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21st Century Fox: Sports Programming Rights and Operating Margin

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Rising operating expenses

Twenty-First Century Fox’s (FOXA) (or Fox’s) operating margin in fiscal 1Q18 stood at 25.3% against 27.3% in the prior year’s quarter. The increase in operating expense is mainly driven by the rise in programming costs, which continues to hurt Fox’s OIBDA (operating income before depreciation and amortization) margin.

From the graph above, we can see Fox’s operating expenses in the last five quarters. During that period, it grew at a CAGR (compound annual growth rate) of 2.9%.

At the end of 1Q18, its operating costs were $4.4 billion, an 11.9% rise YoY (year-over-year), mainly attributable to higher programming rights amortization.

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Segmental OIBDA

The operating expense of domestic cable networks increased $100 million in 1Q18 compared with last year. It was driven by higher sports programming rights amortization for the Big Ten, Major League Baseball, CONCACAF[1. Confederation of North, Central American and Caribbean Association Football] Gold Cup, and the National Geographic Channels. OIBDA at the domestic level improved 11% YoY in 1Q18.

Similarly, operating costs for its international cable business grew $130 million in fiscal 1Q18 compared to 1Q17 due to higher sports and entertainment programming rights amortization at STAR and FNGI. OIBDA remained flat against the previous year’s period.

The company’s television’s segment reported $100 million growth in operating expenses in fiscal 1Q18 compared with the previous year’s period, mainly due to higher sports programming rights and production costs. Its OIBDA fell 36% YoY.

For Fox’s Filmed Entertainment segment, OIBDA declined 18% YoY due to a $100 million increase in operating costs. Increased production amortization and participation costs associated with TV productions and higher marketing expenses related to home entertainment and motion picture productions resulted in the increase in operating expenses.

Operating expenses for Viacom (VIAB) and Turner (TWX) in the same period increased 8.5% and 7.6% YoY, respectively, while programming and production expenses for NBC Universal (CMCSA) fell 27.8% YoY.

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