Fox to get Sky Italia on track by cutting programming costs

Chase Carey

21st Century Fox should be on track to achieve its goals for troubled Italian direct-to-home operator Sky Italia by 2016 by taking costs out of the business as key programming deals expire, according to president and chief operating officer Chase Carey.

21st Century Fox’s first full results saw a sharp fall in operating income from its satellite division, driven by lower contributions from Sky Italia that were partially compensated by the company’s consolidation of Sky Deutschland.

For the full year, direct-to-home operating income before depreciation and amortisation fell to US397 million compared with US$561 million (€422 million) mostly as a result of lower contributions from Sky Italia. The latter saw programming costs increase, including approximately US$150 million of rights costs associated with the Olympics and expanded UEFA Champions League, Europa League and Formula One coverage.

Speaking on a conference call on the results, Carey said he expected the coming year to be one of “exciting growth” for Sky Deutschland while in Italy the company will implement plans to reduce its costs.

“In Italy, with Sky Italia, the strategy continues to be maintaining market leadership a competitive strength while restructuring cost for the reality of today’s Italian economy,” said Carey. “We have a number of key content agreements expiring in the next 12 to 24 months that will enable us to achieve our goal of taking $200 million plus out of the annual cost of this business. Profit in 2014 will also not be up much on 2013, because these agreements only begin to expire this year, but we’ll make real headway in 2015 while getting to our goal in 2016. This plan will enable us to have a very profitable and strong Sky Italia even in the current economic circumstances that can grow the top line more aggressively when the economy warrants.”

Carey said that the new company’s priorities for the coming year would include building its US sports and entertainment networks and Asian sports networks with plans to invest US$200 million next year and more in 2015.

He said the new networks should become profitable by 2016.

21st Century Fox will also invest US$150 million in Fox this year, which Carey described as “an offensive not defensive strategy for this dual revenue business”.

The company posted overall full year revenues of US$27.68 billion, up 10%, with three quarters of the growth attributed to cable network programming, filmed entertainment and television, and the remainder to the inclusion of Sky Deutshchland. OIBDA was US$6.26 billion, up 9%.