News Corp. threats to make Fox a cable network make a lot more sense in light of the company’s recent earnings report.
Compared with the year-earlier period, the media giant almost doubled retransmission revenue – money it collects from cable and satellite TV providers that include the Fox channel. That is precisely the chunk of money that will disappear if startups like Aereo are allowed to continue grabbing News Corp. shows on tiny antennae and digitally routing them to subscribers on computers and smartphones – an anachronistic end-run around News Corp. toll takers.
Fox won the right to collect retransmission fees in 2010. The conglomerate does not reveal exactly how much it makes from the charges, but business appears to be good. Along with advertising, the payments comprise TV revenue at News Corp., a line item that stood at $1.2 billion last quarter, a 15 percent increase from the year-earlier.
A 2011 study by SNL Kagan pegged Fox’s retransmission revenue at almost $300 million a year.
Keep in mind, that this is a business that doesn’t cost the company an extra dime, assuming it will broadcast Fox whether cable companies pick it up or not. The company’s TV business is operating at a plump 16 percent margin.
It’s no surprise then that News Corp. Chief Operating Officer Chase Carey has threatened to yank Fox from the rabbit ears spectrum and make it strictly a cable network.
“We need to be able to be fairly compensated for our content,” Carey told executives in Los Angeles last month. “This is not an ideal path we look to pursue, but we can’t sit idly by and let an entity steal our signal. We will move to a subscription model if that’s our only recourse.”
And the longer Aereo skims the signals of broadcast networks like Fox, the more cable and satellite providers are likely to push for lower retransmission fees.
Meanwhile, Carey’s tough talk doesn’t seem to have ruffled the market at all. A U.S. appeals court recently rejected broadcasters’ pleas to pull the plug on Barry Diller’s Aereo. And Diller was on CNBC this morning, affirming that his bold enterprise has no plans to start cutting checks to the Murdoch empire, unless the law changes.
News Corp. did not immediately return calls or e-mails this morning.
* Bloomberg LP, which owns Bloomberg Businessweek , is an Aereo partner and offers its cable channel as part of its news service.
