Exclusive Interview: Hernan Lopez Talks FIC at 20

PREMIUM: Hernan Lopez, the president and CEO of FOX International Channels (FIC), which is celebrating its 20th anniversary, discusses the expansion and success he has witnessed over the years and expresses confidence that there is much more growth to come.

WS: FIC is celebrating its 20th anniversary this year.
LOPEZ: August of this year marked the anniversary of when a team led by Elie Wahba launched the FOX channel in Brazil in what would be the first foray of the FOX television brand outside the U.S., but definitely not the last.

WS: If we go back in time, what was FIC’s original mission? What did it want to offer viewers that other channels weren’t offering?
LOPEZ: I joined the company in 1997 so I have been here for most of FIC’s history. We always wanted to offer groundbreaking shows and choice that viewers didn’t expect and don’t expect to get from broadcast television. And that is still true today and even though the competitive environment has shifted a lot, we still like to put in front of our viewers shows like The Walking Dead and The Bridge—which premiered in July as the widest global release that we know of, going to 124 countries—and doing it in a way that viewers and consumers can relate to and feel they have a connection with.

WS: This must also offer advertisers something special, too.
LOPEZ: Absolutely, the effect is that we are the ones to offer advertisers viewers that are harder to get on broadcast television and also in an environment that is different from what they can find on other television channels.

WS: There are four segments of FIC’s offering: entertainment, factual, lifestyle and sports. Looking first at entertainment how have you expanded and developed this genre?
LOPEZ: Entertainment is how we got started with FOX as a brand for young adult viewers with an appreciation for American drama and comedy. Remember that when we had just started, we were only airing shows from the U.S. Over time we have expanded that portfolio to include brands like FX and FOXCrime on basic cable, and we have also expanded into the premium services with Movie City in Latin America and FOX Movies Premium in Asia. In addition, in Asia a few years back, we added the STAR portfolio of brands. This is of course outside India. The company’s main channels in India are managed separately from FIC. STAR is a very strong brand throughout Asia. It originated there and it is a brand that resonates with our viewers in a very strong way in every country in which we operate.

WS: And what about factual programming?
LOPEZ: National Geographic Channel was launched internationally even before it did in the U.S. It launched in 1997 and expanded throughout the world. FIC is actually the combination of the FOX channels that existed in 2001, which we then merged with National Geographic Channels International. What started as a very valuable property, and back then the only alternative to Discovery Channel in the documentary genre, has evolved into a true factual entertainment powerhouse that is universally known by platforms as one of the reasons why consumers subscribe to pay television. Last year, we asked Millward Brown Optimor, a research firm that is famous for doing studies on the financial value of brands, to measure the value of ours. After they conducted the study, they told us they had been skeptical about how much value they would find because they went in thinking that consumers were looking for shows, when in fact they found that FOX and National Geographic, among the whole universe of brands, are two of the biggest brands in the media space for pay television in all the countries where they did the survey.

WS: With so much factual programming available, what are the National Geographic Channels doing to differentiate themselves and what kind of shows have come to define the brand today?
LOPEZ: The core of the National Geographic Society brand promise continues to be exploration. This year marks the 125^th anniversary of the Society and the channels are celebrating a new age of exploration with shows that have a real appeal to younger and broader audiences.

One example is Brain Games, hosted by Jason Silva. The goal of the show is to communicate that you already own the most powerful game machine in the world, and that is your brain. We want to help you switch it on. Jason Silva guides viewers through the tricks that your brain plays on you. Just to give you an example, there is one episode about how our memory can be easily manipulated by other people who claim to have a better recollection of events. There are re-enactments of what would happen if we had been on a jury where people, who were not even at a scene, claim, without a doubt, what happened in that scene. Then everybody starts remembering the events exactly as these people described them, even if they didn’t happen that way. Brain Games is one of our most successful recent shows.

Another mini-series we are really excited about is Cosmos: A Spacetime Odyssey, which will launch in the spring. You may be familiar with the original show, Carl Sagan’s Cosmos. Now National Geographic Channel and FOX are bringing it back to life with Seth Macfarlane as executive producer and a large degree of CGI and in a much more entertaining way. It will premiere in the U.S., where it will launch on FOX and National Geographic Channel. Around the world, it will be a National Geographic Channels International premiere.

WS: I was surprised to learn what a huge fan of Carl Sagan Seth Macfarlane has been for such a long time.
LOPEZ: He has and, in fact, there is one specific episode of Family Guy where he talks about Cosmos.

WS: What have been the advantages of moving NGCI’s content sales division to London?
LOPEZ: About three years ago we bought the commercial arm of the National Geographic Society that was doing syndication. We had our own syndication operation, so we bought their business, combined it with ours, and put the merged group in London. We did it because we realized that more of our clients are in Europe than in any other region, but we are working closely with our general managers throughout the world. As you know, we have a strong network of local offices in order to maximize the sale of our content, not only in factual but in all of our genres in each of the countries.

WS: Has FIC had a particular strategy for targeting female viewers in various territories?
LOPEZ: We have. From a content perspective, our Lifestyle group is probably the one difference between FIC and the FOX networks in the U.S. We have grown the lifestyle group on the backs of brands like FOXLife, our core brand, in order to target female viewers because we realized that FOX, of course, targets a broad audience; FX has a slight male skew, unintended but it does; Nat Geo also has a slight male skew and FOX Sports obviously has a male skew. In order to round out our portfolio, we wanted to have a brand that resonates with female viewers. We are still developing that group. We believe lifestyle is a huge growth opportunity for us and there will be more news coming out of this group in the next few months.

WS: FIC’s approach to sports channels has been different from other major media groups.
LOPEZ: In the Netherlands, we became the majority owner of a company that was set up by 18 first-division teams themselves called Eredivisie Media & Marketing. They had started their own channels, Eredivisie Live, to air all their local football games on premium and also exploit for resale their highlights domestically and all rights internationally. We have re-branded some of those channels as FOX Sports Eredivisie and two additional FOX Sports channels and a FOX general-entertainment channel are on the basic tier in the Netherlands.

Around the world, we are known for having long-term partnerships and seeking long-term partnerships with the leagues. It’s not everywhere that we can do an equity deal like we did in the Netherlands, but there are places like Latin America, for instance, where we have had long-standing relationship with CONMEBOL, the South American Football Confederation, and we are now starting a relationship with CONCACAF, the Confederation of North, Central American and Caribbean Association Football, and we are always looking to be great partners to our partners.

WS: Sports rights can escalate to crazy levels, right? Is that one of the major expenditures for a sports channel?
LOPEZ: It is the major expenditure for sports channels and for channel groups here that have any presence in sports. They are expensive because platforms recognize the value and in turn, we get paid by the platforms.

WS: Original productions have been very important to your channels. At what point in the development of a channel do your teams make the determination that a channel is ready to invest in original programming?
LOPEZ: Never soon enough in my view! Every local manager needs to feel comfortable that whatever they produce has to be of a quality that can sit comfortably next to The Walking Dead or Glee or Bones. So viewers can watch our channels and see a level of quality in the production and in the writing that is worthy of the FOX brand. That’s the biggest determining factor. It’s not only about coming up with the budgets to produce the original shows, that’s part of it; it’s also about coming up with a creative team or production team that can execute a high-quality show.

WS: Many major production companies consider FIC to be a reliable international co-production partner. How did this come about? Will FIC continue to participate in co-productions?
LOPEZ: Yes. Over the last six years we have been dipping our toes into original productions at the local level and at the global level and now we are going to redouble our efforts and be the lead producers ourselves. This comes from the realization that we are branded content owners, as we now call ourselves. We are essentially a group that operates branded destinations. They were called channels before, now we refer to them as branded destinations. And for many years we were an aggregator of content on the entertainment side but we had been a producer and owner of content on the factual side. We saw the dynamics of both businesses. We saw how much better we could plan and how much more control we had of our product when we actually produced and commissioned it on the factual side, than when we simply acquired product on the entertainment side. So we decided to do in entertainment what we have been doing in factual for many years.

The big success story that everybody knows is The Walking Dead, which was developed at AMC by Frank Darabont and based on Robert Kirkman's bestselling comic book by the same name. Of course, we had a very strong part in it, but it was a product originated by them. It came to us after the script was already written. We are now into buying IP and developing original scripted projects in house. One of the first properties we are excited about is also by Robert Kirkman, the creator of The Walking Dead franchise. It is called Outcast, and we are developing it with Robert and Circle of Confusion. I don’t want to give too much away although we have announced it already and it is something that we developed internally and we are looking at producing ourselves.

WS: Big events must have huge value to cable and satellite platforms. Are they looking for programming like The Walking Dead or Cosmos?
LOPEZ: Absolutely, because everyone wants those brand-defining events. All those platforms are looking for highlights to advertise on their programming guides—those four or five programs each month they can point to subscribers and say, you cannot miss this and this is something that you can only get on pay television. Those are the kind of programming events we want to bring to them, including Cosmos, The Walking Dead and The Bridge.

WS: Although economies are quite sluggish in some regions, are you seeing pay TV remaining strong?
LOPEZ: Yes, it is fairly strong throughout the world. We are working on a presentation for investors in a month and that is exactly what I am looking at right now and the outlook is very strong throughout the world. There are a few countries where growth isn’t as strong but   those are the exceptions.

WS: I’ve heard that even in Spain the pay-TV market is holding up better than expected.
LOPEZ: Given the depth of the recession, absolutely, and even in Greece the pay-TV market is actually increasing.

WS: MundoFOX has also celebrated a birthday. August marked its first year on the air. What have been the accomplishments in the first year and how has the channel been received so far by viewers and by advertisers?
LOPEZ: We have managed to establish ourselves in a very competitive marketplace as one of the brands that consumers know about and try. On several nights MundoFOX is competitive. There are five other broadly distributed broadcast networks in the U.S. Hispanic market and to be frank we are way behind the leaders but we are really happy with what we have done in a short period of time. The channel is establishing itself with viewers particularly well in Miami and in New York and it is growing in audience in a number of other places.

WS: And where do you see potential for growth for MundoFOX?
LOPEZ: We still need to increase our distribution. Today, we’re still at less than 50 percent distribution of the total U.S. households and there is definitely the potential for significant increase in the next year. As we increase distribution we will also redouble our marketing efforts and original production. At our Upfront presentation in May, I think people in the marketplace were surprised that we announced 20 new and returning series for MundoFOX for this broadcast season. It essentially shows that we have a strong commitment to bringing programming to the Latino viewers in the U.S. market that otherwise wouldn’t have been available and we are getting good response for it.

WS: Not to diminish the importance of telenovelas, but it is fair to say that among young Hispanic viewers there is an appetite for other genres of programming?
LOPEZ: Absolutely, there is and we are airing telenovelas but we made a decision—and I know it was a risky one—but we made a decision not to air telenovelas in prime time. We have TV series, mini-series and game shows only in prime time. Again, we like telenovelas, but we think viewers have enough good novelas in prime time, so we really wanted to give them a choice.

WS: Tell us about Fox One Stop Media. How is it serving advertising customers?
LOPEZ: For almost ten years, Fox One Stop Media has been the brand that we use to aggregate audiences between mostly our own channels, but in some cases, in Latin America and in Spain, we also service third-party channels. We want to bring advertisers audiences that they couldn’t otherwise get and also environments and applications that they don’t generally get as easily from other suppliers. We’ve done a lot of work on product integration with our creative services department. In Latin America alone there are 50 people working in creative services to help integrate advertisers into our brands in ways beyond the 30-second spot.

WS: Some time ago you said FIC would reach $1 billion in operating profits by mid-2015. Even with sluggish economies in several regions of the world, are you still on track to reach that goal?
LOPEZ: Yes, we are. We set that goal long ago and even after the sluggish economies and the devaluation of several currencies, both in the last year and recently, we will still exceed the $1 billion operating profit target.

WS: As you look out 12 to 18 months, what growth areas do you see for the portfolio as a whole?
LOPEZ: Each one of the four segments has growth in it. From the channels that we operate we are still growing in ratings. In fact in the last fiscal year, for the FOX Sports channels, out of the 20 countries where we measure ratings, 17 grew their ratings year on year. And that ratings growth still has not translated in advertising revenue growth or ancillary revenue because we have to wait for the expiration of the deals.

Separately, a lot of our attention today is on expanding the sports portfolio. It’s the one that has upside for itself, but it can also drive upside for the whole bundle of channels through affiliate negotiations