Can Fox Broadcast Network Survive After Disney Buys TV Studio?

“What value is Fox Broadcasting without the studio? It’s just a platform,” former network exec Tom Nunan tells TheWrap

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If Disney succeeds with its $52.4 billion acquisition plans, most of 21st Century Fox will soon move into Cinderella’s Castle. But that could spell trouble for some of the TV properties that remain with the Murdoch-run company, particularly the 31-year-old Fox broadcasting network.

The first problem is that broadcast networks have seen a steady shrinkage in ad revenues in recent years thanks to declining viewership, delayed viewing and fast-forwarding. That’s been particularly true at Fox — except in years when the network has hosted the bottom-line-saving Super Bowl. And, yes, “Empire” had a really nice run there for a bit.

“Advertisers are running in droves to social media, where consumers have a harder time avoiding ads,” Tom Nunan, a veteran TV executive who once oversaw Fox’s primetime lineup, told TheWrap. “On linear TV, the audience routinely skips over the commercials, making the future of linear doubtful at best.”

Lighter advertising revenues mean retransmission fees have to rise in an offsetting fashion, which in turn leads to disputes with cable and satellite TV providers (like the recent showdown between CBS and Dish that led to a three-day blackout).

Fox Broadcasting actually makes the majority of its money from retransmission fees, another high-ranking broadcast TV insider told TheWrap.

The over-the-air piece of 21st Century Fox is further hurt by its own programming woes: Season-to-date, the network has seen its already-modest ratings slip 17 percent year over year in the advertiser-coveted 18-49 demographic, a steeper drop than all of its broadcast competitors.

That said, the Murdochs would retain the Fox Sports and Fox News channels — the latter a giant cash cow at the moment — as well as the company’s 28 owned and operated stations in 18 markets throughout the country.

But that may not be enough to make up the difference, the insider said: “For sure they are in a loss.”

Reps for Fox Broadcasting, its studio 20th Century Fox, and parent company 21st Century Fox did not respond to TheWrap’s requests for participation in this story.

The biggest downside of the deal for the Murdochs may be the loss of the TV production studio run successfully by Dana Walden and Gary Newman for the last 18 years that has generated hits like “24,” “Family Guy,” “Empire” and “American Horror Story.”

“What value is Fox Broadcasting without the studio?” noted Nunan, who now lectures at UCLA’s School of Theater, Film and Television. “It’s just a platform.”

And that platform is losing a main revenue stream that earns money not only from ads sold when a show is first broadcast — but also in syndication, streaming, DVDs, etc.

“The whole purpose of [a broadcast network], in my view, is to throw some sunlight on what the parent company owns,” Nunan explained. “If you want to boost the value of the library for ‘The X-Files,’ and you own ‘The X-Files,’ what better thing to do than to refresh that title every two or three years? You can control that if you have a distribution arm.”

And if you’re the lone distributor without a content-generating mechanism, it may mean trouble.

While a slimmer post-deal Fox could theoretically launch a new TV production studio, it would take time to match the size and power of Twentieth Century Fox Television as it now exists.

From the outset at least, a merger with Disney (or with another potential Fox suitor, Comcast) would force Fox Broadcast to purchase shows from outside studios — including the one that used to be considered in-house. And forget about those hometown discounts from picking up projects owned by the same corporate parent.

In addition to potentially rising costs for content acquisition, a solo broadcast channel may struggle to get the best new shows, which could lead to lower TV ratings.

Even now, with its existing advantageous tie to the production house, Fox Broadcast missed out on Fox studio’s “This Is Us” (which airs on rival NBC) — one of the biggest hits of Walden and Newman’s years atop both entities.

The other open question is whether Walden and Newman would stay to lead the broadcast network rather than to go over to Disney with the studio. Even though they’ve got two decades leading the studio and just four years at the network, they risk being demoted by reporting to Disney-ABC Television Group President Ben Sherwood.

Similarly, it seems unlikely that they’d break up their longstanding business partnership, with one going to Disney and the other staying to run Fox.

Even in the worse case scenario, though, Nunan doesn’t think the Fox network will disappear. “In theory, Fox Broadcasting — like any of its other linear competitors — is in a much more vulnerable position without the muscle and incentive of a vertically integrated studio supporting it,” he said.

“Let’s hope 21st Century Fox can make it hum without a sister studio feeding it premium content,” he concluded.