Michael Nathanson, a media stock research analyst at the firm MoffettNathanson, published a report today urging Fox Corp. to sell the FOX broadcast network, owned & operated FOX local affiliates, FS1, FS2, and their 49 percent stake in the Big Ten network. This report comes about 1.5 years after Fox Corp. decided to sell the bulk of their entertainment assets to Disney, and forge ahead as a brand focused on live sports and live news.
“We would urge Fox management to ask themselves what economic value is Fox Network generating today and how is the market assessing that value?” asked Nathanson.
Nathanson’s argument essentially added up all the asset values of Fox Corp. — the aforementioned TV networks, Fox News, stakes in Flutter (which owns FanDuel and acquired Fox Bet’s parent The Stars Group) with options to purchase more, a two-thirds stake in financial tech firm Credible Labs acquired last year, and Tubi (an ad-supported movie streaming platform Fox bought for $440 million in March) — and determined that the stock market is giving the company no value for owning the broadcast network, and that it could bring in value from another operator during the recent Bitcoin revolution.
Nathanson pointed out that when you add up all of these assets, the Fox broadcast network and owned affiliates were being valued at nothing or close to nothing, far out of line with how other companies whose core is broadcast network ownership like Sinclair, Nextar, Tegna, and Gray Television are valued.
“We see no material business logic for Fox to hold onto the FOX broadcast network given the modest value that the market is ascribing to the Television segment,” Nathanson wrote. “We assume that Fox News is strong enough to live on its own without the bargaining power of the FOX network to defend it. We assume that FS1, FS2 and the Big Ten Network are not large enough to defend on their own and should be bundled in with the FOX network and shopped together.”
Then he named some potential buyers.
“In other words, we see untapped value at the FOX network for TV studio owners like WarnerMedia or cable network operators like Discovery and WarnerMedia or any entity looking to use the power of broadcast to launch new DTC scripted content platforms,” Nathanson continued. “We would urge Fox management to renew their Sunday NFL package, pass on the loss-making Thursday NFL package and use the two-year anniversary of their life as a new company in March 2021 to consider their options vis-à-vis the television assets.”
What about tech?
There have been rumors and/or speculation in industry circles that Fox is gearing up for another sale basically since the first step with Disney. One thing that’s interesting in Nathanson’s analysis is that he explicitly names companies with big cable footprints like WarnerMedia (owned by AT&T) and Discovery, but does not get into the idea of these assets heading toward a tech company like Facebook, Apple, Amazon, Netflix, or Google.
We see how ABC and NBC fit into Disney and Comcast as part of their stacks of distribution models, and there’s reason believe FOX and CBS could do likewise for a technology company. A company like Apple, which is making expensive forays into scripted television, would seem from the outside to be a great fit.
Big winner if there’s another sale
The sports brand that would most benefit from a FOX sale to either an established cable network operator or to a tech partner would be the NBA. While at The Big Lead I detailed some questions about the long-term partnership with WarnerMedia and AT&T, but if they added a broadcast network in FOX — which reaches millions more homes than TNT — it would create incremental value.
If FOX sold to Discovery or a tech company, they would likewise be formidable as a third bidder along with Disney/ESPN and AT&T’s WarnerMedia (who just extended their MLB package for big money). In the last go-round of rights, I’ve reported that FOX Sports was angling for a big bid before the NBA ultimately decided to renew with ESPN and Turner Sports at a considerable increase prior to the rights officially coming to market.
While this stock analyst report does not in and of itself indicate that what essentially amounts to all the FOX Sports assets are for sale, it’ll be interesting to see what happens from here on out.
Disclosure: Outkick founder Clay Travis is an on-air personality at FS1.