Special Report: Fox Networks Group at 25

PREMIUM: As the FOX brand marks its 25th year in the global pay-TV landscape, World Screen looks at how the service has evolved.

For Rupert Murdoch, 1993 was a particularly significant year with regard to his global ambitions. The media mogul shelled out more than $500 million to gain a foothold in Asia, buying a stake in the pan-regional broadcaster Star TV; and exported what had been purely a domestic brand with the launch of FOX in Latin America.

Murdoch eventually took full ownership of Star TV, while building the FOX brand remained a priority. Today, the Fox Networks Group (FNG) portfolio encompasses the entertainment channel as well as a raft of other services across multiple genres, languages and platforms. A crown jewel in the 21st Century Fox portfolio—said to be one of the critical areas of interest for Disney in its proposed acquisition of the conglomerate—the FNG business has gone through numerous changes over the years. Perhaps the most consequential was the management reorganization that bundled U.S. and global channels under one division—FNG—and decentralized to three regional hubs: Latin America, Asia and Europe.

“By regionalizing it so that the managers in key regions have more independence, more authority and more responsibility, we’ve been able to break down silos and have more touchpoints on a global basis,” Peter Rice, the chairman and CEO of FNG and president of 21st Century Fox, told World Screen last year. “The regions have become more entrepreneurial, which has allowed us to grow our FOX+ streaming service, which is slightly different in Latin America, Europe and Asia. At the same time, the regions are also working more closely with those of us in Los Angeles and New York. The combination of having more independence while also being closer to the parent company has been very effective.”

Indeed, this structure has allowed FNG to drive growth in all of its international operations, under leaders who are intimately familiar with the particulars of each market.

BACK TO THE BEGINNING
The portfolio’s local approach was a major draw for Carlos Martinez when he left Discovery to join Fox’s still nascent channels business in Latin America some 18 years ago.

“The most important thing about our Latin American business is that we built it as entrepreneurs,” says Martinez, who today sits at the helm of FNG Latin America as president. “We were fueled by our company to expand our channels into every territory pretty quickly. I saw myself as an entrepreneur, investing Fox’s money to build the business.”

It wasn’t always easy, Martinez says, noting that when he joined the company, he had four channels—and a few months later that went down to two, after Fox Kids Worldwide was sold to Disney, and Fox Sports was merged into a venture with Hicks, Muse, Tate & Furst and Liberty Media. “We had FOX and a new Nat Geo channel, and that was it! We started building our business from there.”

Martinez says he and his team kept an eye on emerging opportunities, expanding the bouquet in 2005 with FX and in 2006 with FOX Life. “The cable world was growing and capturing more of the people that used to only watch free television. That year, the penetration in Latin America was 25 percent, so we took every opportunity to grow.”

The other factor that contributed to FNG’s growth in the region was moving into “different lines of business with our affiliates,” Martinez says. “Having four channels on basic—FOX, Nat Geo, FX and FOX Life—we then took control of the venture we had with LAPTV, a joint venture between Fox and another four studios that was a competitor to HBO in the premium segment. Our goal was to reach the high ARPU subscribers in Latin America as the cable world was expanding and move the content across basic and premium, creating different windows so we could leverage all the programming we had from our own studio and the other ones we partnered with. It was our venture into the premium business that gave us a big difference versus the rest of our competitors, a big advantage for improving our position in the market quickly.”

Perhaps the most critical strategy, Martinez notes, was being “more local. We are expanding our business with more offices than anyone else. In Latin America, we were the first to open local operations in Bogotá, Colombia, and Santiago, Chile. We are the only ones with offices in Lima, Peru, and Quito, Ecuador. We have offices in Guatemala and Montevideo, Uruguay, as well. That gives us a big advantage because in those countries, FOX is the reference in pay TV. We think locally, and the local talent breathes the spirit of the country into our brands. My former boss, before I joined Fox, told me once: ‘All the power is going to be in the region.’ That is exactly what we needed to do.”

Just as the Latin American business went through some growing pains, so did the Asian operation. In 2009, the pan-regional operator Star TV was effectively dismantled and combined with the Fox channels business in Asia. (Star India is run as a separate division of 21st Century Fox, and the China segment has since been offloaded.)

The move, the company said at the time, was intended “to create a streamlined structure, resulting in a more efficient cost base for the operation of regional channel distribution in the consolidated business. It also provides a platform to expand its high-definition portfolio in Asia from the current four brands to eight or more next year.”

Growth certainly did occur, at a rapid clip, with expansion into multiple genres and languages to create a portfolio that today includes global brands as well as local ones, like Star Chinese Channel and Star Chinese Movies.

IN THE GAME
Growth has also come with the introduction of FOX Sports internationally. “We knew we needed to have sports to be relevant,” says Martinez, noting that Fox took back control of its Latin American sports operation in 2012. “An Argentine company controlled it and it was very local, so since then we have put all of our efforts into expanding our sports portfolio at a local level in each territory. We launched FOX Sports in Brazil, Chile, Colombia and Mexico, where we increased local content from 200 to 1,200 hours [a year].”

Similarly, in Asia, FNG bought ESPN’s share in the ESPN Star Sports venture to enable the launch of FOX Sports Asia in 2013. On how the business has been faring, Zubin Gandevia, the president of the Asia Pacific and the Middle East for FNG, says, “Excellent. We have formed a good complementary partnership with our platforms, who tend to have the pre­mium EPL soccer, and then we have pretty much everything in every other sport. So we have the best of motor racing because we have Formula 1 and GP, the best of tennis because we have all the grand slams, the best of golf because we have all the grand slams, the best of fight sports because we have UFC. Together [with our affiliates], we can give the consumer a really good sports experience that otherwise would have been very fragmented over lots of destinations.”

ORIGINAL SPIN
Local sports rights have been the primary drivers for FOX Sports internationally. Equally necessary was a move into original production, both on a global level and regionally. FNG did a co-production deal with AMC to land the international rights to The Walking Dead, which has been a significant hit for the channel. FNG subsequently did a deal with Robert Kirkman, the creator of the zombie drama, for its first international commission, Outcast. However, much more activity can be seen within the regions, led by Latin America.

The move into originals was kickstarted by the acquisition of Utilísima, an Argentina-based channel that has since been rebranded as FOX Life. The move, Martinez says, taught his team about how to “produce at Latin American rates. Then we acquired FoxTelecolombia in Colombia, a very clever company, small but with a lot of potential, which allowed us to expand and export content out of Colombia; to produce not only for Colombia but also for the U.S., Mexico, Argentina, Chile and pay TV across the region.”

The FoxTelecolombia deal was useful as FNG began creating original scripted fare. “We started to develop scripted themes internally—writing and producing exclusively for ourselves. We did this because at that point, we didn’t find, at a Latin American level, a producer who could understand the amount of money we had to invest. Cable was expanding, but we had a lot of content from our studio [Twentieth Century Fox]. It’s difficult to justify investing in regional productions when you have a very big pipeline from your home studio. The strategy was to look at the slate we were receiving from the U.S., identifying the genres or the kinds of programming that we were lacking, and producing it as a complement to our international slate. We started from that point and we learned over time. We started mixing talent from Mexico, Argentina, Brazil and Colombia in one single show. That worked at the beginning, but then the audience became more interested in local content. Now, ten years later, we are producing shows specifically for some countries.”

For example, for Argentina, there’s a new talent show with Diego Torres and Lali Espósito, hosted by Alejandro Fantino. In Mexico, Gael García Bernal is exec producing and starring in Aquí en la Tierra (Here on Earth), a drama about politics and corruption.

“It’s not easy, as we need to be efficient and justify producing high-value content,” Martinez says. “It should be seamless; FOX, FOX Premium and FX viewers compare our productions with the international ones. They cannot watch The Simpsons or The Gifted and then a Latin American production at lower quality values. We bring high-quality production but again, it is not easy, it takes time and experience. These are bets that we are making. It’s not about recouping the investment—it’s more motivated by creating great brand awareness and making our brands more and more local. That’s our strategy.”

Asia and Europe are at different stages in their local scripted strategies. This April, FOX will roll out Deep State, its first commission out of the Europe and Africa business. “The strategy was born out of a desire to ensure that our brands had stories that resonated with our regional audiences, complementing our global and local output, while also creating owned content we can distribute globally,” says Jan Koeppen, the president of FNG Europe and Africa. “FOX is synonymous with high-quality productions, and Europe and the U.K. are really at the epicenter of creative excellence for our industry. Deep State, our first regional scripted commission, has allowed us to create a relevant and contemporary espionage thriller in line with our Fox Hollywood heritage that has the potential to entertain audiences across the world.”

In Asia, meanwhile, Chinese-language dramas have been a priority. “This year we will launch our first big premium TV series, Trading Floor,” Gandevia says. “It’s being made by [actor and singer] Andy Lau, it’s a very high-quality show. The idea is, how do you take the best of Hollywood practices and marry them with the great entrepreneurship and creativity that is in China and the Chinese diaspora? That’s what we are doing. Trading Floor is a great show, and we’re hoping it takes us to the next level. We have almost ten shows that we are making or participating in currently. We tend to get global rights so they come on our own platforms all over the world and on third-party partner platforms where it makes sense.”

Pan-regionally, FNG has also been investing in English-language original series like Asia’s Next Top Model and Bolt of Talent. Replete with on-the-ground sponsorship and product-placement opportunities, those are the kinds of shows that advertisers love.

SELLING TIME
Reporting its Q2 2018 results, 21st Century Fox said it saw double-digit increases in international ad revenues. Naturally, some markets have been stronger than others.

“While linear advertising becomes more challenging as audiences migrate, we are continuing to grow in linear,” Koeppen says. “We are also having continued success with branded-content solutions, which particularly suit the authentic and integrated experience we offer across our entertainment, factual and sports businesses. For example, take National Geographic, which is one of the most trusted consumer brands and is its own extensive media portfolio; we recently collaborated with Subaru to launch one of their new models utilizing one of our highly sought after National Geographic photographers and an integrated campaign across TV, digital, social media and print with branded merchandise and magazines in Subaru dealerships. Partnerships like this really resonate with consumers who are looking for advertising with purpose, as National Geographic Partners reinvests over a quarter of its proceeds to the non-profit National Geographic Society to fund exploration, conservation, research and science.”

“It’s cyclical,” says Martinez on business in Latin America at present. “In the past two years, we’ve faced a significant slowdown in pan-regional advertising. Most of the pan-regional deals are in U.S. dollars. Pan-regional buys give you volume, and volume means a better investment, so you can get your spot in all of Latin America at once. But then advertisers saw more benefit in using local currencies, so rather than paying in U.S. dollars with the volume discounts, they were heavily moving to the territories. If you reduce your investment pan-regionally, you start having an increase in the investments locally. But now, in the next two years, 2018 and 2019, as the currencies are more stable, I think some of the advertisers are going to move back to taking advantage of volume pan-regional deals, which they need to pay for in U.S. dollars.”

Gandevia says it’s been a “pretty good year” in Asia. “Our pan-regional ad sales are up almost 25 percent year-on-year. That’s not because of the market. That’s because we can offer up a multiplatform product to advertisers.”

OVER THE TOP
As an example of that kind of offering, Gandevia cites a deal between FOX Sports and AccorHotels. “The TV commercial has won some awards. It has Serena Williams and our own presenters. It’s a completely integrated spot. It doesn’t feel like a commercial. It just feels like a great spot you’d want to watch. The ability to integrate, to be brand-led and creativity-led, is giving us an edge that perhaps other players who are much more data-led might not have. Also, we created a digital tier for some of our products, and that has helped us extend the experience in a new world and drive more revenue. And then, of course, the whole National Geographic piece is very, very important. Whether that’s the licensing business, travel, consumer products or location-based entertainment, there’s a whole lot on the National Geographic side that we are now able to leverage. They are stand-alone businesses, but we’re also able to marry them to our media business experience and bring it all together in a very true 360-degree [proposition].”

The FNG channels are also making sure they have a multiplatform offering for viewers. Martinez notes that FOX skews heavily towards millennials in the region. “That’s a big challenge for us because millennials are the first ones to move to other methods of consumption.”

Four years ago, to get ahead of market changes, Martinez and his team launched FOX Play, an authenticated app. FNG’s OTT strategy has evolved, with the renamed FOX app positioned as “an extension of our current linear business that keeps on growing and adapting to the way people want to get the content,” Martinez explains. “We just launched new packages in Mexico as part of the FOX app service that has all our channels, linear and nonlinear, direct to the consumer. It will be available soon in Brazil. It has the 18 channels we have [in Mexico]—11 basic and 7 premium—linear with start-over functionality (soon we will have cloud DVR) plus all the content from those channels on SVOD. For all the premiere series we have, airing day and date with the U.S.—which is the most important part to avoid piracy—episodes are stacked for 30 days. For all the old seasons we have the box sets on SVOD. Plus, of course, all the movies we have on the premium services. The main benefit here is that we have sports. That’s something that no one else has. If you want to enjoy sports, plus all the content we have with movies and series, the FOX app is the best option and it costs less than US$10.”

FOX+ and National Geographic+ have rolled out into 15 markets in the Europe and Africa footprint, “with more launches planned for the rest of the year,” Koeppen reports. “While we have always known that our content performs well in both the linear and nonlinear spaces, the results we are seeing from FOX+ and National Geographic+ are very much surpassing our expectations.”

Gandevia refers to FOX+ in Asia as the company’s “killer app to make the most of the opportunities in the streaming world. We have a truly unique product. It has advantages that nobody else has, primarily because we have a strong linear business. In this industry, the windowing mechanism is such that typically, things come on linear first, then on SVOD. Because we have all of the best products from all of the studios—not just from Fox—we have been able to negotiate deals where we can air the shows from the U.S. on FOX+ on the same day as the U.S. Anyone else who wants that product will have to wait a full year to get it. That’s a significant advantage. We also have sports on FOX+. We have the back seasons of all the shows we air. And we have movies that will air for the first time outside of the theatrical window on FOX+.”

Offered to traditional pay-TV operators and as a stand-alone platform, FOX+ “allows us to take a step into the digital future of understanding our consumers more directly and more intimately, and therefore creating a better product,” Gandevia says.

The data angle is a crucial one, Rice told World Screen last year. “There’s a huge opportunity in marrying data to video delivery for advertising. The video product we have and the ability to deliver messages on behalf of advertisers is significantly more effective than Facebook or Google. What we lack right now is data, but if we work together with distributors to take better advantage of data, we can make the OTT and nonlinear ad experience better for everybody: better for consumers because they won’t have to sit through 20 minutes of commercial interruptions every hour. Better for advertisers because we can be more efficient in delivering people who are actually interested in their product. And more efficient for us because we can use less inventory to make more money.”

Rice is bullish about the prospects for the FNG brands because they are distinctive and well defined in a cluttered environment. “In a world of more choice, having fewer, stronger brands is the right way to go,” he said. “As new distributors come into the marketplace, our brands are in every package. Whether they are telcos such as AT&T buying DIRECTV and then going over the top, or Optus in Australia launching a really good over-the-top service with National Geographic, or whether it’s Hulu or YouTube launching live-TV services, these new distributors need the best content, which increases competition for brands like ours that are truly meaningful to consumers. I believe we are very well positioned in a marketplace that is under­going a lot of change.”

MUST-HAVE BRANDS
Zandevia answers the question on the importance of brands like this: “We see content and brands as being two sides of the same coin. If content is king, brands are the castle within which that king lives. To give you a great example, if you were to see a National Geographic video on any destination, without the brand, you might pass it off as one more documentary—unless you start watching it, in which case you’d be awestruck by the amazing quality. But in all likelihood, you wouldn’t even try it because it’s just another photo for another documentary. The moment you put the National Geographic logo on it, it’s the National Geographic stamp of approval and authenticity and credibility. It gives you so much consumer promise that you elevate it in your mind and give it a premium. And then you watch it. When you watch it, it lives up to its promise. So it completes a virtuous circle. That is why brands and content feed off each other. That is so critical.”

The FNG business, by virtue of its global scale, is also able to mitigate fluctuations in individual markets in its footprint. “If Argentina is in a bad situation, Mexico or Brazil could be improving,” Martinez notes. “Growth is key, and there are also opportunities during a crisis. When the advertisers’ budgets are smaller, they tend to target their investments more. When they target their investments, they choose pay TV over free TV. So that’s a great opportunity for us.”

Martinez cautions that challenges exist. The days of double-digit growth in Latin America are over, he notes, and traditional pay-TV operators “need to adapt. The distribution model needs to change. In Brazil, they are losing subscribers and the same thing happened in Mexico. Consumption is going in a different way. That’s why we need to follow it. Our focus is completely on expanding our brand and our content to our FOX app for all the cord-nevers. We need to [lead] that market, while at the same time keeping and protecting our current business. That’s the challenge.”

Gandevia expresses a similar perspective on his priorities for the year ahead. “The overall theme is, continue business as usual and keep innovating because we have to continue to move forward and march ahead. The world is moving very quickly and we want to continue to be at the forefront of that progress.”