said is too narrowly focused to make a meaningful dent in sub losses — and its foresight in identifying the problem two years ago.

BTIG media analyst Rich Greenfield, a frequent critic of Disney and ESPN, said just identifying the problem isn’t enough. Despite the declines, he said, “their seemingly reckless spending on long-term sports rights” does not seem to be in sync with those comments.

Greenfield blogged that Iger’s apparent dismissal of emerging skinny bundles that exclude sports — the Disney chief said launching a new platform without ESPN would be “very challenged” — could be a dangerous move.

Greenfield noted that the fastest-growing package in the largest virtual MVPD (Sling TV with an estimated 1.3 million total customers) is one without live sports. And more are expected to come.

“With ESPN sub losses increasing and without meaningful rate increases, it is not hard to see ESPN’s revenues entering secular decline in the not too distant future,” Greenfield wrote. “On top of accelerating sub losses, it will be hard for ESPN to maintain high-single-digit rate increases as existing distribution deals come up for renewal given the rapidly deteriorating MVPD landscape, unless they enable far greater packaging/tiering flexibility (which we do not see happening).”

Jamie Gillespie, vice president of government relations at the National Association of Broadcasters, is joining 21st Century Fox as a VP in the company's global public affairs and policy group.

His first day will be June 5.

Gillespie will report to senior vice president Kathleen Ramsey, also a former NAB executive.

Before joining NAB in 2006, Gillespie was an aide to Senate Commerce Committee leaders Sens. Daniel Inouye (D-Hawaii) and Fritz Hollings (D-S.C.).

Fox News Channel personality Bill O’Reilly will not return to host his top rated show The O’Reilly Factor, network parent company 21st Century Fox said Wednesday.

In a statement released this afternoon, 21st Century Fox said that “after a thorough and careful review of the allegations, the Company and Bill O’Reilly have agreed that Bill O’Reilly will not be returning to the Fox News Channel.” 

O’Reilly, who has been on vacation since April 12 and was set to return April 24, has been dogged recently by several sexual harassment claims, for which Fox News and O’Reilly have paid $13 million to settle, according to an April 1 New york Times article. Several advertisers have since pulled their commercials from The O’Reilly Factor, adding financial hardship to pressure from activists and women’s rights groups.

O’Reilly’s dismissal is a huge blow to Fox News, which has dominated cable network ratings since 2016. The network, bolstered by The O’Reilly Factor, has been the most watched cable network in primetime for the 12th time in the last 13 weeks and has consistently been the most watched cable show on a total day basis. 

21st Century Fox is getting closer to cutting ties with Bill O’Reilly, the biggest star on its high-rated, profit-generating Fox News Channel, according to published reports.

Following an April 1 article in The New York Times disclosing that Fox News and O’Reilly have paid $13 million to settle a number of sexual harassment claims, advertisers have pulled their commercials from The O’Reilly Factor, adding financial hardship to pressure from activists and women’s rights groups.

O’Reilly went on vacation last week. He had planned to return his show on April 24.

Related > Report: Fox Settled O’Reilly Sexual Harassment Claim Last Summer

Last year, Fox News’s powerful chairman Roger Ailes, who built the channel into a TV juggernaut and political powerhouse, was forced out amid sexual harassment charges.

21st Century Fox’s new CEO James Murdoch appears to be trying to run a more by the books organization than his swashbuckling father Rupert Murdoch, who remains executive chairman of 21st Century Fox and was put in charge of Fox News after Ailes’ departure.

Related > Fox News Channel, Ailes, Shine Named in New Sexual Harassment Lawsuit

The Wall Street Journal said Fox News is preparing to cut ties with O’Reilly, according to people close to the situation. The Journal, like Fox, is controlled by the Murdochs. A final decision on O’Reilly could come as early as the next several days, the paper said.

In New York magazine, Gabriel Sherman reported that the Murdochs are leaning toward announcing that O’Reilly will not return to the air.

One factor pushing the Murdochs is a pending ruling on 21st Century Fox’s $14 billion takeover of Sky TV in Europe, according to the magazine. The British Office of Communications is getting ready to rule on whether Fox is a “fit and proper” owner for Sky. Parting with O’Reilly would make Fox appear more squeaky clean to regulators by removing at least one potential objection.

According to The New York Times a new complaint from a former Fox News employee was registered on the 21st Century Fox sexual harassment hotline. The employee said that in 2008 that O’Reilly would leer at her, grunt like a “wild boar” and called her “hot chocolate.”

The Times said O’Reilly’s lawyer, Marc Kasowitz of Kasowitz Benson Torres, said it was “outrageous that an allegation from an anonymous person about something that purportedly happened almost a decade ago is being treated as fact.”

Kasowitz also said O’Reilly “has been subjected to a brutal campaign of character assassination that is unprecedented in post-McCarthyist America.”

“This law firm has uncovered evidence that the smear campaign is being orchestrated by far-left organizations bent on destroying O’Reilly for political and financial reasons. That evidence will be put forth shortly, and it is irrefutable,” Kasowitz said.

Ailes has also denied all of the charges made against him.

21st Century Fox is reportedly considering options to derail Sinclair Broadcast Group’s potential takeover of Tribune Media, despite not wanting to acquire the station group itself, according to Bloomberg.

In a report Friday, Bloomberg said parties interested in buying Tribune as part of a consortium -- including investor Starboard Value, which owns 4.4% of Tribune -- had approached Fox.

Nexstar Media Group, which earlier this year closed its merger with Media General, is also considering a bid, Bloomberg said.

Read more at broadcastingcable.com.

Cable networks, plagued by sagging ratings and lower affiliate fees as consumers shifted to over-the-top and online viewing options, could be in for a rebound in the calendar fourth quarter. But analysts warn that the volatile political climate — which helped drive news networks to new heights in the just-passed presidential election — could also depress results for general entertainment channels.

Several top cable programmers are expected to release earnings results next week, with most analysts encouraged by the prospects for top names like 21st Century Fox and The Walt Disney Co.

Fox is expected to be first out of the gate, releasing fiscal second quarter results today (Feb. 6). The home to perennial ratings winner Fox News Channel, general entertainment powerhouse FX, several regional sports channels and FS1 should have a strong fiscal second quarter, driven by strong ratings for Fox News and the sports channels.

Morgan Stanley media analyst Ben Swinburne estimated Fox’s cable networks should report revenue of $3.96 billion in the fiscal second quarter, up 7% from $3.70 billion in the prior year. Broadcast-TV revenue — driven by an expected 5% hike in advertising sales — should rise 8.8% to $1.85 billion from $1.7 billion in the prior year, Swinburne wrote in a research note.

Cash flow for the cable channels also should be up nicely in the period, according to Swinburne. He predicted that cable network EBITDA would rise 8.3% to $1.3 billion from $1.2 billion in the prior year, while cash flow at the broadcast division should grow by 27% to $353.6 million from $279 million.

COMCAST RENEWAL BENEFITS

Swinburne was encouraged by recent renewal deals with Comcast, which included the return of its YES Network RSN to the operator after a one-year hiatus. Some of Fox’s smaller networks, like Fox Sports 2 and FXM, could also add to growth as their subscriber penetration increases.

Credit Suisse media analyst Omar Sheikh ratedFox his top pick for the year, saying in a recent note that the company’s plan to acquire the remaining interest in U.K. satellite giant Sky it doesn’t already own has removed the M&A discount from the stock and allowed the programmer to focus on organic growth.

Fox News Channel, currently President Trump’s favorite news network, has been riding a wave of ratings growth well past the November election. But what’s good for Fox may not be so for the rest of the cable henhouse. General entertainment networks could feel the pain as viewers are glued to news channels to watch the latest controversy involving the new presidential administration.

That could serve as a blow to programmers that compete directly with news programs, like Discovery Communications, according to Sheikh.

“We expect the political news cycle to remain strong through at least the first half of 2017, driving viewership at major news networks (e.g. CNN, Fox News, MSNBC),” Sheikh wrote. “These networks directly compete with seven of Discovery’s networks for the audience of adults 25-54, therefore strength in news will further pressure Discovery’s domestic ratings, in our view.”

He noted that analysts’ consensus estimates for Discovery’s domestic ad-revenue growth are flat to 1%, and could be even lower.

“We believe there could be some downside risks to this,” he wrote.

UPSIDE SEEN FOR ESPN

Surprisingly, the analysts were bullish on Disney, which has taken it on the chin as subscribers have fled from its flagship sports network ESPN. In his report, Swinburne estimated that ESPN’s could be in for a reprieve from its 2% annual subscriber erosion over the past three years.

“We believe risk now skews to the upside,” Swinburne wrote, adding that skinny bundles and online video distributors — the two businesses many blame for ESPN’s subscriber decline — could be catalysts for growth.

“We believe the combination of moderating skinny-bundle headwinds and the emergence of new, low-priced streaming options create opportunities for incremental ESPN distribution,” he wrote.

Swinburne was also optimistic the Worldwide Leader in Sports will continue to grow affiliate fees in the next renewal cycle, beginning in 2018, largely because of new distribution players.

“We also believe new entrants (such as Hulu Live or YouTube Unplugged) will pay premium affiliate fees, suggesting a positive mix shift tailwind to rate,” Swinburne wrote.

Disney has said it plans to launch a standalone over-the-top ESPN offering using sports rights it currently owns but can’t monetize on its existing networks. While few details have been released about the service, which is expected to debut later this year, Swinburne believes it can coexist with ESPN’s existing linear networks.

“It remains a time of transition at Disney, as it evolves its ESPN/ABC distribution model to attempt to reach consumers that have been opting out of the pay TV bundle,” Swinburne wrote. “We expect the a la carte and bundled offerings will coexist for a long time, creating more earnings stability than the market presumes.”

VIACOM ON THE BOUNCE?

Swinburne upgraded the entire programming sector last week to “attractive,” slapping “overweight” ratings on Disney, Fox and even Viacom, which has experienced the greatest impact from the shift to mobile and online viewing. Swinburne believes that after a period of management upheaval and disappointing results, Viacom, which reports its fiscal first quarter results on Feb. 9, has nowhere to go but up.

“We believe new management has about a year before any significant renewals to try and improve the programming and ratings trajectory, notably for MTV,” Swinburne wrote, adding that Viacom’s biggest EBITDA contributor, kids’ network Nickelodeon, has shown healthy growth over the past year.

But not everyone was quite as optimistic. Sanford Bernstein media analyst Todd Juenger, who rightly predicted the linear network ratings declines years ago, foresees a difficult period for pay TV.

“We see no evidence of fundamental trends to support a view that things are getting less worse,” Juenger wrote last week, adding that pay TV subscribers and conventional TV audiences continue to fall while subscription VOD services like Netflix gain viewers.

“All the media Bulls are clinging to is: hope,” Juenger wrote. “Hope on macro/political (tax rates, GDP). Hope that OTT launches will slow the rate of sub decline. Hope for M&A.”

21st Century Fox has struck a deal to buy pay TV service Sky for $14.8 billion.

Fox says it expects the deal to close by year's end. It had signaled it was in the late stages of striking the agreement.

"As the founding shareholder of Sky, we are proud to have participated in its growth and development," said Fox in a statement. "The strategic rationale for this combination is clear. It creates a global leader in content creation and distribution, enhances our sports and entertainment scale, and gives us unique and leading direct-to-consumer capabilities and technologies. It adds the strength of the Sky brand to our portfolio, including the Fox, National Geographic and Star brands.”

Fox has agreed to pay a £200 million breakup fee if regulatory approval is not secured.

Financing for the deal, up to north of $12 billion, came from Goldman Sachs Bank USA, Deutsche Bank Securities Inc. and JPMorgan Chase Bank, N.A.

Sky has 22 million subs in five countries: Italy, Germany, Austria, the UK and Ireland.

Despite continued declines in the pay TV sector, programmers continued to report strong affiliate-fee increases in the third quarter. The results indicate that live, on-demand and other programming offerings may still have value, but skeptics said programmers are in for a big surprise as old deals roll off.

Content providers for the most part have been losing an average of about 2% of their subscribers in the past several quarters. The losses mainly reflect a growing shift away from traditional television viewing to over-the-top and mobile services such as AT&T’s upcoming DirecTV Now, slated for a mid-November launch, and more-established services like Sony’s PlayStation Vue, Amazon Video and Hulu Plus.

RATINGS SHRINK, FEES GROW

But while fewer subscribers has led to lower ratings and slower ad-revenue growth for most of the major programmers, affiliate fees continue to climb.

While that may just be a factor of different license renewal cycles and higher pricing, it could also mean that the traditional, linear pay TV network has more value than some critics think.

For programmers, the litmus test may be 21st Century Fox, which expects between 15% and 20% of its programming footprint to come up for renewal by the end of the year. 21st Century Fox, parent of the Fox broadcast network and news and entertainment programmers such as Fox News Channel, Fox Business Network and FX, reported an 8% increase in affiliate fees in the fiscal first quarter, up from a 6% increase in fiscal Q4. And the company said that it expects affiliate revenue to continue to grow at that pace or higher as new deals come online.

What intrigued some analysts, though, is that Fox claimed the increased affiliate fees didn’t come from higher pricing, but from greater volume. Fox channels actually added subscribers in the fiscal first quarter, bucking the recent trend.

Fox attributed the subscriber increases to the movement of networks like FX, movie channel FXM and sports network FS2 into broader bundles and new deals with over-the-top distributors.

Fox already has deals with Sling TV, PlayStation Vue, Amazon Fire TV, Apple TV and is reportedly close to finalizing an agreement to be included in DirecTV Now. The programmer, a partner in the online video service Hulu with Comcast’s NBCUniversal and The Walt Disney Co., will also appear in that company’s live streaming service expected early next year.

On a conference call with analysts to discuss its earnings results last week, Fox CEO James Murdoch said that while some of the upcoming Fox News renewals are for older contracts that could see a hefty price increase to align them with other distributors, “the channel is as strong as ever.”

“We feel that the product has enormous amount of value to customers and that’s reflected in its ability to and our ability to continually grow those affiliate fees,” Murdoch said on the call.

It may be a little early to call this a new trend, MoffettNathanson senior research analyst Michael Nathanson wrote in a client note. But he added the Fox difference could be tied to its programming mix — live sports on the Fox network, sports channels like FS1, FS2 and regional sports channels, as well as general-entertainment programming on FX, FXX and Fox.

“We continue to believe that owners of must-have, live, scaled content (like Fox) have pricing power despite the consolidation of the MVPD industry,” Nathanson wrote.

Fox still needs to prove it can grow affiliate fees in the latter half of the year and show some non-programming related cost discipline at its cable networks, according to Nathanson. “The first quarter is a good start in the right direction,” Nathanson wrote.

FOX AN OUTLIER?

Telsey Advisory Group media analyst Tom Eagan attributed most of the Fox subscriber gain to its “emerging networks” like FS2. He added that other programmers probably won’t see the same result because they don’t have as many emerging networks.

Barclays media analyst Kannan Venkateshwar agreed. In a note to clients, he said the growth was due to newer channels like FXM, Fox Business and FS2 getting broader distribution.

“[I]t is not clear how sustainable this trend is given these are likely noncore networks, especially in a skinny bundle world,” Venkateshwar wrote.

Still, Eagan said he believes the next renewal cycle will be difficult for programmers, as distributors point to lower ratings and declining subscribers to push for lower fees.

“For the more independent networks, it’s going to be more challenging,” Eagan said.

One year after its joint venture with 21st Century Fox, National Geographic in November will undergo an organizational rebrand that will include dropping the word “channel” from its linear cable network.

The rebrand, which will include the global tagline “Further,” will feature new graphics, brand IDs and brand animations, but will retain its iconic yellow box image, according to officials.

 The rebrand will coincide with National Geographic’s Nov. 14 premiere of its hybrid scripted/documentary series Mars, from executive producers Brian Grazer and Ron Howard, according to Courteney Monroe, CEO of National Geographic Global Television Networks.

In 2017, the “Further” tagline, which expresses Nat Geo’s quest to take risks and to push boundaries, will be featured in a regular section in National Geographic magazine as well as in a “Further” web series, according to Nat Geo officials.

“What began as an exercise to simply overhaul the look and feel of the National Geographic Channel has now become a comprehensive rebrand of every single National Geographic consumer touchpoint, across both National Geographic Partners as well as National Geographic Society,”  Monroe said during a luncheon presentation Tuesday in New York. “This rebrand marks a significant turning point in the realization of our transformational new vision for National Geographic Channel."

WASHINGTON — Federal Communications Commission chairman Tom Wheeler may have shifted the agency’s position on new set-top box rules as he works toward an order he has said he plans to put to a vote by year-end.

His office had no comment, but FCC staff conversations suggest he could be moving toward allowing programming from third parties to remain under the control of a multichannel video programming distributor (MVPD) app. That’s according to ex parte conversations from Hollywood studios concerned about protecting their content.

PROGRAMMERS’ PUSHBACK

Wheeler has continued to maintain that whatever the FCC does would honor programming contracts and copyright protections, but programmers have remained skeptical.

Democratic commissioner Jessica Rosenworcel has made it clear that the agency will need to shift gears to get her vote, so a move toward a more programmer-friendly approach could be a way to secure it.

According to 21st Century Fox, The Walt Disney Co. and CBS, in ex parte filings following conversations with top Wheeler aides and other FCC staffers, the meetings were sought by the chairman’s office. FCC staff “indicated that they were seriously considering a revised approach to this proceeding that would ensure that all of programmers’ valuable content would remain inside of, and under the control of, apps developed exclusively by multichannel video programming distributors (MVPDs) with whom programmers have a direct contractual relationship,” the filings said.

Whether cable programming is provided via streams that can be repackaged by third parties or in a separate app that can reside next to others in a search menu has been a major sticking point.

The National Cable & Telecommunications Association describes its approach as “offering a common-denominator app enabling any manufacturer to build a nationally portable device that can receive service from all of the large MVPDs, while continuing to support the market for business- to-business agreements and native apps.”

According to Fox and Disney, which made a joint filing on their meeting, “the commission staff stressed that third-party platforms, when distributing these MVPD apps, would be required to honor and abide by all of the terms and conditions set forth in programmers’ licenses with MVPDs.”

That is the studios’ major ask, so a revised approach with such a guarantee could bring programmers into the set-top rule camp. The chairman’s office declined to comment on the filings or their importance.

But the programmers also said that any third-party content licensing would have to be negotiated directly with programmers.

The FCC’s primary goal, Wheeler has said, is to provide a competitive market for set-tops, given that 99% of boxes are still leased by the cable companies.

A secondary goal, though, is to wed online and traditional video to help make the former a more compelling competitor, another prime component in Wheeler’s mantra of “competition, competition, competition.”

Even as the programmers were meeting with the FCC, the National Cable & Telecommunications Association was taking aim at the force massed against its in-app approach to providing content to third parties. A spokesman declined to comment on whether or not the programmer filings suggested the FCC was moving closer to NCTA’s approach.

“These critics continue to propose complex technology regulations designed to meet their goal of converting copyrighted content into open-source programming for their own commercial use and monetization,” the NCTA said. “Their recommendations would undermine copyright as thoroughly explained by the U.S. Copyright Office, violate consumer video privacy, and impose staggering costs on consumers, networks, program diversity, and innovation.”

COMPROMISE AHEAD?

The Computer & Communications Industry Association — whose members include Amazon, Dish Network, TiVo and Google (a driving force behind the FCC’s “unlock the box” approach to creating a competitive set-top marketplace) — recently offered up what it signaled was its own, more app-centric “compromise” between the FCC’s approach and the NCTA’s app-based plan.

But in a white paper filed with the FCC, the CCIA appeared to keep a thumb squarely on the FCC’s side with the title Unlock the Box: How to Address Opposition and Boost Competition. The CCIA said one solution could be a “digital certificate” for third-party boxes “tied to contractual language pertaining to advertising, channel number preservation, and privacy compliance.”

The white paper reads mostly like a defense of the FCC proposal, echoing old criticisms of the NCTA alternative as “light in detail and heavy with loopholes” and likely to “box out” competition, while the FCC proposal is described as a solution that gives consumers “real choice.”

The CCIA’s plan would still require programming streams to be provided outside an MVPD-controlled app, which is a nonstarter for cable operators.  

21st Century Fox executive chairman Lachlan Murdoch opened the company's fourth quarter earnings call Wednesday with a statement about Fox News Channel, which he noted "has been the news over the past few weeks."

He said the company "moved quickly and decisively to protect the business, protect its employees and protect the unique voice Fox News broadcasts."

He did not mention former Fox News chairman Roger Ailes by name. Ailes resigned last month after being accused of sexual harassment by former FNC anchor Gretchen Carlson.

Read more at broadcastingcable.com.

21st Century Fox reported higher net income for its fiscal fourth quarter.

Net income rose to $567 million, or 30 cents a share, from $87 million, or 6 cents a share, a year ago, when the company had costs associated with the sale of Sky and Endemol Shine Group. Segment operating income was $1.45 billion, compared with $1.54 billion last year.

Revenue rose 7% to $6.65 billion.

"We delivered full-year revenue and earnings growth on the strength of gains in affiliate and advertising revenues despite considerable foreign exchange headwinds and difficult film comparisons," said executive chairmen Rupert and Lachlan Murdoch.

21st Century Fox's cable network programming segment reported flat operating income in the quarter despite a 10% increase in revenue. Revenue was up 10%, but expenses rose 15% as sports programming costs went up and political coverage costs increased at Fox News Channel.

Read more at broadcastingcable.com.