Question
To help strengthen our position in the U.S. and abroad, we are considering Fox News as a potential target for acquisition. As you know, our CNN division is the largest cable news service in the U.S, with over 87.5 million subscribers and over $900 million in revenue. Fox News would offer us an additional 83.6 million subscribers. Perhaps more relevant is the fact that Fox News enjoyed a whopping 67.8 percent increase in revenues last year, compared to the 12.5 percent growth of our CNN division.
The potential synergies here are phenomenal, and the acquisition of Fox News would put us in an excellent position to grow our European and Asian markets.
I’m attaching a relevant spreadsheet file. I’d appreciate your thoughts on the matter. Thanks!
Network Ownership Programming 2003 Ave. Subs (mil) 2003 Ave. Monthly Rev/Sub Prog. Costs as a % of Revenue SG&A Costs as a % of Revenue Oper. Margin as a % of Revenue 2003 Subscriber Growth 2003 Revenue Growth ESPN Disney/Hearst Sports 87.4 $ 2.74 69.6% 7.3% 23.1% 0.9% 22.2% TNT Time Warner General 87.2 $ 1.44 50.3% 11.8% 37.9% 0.9% 13.7% Nickelodeon Viacom Children 87.0 $ 1.19 24.8% 13.8% 61.4% 1.1% 14.3% Fox Sports News Corp./Cablevision Sports 75.3 $ 1.32 82.0% 3.3% 14.7% 1.4% 16.3% MTV Viacom Music 85.9 $ 0.97 31.0% 12.9% 56.1% 1.6% 16.1% USA NBC-Universal General 87.3 $ 0.89 49.2% 14.8% 36.0% 1.0% 5.6% CNN Time Warner News 87.3 $ 0.82 31.8% 33.3% 34.9% 0.9% 7.5% Lifetime Disney/Hearst Women 86.8 $ 0.76 40.9% 24.7% 34.5% 1.2% 6.1% TBS Time Warner General 88.1 $ 0.73 52.3% 15.8% 31.9% 0.4% 1.7% Disney Channel Disney Children 82.7 $ 0.77 22.1% 22.1% 55.7% 2.5% 3.7% Discovery Liberty/Cox/Advance Science 87.5 $ 0.52 20.9% 20.6% 58.5% 1.1% 2.1% A&E Disney/Hearst/NBC Arts 86.9 $ 0.46 43.8% 21.7% 34.6% 1.1% -1.1% CNBC NBC-Universal News 85.3 $ 0.47 18.8% 18.0% 63.3% 1.7% 3.3% TLC Liberty Media Special Int. 85.8 $ 0.44 19.9% 20.7% 59.4% 1.8% 11.9% FX Network News Corp. Movies 81.4 $ 0.45 56.5% 12.0% 31.5% 3.9% 13.2% Fox News News Corp. News 83.6 $ 0.41 35.9% 19.2% 44.9% 3.8% 67.8% Comedy Central Viacom Entertainment 83.4 $ 0.37 45.7% 27.7% 26.6% 3.4% 14.6% Spike TV (TNN) Viacom Men's 86.4 $ 0.36 49.4% 18.4% 32.2% 0.8% 12.0% ESPN2 Disney/Hearst Sports 85.4 $ 0.35 65.7% 10.4% 23.9% 1.8% 8.9% SCI FI NBC-Universal Special Int. 81.3 $ 0.36 47.1% 25.1% 27.7% 3.2% 10.7% History Channel Disney/Hearst/NBC Special Int. 84.4 $ 0.35 40.8% 23.4% 35.8% 3.4% 16.1% VH1 Viacom Music 85.1 $ 0.34 40.8% 24.0% 35.2% 2.1% 17.0% ABC Family Disney Children 85.9 $ 0.33 45.0% 18.9% 36.2% 1.3% 0.8% BET Viacom Minority 76.0 $ 0.35 19.2% 24.9% 55.9% 3.7% 16.2% E! Disney/Liberty/Comcast Entertainment 82.1 $ 0.32 24.5% 26.6% 48.9% 3.7% -9.1% Cartoon Time Warner Children 84.2 $ 0.30 30.3% 22.1% 47.6% 3.1% 10.4% HGTV E.W. Scripps Lifestyle 82.3 $ 0.30 36.8% 12.1% 51.1% 3.9% 21.7% AMC Cablevision Movies 84.6 $ 0.28 31.1% 12.1% 56.7% 1.2% 24.7% MSNBC NBC-Universal/Microsoft News 80.0 $ 0.25 60.4% 39.5% 0.2% 4.1% 12.1% Weather Landmark Communications Special Int. 86.2 $ 0.22 46.0% 14.2% 39.8% 1.7% -2.9% Court TV Liberty/Time Warner News 77.0 $ 0.24 34.9% 43.2% 21.9% 5.8% 11.9% Food Network E.W. Scripps Lifestyle 80.7 $ 0.21 38.2% 19.6% 42.1% 6.0% 31.1% Bravo NBC-Universal Arts 72.1 $ 0.24 39.8% 19.1% 41.1% 7.3% 25.2% TV Land Viacom Children 80.2 $ 0.20 31.4% 18.6% 50.0% 7.4% 19.4% Golf Channel Comcast Sports 55.3 $ 0.29 35.8% 22.5% 41.6% 11.4% 32.5% TCM Time Warner movies 64.4 $ 0.24 20.9% 25.6% 53.6% 5.1% 48.7% Speed Channel News Corp. Sports 58.7 $ 0.22 54.9% 18.7% 26.4% 10.9% 27.8% Oxygen Vulcan Northwest Women 48.5 $ 0.26 68.2% 25.7% 6.0% 21.6% 13.4% Animal Planet Liberty Media General 83.0 $ 0.15 30.8% 24.9% 44.3% 3.6% 19.6% Travel Channel Liberty Media Special Int. 72.3 $ 0.14 35.6% 42.9% 21.5% 7.9% 34.4% Nat'l Geographic News Corp. Science 45.1 $ 0.23 31.3% 37.5% 31.2% 45.8% 56.9% ESPN Classic Disney Sports 48.8 $ 0.21 35.9% 31.6% 32.6% 5.1% 14.2% WE: Women's Entertainment Cablevision Women 52.9 $ 0.19 58.4% 28.0% 13.6% 9.7% 47.9% CMT Viacom Music 70.0 $ 0.13 29.0% 41.6% 29.4% 13.3% 36.8% Outdoor Life Comcast Special Int. 53.5 $ 0.15 61.8% 30.0% 8.2% 21.9% 15.8% TV Guide Gemstar TV Guide Special Int. 56.5 $ 0.14 18.4% 38.8% 42.8% -2.2% -7.0% Game Show Network Liberty Media/Sony Special Int. 52.1 $ 0.15 38.2% 43.9% 18.0% 13.1% -3.6% Hallmark Crown Media/Liberty Women 54.1 $ 0.13 53.3% 71.6% -24.9% 13.8% 33.4% Toon Disney Disney Children 40.7 $ 0.14 41.6% 52.2% 6.2% 19.8% 84.4% SoapNet Disney Special Int. 32.5 $ 0.17 23.4% 56.7% 19.9% 30.7% 146.5% Bloomberg Bloomberg, L.P. News 27.7 $ 0.19 61.6% 68.9% -30.5% 22.3% 35.8% Ind. Film Channel Cablevision Movies 27.4 $ 0.19 52.3% 19.6% 28.1% 13.5% 41.3% BBC America BBC News 36.2 $ 0.14 51.3% 79.0% -30.3% 20.3% 29.6% ESPNews Disney Sports 38.1 $ 0.13 59.2% 52.5% -11.7% 20.1% 44.9% Discovery Health Liberty/Cox/Advance Science 45.2 $ 0.11 108.0% 115.7% -123.7% 19.8% 69.0% Style Comcast Lifestyle 31.9 $ 0.15 42.3% 82.8% -25.1% 66.0% 77.2% Lifetime Movie Network Disney/Hearst Women 39.2 $ 0.12 57.0% 37.6% 5.4% 40.3% 28.1% G4 - techtv Comcast Science 41.3 $ 0.10 60.7% 31.7% 7.6% 20.5% 73.2% Fox Movie Channel News Corp. Movies 25.0 $ 0.16 37.8% 15.2% 47.0% 20.5% 26.6% Noggin Viacom Children 32.8 $ 0.11 42.3% 37.2% 20.5% 33.9% 66.3% MTV2 Viacom Music 49.8 $ 0.07 21.6% 54.2% 24.2% 20.3% 49.8% INSP Network The Inspiration Networks Religion 20.0 $ 0.17 11.9% 52.5% 35.6% 12.1% 12.5% Fuse (MuchMusic USA) Cablevision Music 32.7 $ 0.10 45.0% 96.8% -41.8% 21.7% 33.2% FitTV Liberty/Cox/Advance Lifestyle 30.8 $ 0.08 111.7% 102.7% -114.4% 12.1% 31.1% Intl. Channel Liberty Media Special Int. 12.5 $ 0.18 54.2% 17.0% 28.9% 1.5% 3.7% Outdoor Channel Outdoor Channel Holdings Special Int. 23.9 $ 0.09 7.7% 55.9% 36.4% 41.4% 29.2% Discovery Kids Liberty/Cox/Advance Children 30.9 $ 0.06 46.9% 77.5% -24.4% 21.5% 104.8% Great American Country Jones Media Networks Music 25.2 $ 0.07 36.8% 53.6% 9.6% 21.6% 28.2% Science Channel Liberty/Cox/Advance Science 30.9 $ 0.06 62.2% 33.5% 4.3% 21.9% 90.0% Nick GAS Viacom Children 16.1 $ 0.10 20.6% 41.3% 38.1% 78.0% 76.6% Discovery Times Liberty/Cox/Advance/NY Times News 29.1 $ 0.05 152.2% 43.5% -95.7% 28.1% 124.4% Discovery Wings Liberty/Cox/Advance Science 29.8 $ 0.05 27.5% 37.9% 34.6% 22.3% 198.4% Discovery Home & Leisure Liberty/Cox/Advance Lifestyle 29.1 $ 0.05 28.1% 38.8% 33.1% 23.8% 256.0% VH1 Classic Viacom Music 16.7 $ 0.07 26.5% 94.7% -21.2% 73.4% 140.0%
Data Source: Company Annual Reports; Cable Investor Newsletter 2003-2004, and author calculations
Explanation / Answer
Time Warner (parent company of CNN) is looking at Fox News as a poential acquistion target in the news service space.
The following table is a comparison of figures of various news programming networks. This table will be used to arrive at the decision as to which company should Time Warner acquire to augment its presence in the news service segment.
From the above table, the highest revenue grwoth rate was reported by Discovery Times network. However, the network reported a negative operating margin of -95.70% and such an acquisition could become a burden on Time Warner's book. Thus Discovery Times will not be considered as it is not profitable. Similarly, Bloobmberg and BBC America had reported negative operating margin and hence should not be considered.
The second highest revenue growth rate was reported by Fox News. The rate was 67.8%. The operating margin is positive as well.
In terms of the number of subscribers, CNN has the highest subscriber base of 87.3 million followed by CNBC with a base of 85.3 million and then Fox News at 83.6 million. Even though the subscriber base of CNBC is higher than Fox, it's revenue growth in 2003 was a meagre 3.3% compared to the massive rate of 67.8% reported by Fox News.
Thus, considering the quantitative data as provided in the table, Fox News is the best bet for acquisition by Time Warner in the news programming segment.
Network Ownership Programming 2003 Ave. Subs (mil) 2003 Ave. Monthly Rev/Sub Prog. Costs as a % of Revenue SG&A Costs as a % of Revenue Oper. Margin as a % of Revenue 2003 Subscriber Growth 2003 Revenue Growth CNN Time Warner News 87.3 $ 0.82 31.80% 33.30% 34.90% 0.90% 7.50% Fox News News Corp. News 83.6 $ 0.41 35.90% 19.20% 44.90% 3.80% 67.80% CNBC NBC-Universal News 85.3 $ 0.47 18.80% 18.00% 63.30% 1.70% 3.30% MSNBC NBC-Universal/Microsoft News 80.0 $ 0.25 60.40% 39.50% 0.20% 4.10% 12.10% Court TV Liberty/Time Warner News 77.0 $ 0.24 34.90% 43.20% 21.90% 5.80% 11.90% Bloomberg Bloomberg, L.P. News 27.7 $ 0.19 61.60% 68.90% -30.50% 22.30% 35.80% BBC America BBC News 36.2 $ 0.14 51.30% 79.00% -30.30% 20.30% 29.60% Discovery Times Liberty/Cox/Advance/NY Times News 29.1 $ 0.05 152.20% 43.50% -95.70% 28.10% 124.40%
