Capex keeps the lid on Fox earnings
Rupert Murdoch's film and television broadcast company, 21st Century Fox, posted better than expected revenue growth for its first quarter but earnings were below market estimates as it increased investment in its US pay television business.
The company's revenues rose by more than $US1 billion, or 18 per cent, to $US7.06 billion - largely driven by its pay television businesses in the US, and the consolidation of Sky Deutschland in Europe, but operating expenses increased $US932 million over the same period.
This meant operating income from continuing operations for the Fox business rose just 1.8 per cent to $US1.62 billion.
"In our first quarter as 21st Century Fox, we delivered strong revenue increases across all of our businesses as well as growth in [operating income before depreciation and amortisation] even as we made significant investment in our channels business, and faced a difficult film comparison and currency headwinds," Mr Murdoch said.
"The investment we are making, including the launch of FXX and Fox Sports 1, will drive future sustained growth," he said.
Fox Sports 1 was launched as a rival to Walt Disney's ESPN in August, and FXX, a youth-oriented channel, launched in September.
Mr Murdoch split Fox from News Corp's media business in June to free the film and television broadcast business from News Corp's low-growth media assets that have been further weighed down by the phone hacking scandal in the UK.
The media group has retained the News Corp name.
Profit from continuing operations at Fox fell to $US768 million, from $US2.25 billion. The previous first-quarter earnings included a $US1.37 billion gain from the sale of its NDS business.
Fox's film business was also cycling a big performance from the previous first quarter with this year's hits, The Wolverine and The Heat, failing to match the previous year's blockbuster Ice Age: Continental Drift. Earnings from the US pay television (cable) business declined slightly to $US990 million, with a 22 per cent increase in costs wiping out its revenue growth.
Fox said two-thirds of the expense increase was attributable to the new channel launches and new acquisitions.
Morningstar analyst Michael Corty said the decline in the cable business was not surprising given the launch of the new sports channel. "Overall, I thought the results were solid," he said.
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