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How Could the Sale of Assets Could Benefit 21st Century Fox

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Expenses increased to over $5.7 billion

In fiscal 1Q18,[1. fiscal 1Q18 ended September 30, 2017] 21st Century Fox (FOX) (FOXA) incurred higher operating expenses than it did in fiscal 1Q17. The company’s operating expenses, including the cost of revenues, exceeded $5.7 billion in 1Q18, compared with less than $5.3 billion in fiscal 1Q17. Spending tied to sales and marketing also rose in 1Q18.

Fox is said to be in talks to sell a portion of its entertainment business, including its film and television production studio. Walt Disney (DIS), Comcast (CMCSA), and Verizon (VZ) have been reported as interested in acquiring the media and entertainment assets that Fox might want to divest.

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Opportunity to pare expenses

The sale of a large portion of the entertainment business could leave Fox a leaner company capable of executing faster to respond to the threat of cord-cutting. This action could also allow the company to drop some costs. Reducing costs could lead to improvement in profitability.

Traditional pay-TV companies have been rattled by the cost-cutting trend, as households are dropping conventional pay-TV packages in favor of video services delivered over the Internet or over-the-top (or OTT) video content.

In 3Q17, AT&T (T), Dish Network (DISH), Comcast, and Charter Communications (CHTR) shed 385,000, 129,000, 125,000, and 104,000 pay-TV subscribers, respectively. The losses were largely attributed to the cord-cutting wave.

Fundraising for debt repayment

A sale of assets could also help Fox to raise funds to repay its outstanding debt. The company was carrying total debt of $19.8 billion on its balance sheet at the end of fiscal 1Q18. It posted total debt of $19.9 billion at the end of fiscal 1Q17.

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