Why Logan Roy Thinks Fox Should Sell to Elon Musk

Over the next two posts, I’m going to see what insights I can glean from doing a deep dive into the key performance indicators (KPIs) of the Top 3 FAST Services. I will be using as much publicly available data as I can find. To spice up these wonky data stories, I also make strategic decisions for each company, and fictitious media mogul Logan Roy scrutinizes my hot takes with his patented tough love. Let’s get to it!

Table of Contents

• Methodology

• What’s at Stake

• #3 FAST Service

Methodology

I looked at the earnings reports of the parent companies that own the FAST services to mine most of the data. I focused on the following KPIs to provide a holistic view of the health of each business.

• Monthly Active Users (MAUs) - The number of users who accessed the service at least once in the past 30 days.

• Time Spent - The FAST Service’s share of U.S. users watching content on the service relative to the overall time spent watching TV.

• Average Revenue Per User (ARPU) - Calculated by dividing revenue by the number of users over the time period you want to measure, such as a week, month, or year.

• Revenue - I’m only looking at advertising revenue, so in the case of Roku and Samsung for example, I exclude revenue from selling hardware devices.

• COGs - Cost of Goods Sold. FAST Service COGs are comprised of three main areas: content, technology, and operational costs. The goal is obviously to have the lowest COGs and highest revenue.

• Profitability - The most important metric. Is the FAST service profitable or losing money? This is calculated by subtracting COGs from revenue.

What’s at Stake

Streaming owns the largest share of time spent watching TV, surpassing cable and linear for the first time in July 2022, and hasn’t looked back.

TV ad spend in the U.S. is forecasted to shrink -8% YoY while CTV will grow +21% in 2023. Before the decade is over, CTV is likely to surpass TV as the dominant advertising medium.

As I mentioned last week when writing about why EPGs are the unsung hero of FAST, the growth projections around FAST revenue are inconsistent across media outlets. TVREV’s Alan Wolk highlights the most bullish case. They predict FAST will become larger than both linear and cable combined by 2026.

Even if these projections prove to be too aggressive, the fact remains that FAST is on an accelerated growth path, while linear and cable are in irreversible decline. TV and CTV combined ad spend (including FAST) is predicted to grow to nearly $100 billion dollars by 2027, so there’s a lot of money at stake, and we are just in the early innings of FAST disrupting TV.

#3 FAST Service: Tubi

Fox Corporation bought Tubi in 2020 for $440 Million. In their last earnings call, Fox CEO Lachlan Murdoch said Tubi’s revenue rose +47% YoY and its total streaming hours make it the equivalent of a top 5 cable network. The key data to dive into then, is whether or not, Tubi being the size of a top 5 cable network is even impressive anymore. Let’s dig in.

• MAUs: 62 Million (Rank: #3)

• Time Spent: 1.4% (Rank: #1)

• ARPU: $11.29 (Rank: #3)

• Revenue: $700 Million (Rank: #3)

• *COGs: $6.70 Billion (Rank #3)

• Profitability: -$6 Billion

Key Takeaways

Fox lumps Tubi into its Television business unit, which includes FOX broadcast network, 29 broadcast TV stations, and Tubi. Tubi is an ant compared to the larger Fox Television units including Fox News.

The Television business reported $8.71 Billion in revenue with a healthy $1.01 Billion in profit. But this is exactly why I lumped all the Television Unit COGs together. At some point, streaming will need to make up for the irreversible declines in TV advertising. Fox’s ad revenue declined -4% YoY which continues a trend of 4 straight years of ad revenue decline from 2018-2021. There was a YoY growth outlier in 2022, but that was due to the mid-term elections and weak COVID lockdown comparisons.

Furthermore, more than half of Fox’s revenue last quarter ($744 Million) came from affiliate fees. What’s wrong with that? Well, the fact that affiliate fees don’t exist in streaming. The TV industry is going to lose tens of billions of dollars when affiliate and retransmission fees go away, which is a matter of time.

The bold move I think Logan Roy would make in this situation is to sell Fox ahead of the 2024 Presidential campaign. What better time to drum up interest in the #1 rated News Network than when the most money ever is going to be spent during a political cycle? And who better to pull off such an audacious deal than the Chairman of Fox Rupert Murdoch, on whom Roy is undoubtedly based? In fact, Murdoch has a track record of selling at the highs. He architected the sale of 21st Century Fox to Disney for $71.3 Billion. A deal that is now being universally derided as costing Disney too much.

Time for my hypothetical buyer. Someone who has the money, audacity, and a track record of buying overpriced media assets. It’s almost too easy…

Elon Musk. The richest man in the world, who has already purchased Twitter (X), can reunite Tucker Carlson with Fox News and cement X as an undisputed news juggernaut. The drama around the merger alone would break the Internet. Not to mention all of this taking place just ahead of the most lucrative and likely crazy election cycle ever. Fox would be a relative steal for Elon at its current $17 Billion market cap vs. the $44 Billion he shelled out for Twitter last year. Remember, the richest man in the world has a $239 Billion net worth.

One of my subscribers Roger Franklin made a great point. Elon has an opportunity to turn the Tesla Entertainment System into one of the most-watched TV screens in the world. Hear me out. Full self-driving is closer than folks think. People are going to spend billions of hours streaming content while commuting in cars very soon. So becoming the media hub for all of that time spent in the car makes the projected $200B streaming TAM by the end of the decade seem small. I’m going to have to go deeper into the “Self-Driving Streaming” opportunity soon. As Elon says “the most entertaining outcome is also the most likely.”

Logan’s Rebuttal:

What’s Next

• Logan Roy: #2 and #1 FAST Service Analysis

• How FAST Services become the new Television

That was just a BIT of a stretch. Let me know what you think. I always love to hear from readers. Both good and really, really bad.

🤙 Moffie