Feb 6, 2017
Executives
Reed Nolte - Executive Vice President, Investor Relations Lachlan Murdoch - Executive Chairman John Nallen - Chief Financial Officer James Murdoch - Chief Executive Officer
Analysts
Benjamin Swinburne - Morgan Stanley Michael Morris - Guggenheim Anthony DiClemente - Nomura Jessica Reif Cohen - Bank of America/Merrill Lynch Michael Nathanson - MoffettNathanson Richard Greenfield - BTIG Steve Cahall - RBC Capital Markets
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Twenty-First Century Fox second quarter 2017 earnings call.
At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session; instructions will be given at that time.
[Operator Instructions] As a reminder, the conference is being recorded. I'll now turn the conference over to our host, Mr.
Reed Nolte, Executive Vice President, Investor Relations.
Reed Nolte
Thanks very much, operator. Hello, everyone, and welcome to our second quarter fiscal 2017 earnings conference call.
On the call today are Lachlan Murdoch, Executive Chairman; James Murdoch, Chief Executive Officer; John Nallen; our Chief Financial Officer. Fist, we’ll give some prepared remarks on the most recent quarter and then we’ll be happy to take questions from the investment community.
This call may include certain forward-looking information with respect to Twenty-First Century Fox’s business and strategy. Actual results could differ materially what is said.
The company’s Form 10-Q for the three months ended December 31, 2016 identifies risks and uncertainties that could cause actual results to differ. And these statements are qualified by the cautionary statements contained in such filings.
Additionally, this call will include certain non-GAAP financial measures. The definition of, and reconciliation, of such measures can be found in our earnings release and in our 10-Q filing.
Please note that certain financial measures used on this call, such as segment operating income before depreciation and amortization, often referred to as EBITA, and adjusted earnings per share are expressed on a non-GAAP basis. GAAP to non-GAAP measures is included in our earnings release.
And lastly, please note that our offering for Sky plc that was announced last December is governed by the UK Takeover Code and as a result we are subject to strict limitations as to what we can say with respect to that transaction. And with that, I’m pleased to turn it over to Lachlan.
Lachlan Murdoch
Thanks, Reed. And good afternoon, everyone, from Houston where last night we were privileged to witness a brilliant Super Bowl telecast, beautifully produced and expertly delivered by Eric Shanks and his team at Fox Sports.
I want to thank the literally thousands of Fox Sports staff who brought us this amazing game. This single game is a great example of the strength of live sport, increasingly delivered across multiple platforms, the power of our core brands aligned with our ability to cross promote them, and the continued value broadcast television delivers to the world's leading marketers.
And yesterday, the Super Bowl powered Fox's first $0.5 billion revenue day, and that's something that’s made Mr. Nallen, sitting across from me, very happy.
Of course, that revenue falls in the third quarter. But for the second quarter, we are pleased to have delivered another strong result, both from an operational and financial standpoint as evidenced by the 15% EBITDA growth and 20% adjusted EPS growth that we have just reported.
Importantly, this growth was broad-based with earnings gains in all of our operating segments, including strong double-digit increases in both film and television. Core to our overarching long-term strategy is our steady focus on building the value of our video brands.
That means partnering with the best creators and investing in the highest quality storytelling, the best journalism and premium sports rights to ensure our video experiences are vital for any consumer offering, established or emerging. murdered Testament to the progress we have made is our ability to again buck the broader industry trend of multichannel subscriber declines.
In fact, this last quarter, we grew our cumulative domestic subscribers by 1.5% over last year's level on the back of subscriber additions including FXX, the FOX Business network, the National Geographic Channels, and Fox Sports 1. Our momentum underscores the strength of our brands across categories and genres, be it sports, news or entertainment, both scripted and non-scripted.
The investments we've made to bolster our leadership in these areas are paying dividends. We’ve been saying this for a while, but actions and outcomes speak louder than words.
Clear and demonstrable evidence of the value we’ve built is the meaningful affiliate renewals we recently achieved for our RSNs and Fox News with one of the nation's largest MSOs. We completed an agreement at the end of December, which delivered on the objectives we sought out.
As part of the deal, this MSO will receive TV [indiscernible] rights across our entire RSN portfolio for the first time, a huge benefit to their subscribers and our passionate viewers. In addition, our full suite of brands was included in DirecTV Now’s November launch and we expect the full suite to be included in a wave of emerging DMVPD to services, including, as previously announced, Hulu’s live and on-demand service which launches in the next couple of months.
These agreements with both established distributors and new entrants move us forward on another strategic priority, driving a more compelling user experience for our customers. This is one of the key strategic pillars behind the agreement we announced in December to acquire the 61% of Sky we do not already own.
A combination of our two companies will give us leading direct-to-consumer capabilities and technologies, while enhancing our sports and entertainment scale. The Sky transaction will also deliver more balanced revenue streams and geographic spread.
It further simplifies our structure and operating model. And in terms of the financial rationale, it is significantly accretive to our core earnings per share and our free cash flow.
As the founding shareholder of Sky, we are proud to have participated in its growth and development. Its transformation over the past 25 years into Europe’s leading entertainment business has been extraordinary.
We believe this transaction is the highest and most effective use of our capital to deliver shareholder value and returns over the long term. Now, before I hand it over to John for a financial review, I want to conclude with some brief marks on our cable news business.
On our last call, I noted the strength of Fox News. That strength has continued unabated.
Fox News finished 2016 as the most-watched cable network and achieved its highest rated year in history. Post-election, Fox News is continuing to beat CNN and MSNBC combined.
Adding to this strength is year-over-year growth in the import 7 PM and 9 PM time slots, following recent programming changes. All of this underscores the underlying strength of the Fox News brand, the enduring power of its positioning and the continued loyalty of its viewers.
With that, I’d like to hand over to John for his financial review.
John Nallen
Thanks, Lachlan. And good afternoon.
Today, we reported another good quarter of financial results, highlighted by double-digit gains in both EBITDA and adjusted earnings per share. Our EBITDA growth was delivered across all of our business segments, with particular strength reported at the television and film segments.
Second quarter revenues increased $307 million or 4% to $7.68 billion, led by growth at both the local cable network and television segments, partially offset by slightly lower revenues reported in the films segment. Total segment EBITDA for the second quarter was $1.99 billion, a record for any quarter, and a 15% increase from the prior year, reflecting double-digit growth at our television and film segments and continued good growth at our cable segment.
This quarter's results include a $44 million negative impact from unfavorable foreign currency rates. And absent this impact, our overall EBITDA growth rate was 18%.
From a bottom line perspective, we reported income from continuing operations attributable to stockholders of $857 million or $0.46 per share. Excluding the net income effect in both years of other net and of equity earnings adjustments at Sky and Endemol Shine Group, second quarter adjusted EPS was $0.53, which is a 20% increase over the comparable $0.44 reported a year ago.
So, with that, I’ll provide some additional comments on the performance of our operating segments for the second quarter, starting the Cable Networks segment where EBITDA of $1.33 billion was up 6% on revenue growth of 7%. Total Cable Network expense growth was 8%, which includes a 2 percentage point increase from the consolidation of Nat Geo Partners.
Domestic cable revenues increased 10% in the aggregate, led by advertising increases of 12% and affiliate fee growth of 7%. Ad revenues continued to benefit from the rating strength at Fox News as well as strong ratings and pricing growth at FS 1, driven by Major League Baseball post-season, and from the consolidation of Nat Geo Partners, which added 2 percentage points to the ad growth.
The affiliate fee increase primarily reflects higher average rates across all of our domestic brands and continued growth at our expanding networks. EBITDA at our domestic channels increased 12% over the prior year, reflecting these higher revenues, partially offset by increased Major League Baseball costs at FS 1 and NBA costs at the RSNs and higher expenses from the consolidation of Nat Geo Partners and the launch of our new programming initiative across the Nat Geo channels worldwide.
Second quarter reported international cable revenues grew 2%, driven by a 5% increase in reported affiliate revenues, which were up 12% on a local currency basis. Advertising revenues declined 6% on a reported basis and 3% on a local currency basis versus the prior year.
This primarily reflects an approximate $30 million decline at STAR’s entertainment channels due principally to the negative impact from the demonetization policy implemented in India in early November, which meaningfully lowered overall market advertising spend. The market expects this dampening effect and disruption from the demonetization to substantially abate within another month or so as new Indian fiscal years commence.
Reported international EBITDA contributions decreased 13%, primarily due to the lower advertising revenues at STAR and a 9% impact from negative foreign exchange movements. At our Television segment, second quarter EBITDA was $376 million, a 35% over last year, driven by increased revenues.
We had strong advertising growth from a very successful broadcast of the World Series, which benefited from two additional games and viewership levels not seen in two decades and higher political advertising at the station. We also had continued double-digit retransmission consent revenue growth.
And additionally, the stations generated incremental revenues from permitting the use of some spectrum in one of our markets. These total revenue gains were partially offset by higher sports and entertainment programming expenses at the network as well as higher promotion costs from the launch of new series.
At the Film segment, second quarter EBITDA of $389 million was $87 million higher than last year. This increase was primarily driven by lower marketing costs in the current year due to fewer theatrical releases versus last year.
Additionally, revenues in the quarter were 4% lower than the prior year primarily due to the difficult comparison against last year's worldwide theatrical performance of the The Martian. It’s worth noting that while we reported very strong fiscal year-to-date earnings in this segment, the comparisons become much more challenging in the second half of the fiscal year.
In the next two quarters, for example, we will be comping against last year's very successful releases of Deadpool in theatrical and The Martian in home entertainment. Shifting over to capital management, during the quarter, we purchased $132 million of FOXA shares, leaving our outstanding authorization at roughly $3.1 billion.
And also in the quarter, we issued $850 million of new debt and repaid $400 million in maturities. And, now, let me turn it over to James.
James Murdoch
Thanks, John. And thanks, Lachlan.
So, as you’ve heard and seen, the first half of the fiscal year has been a good one and the outlook for the next few quarters and years is also encouraging. Now, as noted, it seems an opportune time to talk a little bit about US sports.
It was a key driver in the quarter and its emblematic of our broader strategy around big brands and making investments in the programming that matters the most for our customers. The MLB post-season was strong.
The seventh game of the World Series was the most-watched baseball game in a quarter-century, while the National League divisional series was the highest-rated week in FS 1’s history. Both drove strong ad revenues in the quarter, while strengthening the overall franchise.
Now, the NFL post-season was also strong. Average viewers per game exceeded 40 million in the playoffs.
While we did see single-digit audience declines for our regular season NFL games on Fox, I want to note that our national games still average close to 20 million viewers. And yesterday, it looks like Super Bowl LI had more than 170 million total viewers.
So, the power of sports can't be overstated. In the US, 88 of the top 100 most viewed telecasts on television last year were live sports.
And across all of our broadcasts, Fox Sports continued to deliver what we believe is a superior experience to viewers in terms of production, talent and technology, and we’re very proud of what the team is doing. We’re also continuing to make great progress in entertainment.
From Taboo, Legion, Fargo, Atlanta, Baskets, Archer and the Americans at FX to Star, 24, The Mick and Empire at Fox; Genius, Mars and The Story of God at National Geographic; Gomorrah, Babylon Berlin, Fortitude, and The Young Pope at our affiliate Sky, and Malleswari, Dil Hai Hindustani and Neeli at STAR, creatively, the business is firing on all cylinders and at a high volume and velocity. This year, across the group, we’ll produce almost 500 original series, over 20,000 hours of entertainment programs.
I'd like to touch on where all this puts us and on the future and the direction of 21CF and the potential to create what we believe is really incredible value here. We’ve spoken with all of you many times over the last few years about simplifying our business, focusing on core brands and creative output that matters and taking the many steps required to get there.
In December, with the announcement of our intention to acquire the balance of Sky and wholly consolidate that asset finally into the group, we took a major step, at least as far as intent, in a long process that started a number of years ago. We’ve shed non-core assets, consolidated joint ventures, invested in our core operations, created new capability sets within the group and simplified our management structure.
All of this has been part of executing a core realignment of the company around the future of video. The underlying revolution, ubiquitous high-speed connectivity, a continued proliferation of end user connected displays, and the potential for unfettered access to creative assets in the cloud for customers globally presents an opportunity for accelerated growth for new and existing video platforms.
We believe this is only just the beginning and the combination of strengths required to operate a high-volume content business and a vast international video platform business is precisely the combination of strengths that we’re developing. In short, if content is indeed king, then using it to build a platform that is an expression of those underlying trends presents one of the most promising opportunities for our company in decades.
And so far, we've made great strides to this end. A few quick data points.
The Hotstar platform in India, barely two years old, continues to grow quickly. In December of 2015, we saw about 16.5 million monthly active users.
In this last December, that number was over 50 million. In terms of engagement, minutes of viewing in the December quarter grew year-on-year from 3.9 billion minutes of watch time to 17 billion minutes.
Across Europe, the Sky has delivered online and over-the-top services to over 13 million customers and streamed in the December quarter almost 20 billion minutes. And in the US, within the next few months, we will be rolling out a major overhaul of our streaming apps, which will deliver a step change for customers and future customers in quality, in discovery and in engagement.
The streaming business is not limited, of course, to our own platforms. As Lachlan mentioned earlier, our investment in our core brands has meant that our portfolio is very desirable to existing and new entrants alike, as demonstrated by our licensing last year to DirecTV Now, Sling, Hulu’s soon-to-launch streaming MVPD and Google's upcoming service.
We expect this explosion of competition to benefit customers, to spur innovation, and grow the overall marketplace for video in the US where topline subscriber trends have been previously not so great. That should reverse over the coming years.
We’re at the beginning of a great transformation of the business and we couldn’t be more excited about the opportunities that lie ahead. So, with that, I’ll turn back over to Reed and we’re happy to take whatever questions you might have.
Reed Nolte
Now, operator, we’d be happy to take questions from the investment community.
Operator
[Operator Instructions] We go to Ben Swinburne with Morgan Stanley. Please go ahead.
Ben Swinburne
Thank you. Good afternoon.
I want to stay on the topic of the bundle, particularly in the US market, with two questions. John – or actually, I think Lachlan mentioned, subscribers grew year-on-year, which is certainly encouraging.
I think affiliate revenue growth decelerated from last quarter year-on-year. So, if there's any color around noise in those numbers that could help explain that, that would be helpful.
And then for anyone who wants to take it, we're all focused on these new streaming packages coming out, and at least I would argue that Sling and DirecTV Now have had some technology challenges in terms of scaling. And I'm curious how focused Twenty-First Century Fox is on that topic as it relates to Hulu, in particular, where you're an owner.
How confident are you that product is going to come out of the gate and be robust from a product offering scalability perspective? And should your shareholders be expecting that when that comes out over the next couple of months?
Thank you.
Lachlan Murdoch
Thanks, Ben. I’ll deal with the first part of the question and James can take the second part.
The affiliation revenue growth did decline very slightly in this quarter, but still, obviously, positive. And we would expect, as we’ve maintained for a while, the new affiliation agreement start to take effect.
We’ll see that growth accelerate again towards the second half of the year.
John Nallen
I would just add, Ben, we’re only a few million dollars away from rounding this 8% from the 7%. So, there’s not a lot of noise inside of it.
James Murdoch
And, Ben, thanks for your question. I think the short answer is that the team at Hulu and certainly what we’re doing as well with our streaming apps, everyone is very, very focused on how do you solve some of the challenges in streaming, particularly when you have a lot of concurrent streams.
So, I think we’ve seen really, really good progress in terms of our ability to stream concurrent streams of live sports, of the high-volume entertainment programming, for example, at the Hotstar platform that I mentioned to you earlier, as well as what our affiliate Sky kind of routinely does with Sky Go and NOW TV. And Hulu is working very hard on making sure that that experience for customers is as good as it possibly can be.
You never rule out teething problems and I think it’s instructive – or it’s worthwhile kind of just mentioning that some of these problems in streaming, particularly concurrent live events when everyone’s logging in at the same second, it’s non-trivial. That said, we have a high degree of confidence in the Hulu platform, in the team there, their ability to deliver really a ton of minutes of streaming across their subscriber base currently.
So, we think it's going to pretty strong. I think some of the things you've seen over the last number of months are normal for new services and certainly we expect those kind of kinks to be worked out.
But, certainly, it’s not an easy technical challenge, but it’s one that is surmountable and the team at Hulu is very, very focused on it. And I think the experience is going to be pretty good.
Reed Nolte
Thank you, Ben. Operator, can we have the next question please.
Operator
Yes. And we go to Michael Morris with Guggenheim Securities.
Michael Morris
Thank you. Good afternoon, guys.
Couple of questions. First on Hulu, can you talk about your expectation that the NBC Universal channels will be included in the streaming MVPD service?
And it seems to reflect maybe in the near term a lack of support from one of the major Hulu partners for the product. Do you think that's the case?
And does that impact sort of what can be done with that product? And then second, just on the Sky brand, it's a powerful brand in Europe, clearly.
Do you see any opportunity that that brand could actually be brought to the US and used in any way on any of your products? Thanks.
James Murdoch
Thanks, Mike. Look, on Hulu, the matter of Hulu’s negotiations with third-party providers and content owners is really for Hulu and one that they engage in and we don’t.
That said, I know that the team there is very focused on putting together a package of programs and brands that are going to really work for the customers and they’ll make those decisions as that commercial negotiation kind of plays itself out. But I think the product is going to be pretty good.
And, look, you’d never sort of – you don’t want to really engage in a lot of speculation about the future of the Sky business, et cetera. I think when you look at this business across the board, our focus on these brands and the Fox brands broadly, on National Geographic, on the STAR brand and on Sky brand in their regions with different levels of strength has been one that we intend to continue.
And if there’s opportunities to grow those brands, as we did with the Star brand, launching services to the South Asian diaspora across Europe and in particular the UK a number of years ago with great success, these things can live in different territories. But there are no plans at this point.
Right now, we’re focused on the strength of all of these brands and growing all of these businesses as best we can within their kind of immediate neighborhoods to be honest.
Reed Nolte
Thank you, Mike. Operator, next question please.
Operator
Yes. And we go to Anthony DiClemente with Nomura Instinet.
Please go ahead.
Anthony DiClemente
Good afternoon and thanks for taking my questions. First question for James, this is about capital allocation.
So, pro forma Sky, the balance sheet will be a touch above 4 times levered. Does this – do you think – hold you back in any way, either in terms of the buyback or in terms of strategic M&A?
And more specifically, with the new administration and FCC regime, if the FCC regulations were relaxed to allow you to own more TV stations, the question would be, would you have the inclination to look at acquiring TV stations that could come available? And the second question is for John and it’s about Cable Network profitability.
So, last summer, you announced an incremental $200 million in investment, in programming in Nat Geo and FX, you now lapped the consolidation of Nat Geo Partners. The question is, when might you expect Cable Network segment margins to return to expansion?
Or said another way, when you look at the programming investments in Nat Geo and FX, when do those start to taper off, such that the programming expense growth moderates? Thanks a lot.
James Murdoch
Thanks, Anthony. Look, I think with respect to capital allocation, looking at the balance sheet going forward, I think the key thing to remember about the Sky transaction that we kind of detailed in December was the rapid deleveraging profile of the combined business.
So, yes, we sort of land at around 4 times, a little bit above. It really de-levers rapidly.
And we’re going to be focused on deleveraging, right? So, we’re going to put that at the top of the agenda for the number of kind of quarters and years post-closing.
So, I think it kind of de-levers pretty quickly and I think we have capacity to do other things, either think about additional capital returns by way of buybacks and continuing, obviously, with a growing dividend. Or a potential kind of medium-size or bolt-on M&A where we think capabilities and kind of expanding our business can make sense.
But at this point, we’re really focused on the shape of the business as we’ve outlined to you. And as you can see and we’ve shown you, I think the deleveraging profile there is pretty rapid and is pretty manageable for us.
So, no, we don't think it really curtails us and this is the most sensible thing as Lachlan laid out in his early comments. We really think this is the best use of our capital at this point with the highest returns available to all shareholders, given the accretive nature of it and the pace of deleveraging.
And with respect to – potentially the FTC relaxing ownership caps on terrestrial TV stations in the US, no, I guess is the most straightforward way to answer the question. I hate to comment on future sort of speculation and hypotheticals, but I can – I think you can rest easy there.
We really like the shape of our station business right now. And there always may be affiliation swaps or other little bits and pieces around the edges.
No, we don't have a big appetite for adding much to that. And then – I think it was three questions.
John, do you want talk about programming expense.
John Nallen
Anthony, on the expense trajectory, so this year was a step up for Nat Geo and FX. Actually on a relative basis more for Nat Geo with products like Mars and Genius and everything else.
So they’ve begun the ramp-up of what we call the 2.0 strategy. We’ll see a bit of it continuing into next year, but today was – this year, sorry, was the real ramp-up for Nat Geo.
FX continues its trajectory toward its full schedule. We probably won’t fully get there in the current year, but given the product and the success of what FX has done and particularly the success of its product, not only on FX, but on other markets, that's an investment that the returns are just fabulous on.
Lachlan Murdoch
I think you can already look at Taboo which premiered three or four weeks ago which is the first part of that extra programming expense, and it’s been a terrific success doing that, and we’re very happy.
Reed Nolte
Thank you, Anthony.
Anthony DiClemente
Thanks very much.
Reed Nolte
Operator, next question please.
Operator
We’ll go to Jessica Reif Cohen with Bank of America.
Jessica Reif Cohen
Thanks. I have a couple of questions.
First, James, you talked a little bit about next generation apps. Can you talk a little bit about – give us some color how will you approach advertising within the apps?
Second, as good as the numbers were this quarter, the outlook seems better. Comcast talked a little about their programming cost increases for the next four quarters.
Can you give us any visibility on what the affiliate fee, domestic affiliate fee growth will look like, and how quickly – on India, how quickly will you recover from the demonetization impact? And are there any other drivers that we should look for in the second half?
James Murdoch
Okay. Thanks, Jessica.
In terms of advertising in the sort of apps, I think one thing that’s really interesting is that as we revamp and you'll see over the next kind of month-and-change, we’ll start rolling out on a per platform basis, tvOS and then Android and so on as you kind of roll through the kind of estate out there. The authenticated apps really have a potential to reach an enormous audience.
That 90 million or so MVPD households out there, under our agreements, have access to these apps. And what we need to do is ease and simplify the authentication pathways.
We need single logins across multiple brands. We need to really make it easy and a great experience for customers.
And we think we can generate some real audience there. Now, that said, what’s exciting about that is that that’s a platform for us to innovate in terms of advertising.
So, that's around dynamic ad insertion, it’s pricing a customer’s time in a different way, it’s about engagement units and other things, really lowering the ad loads and getting a higher yield. We’re already seeing non-linear advertising growth at a very, very good clip in the US and internationally, and that's because, from a data perspective and then a monetization perspective flowing from that, with innovative new ad products and different loads, you’re going to have a much better experience.
So, we’re going to approach it, first of all, by making sure the app platform is stable. It’s not easy dealing with the number of systems, the number of MVPDs, all the different authentication kind of issues that are out there.
But, first of all, we want to make it stable, we want to make it a great experience. We’re very focused on having a very, very big – large volume of content available on those apps.
And we’re going to kind of iterate in terms of how the advertising monetization works. It's already going pretty well with the existing apps and we think we’re going to able to enhance that experience and enhance our capabilities over the next number of months and through the rest of the year.
It will be a big focus for us.
Lachlan Murdoch
This is Lachlan on the affiliate fee growth. I sort of answered the question a little bit before, Jessica, which was just on – with the renewal that we signed at the end of December and then with some new renewals that start rolling in March, we expect affiliate fee growth to accelerate at really the end of the fiscal year.
So, you can read in that the fourth quarter, almost see the acceleration begin again.
James Murdoch
And it was, obviously, a little bit slower. We’ve talked about earlier just because of the anniversaries of deals.
We just didn’t have any renewals at the right time. It’s just the natural kind of cycle of it.
And then, with respect to the impact in India, look, the demonetization, obviously, was a big impact in the quarter. We continue to feel some of that.
It’s ameliorated over the last month and we expect that to kind of wash out of the system. But you will see that impacting this current quarter that we’re in and we have to really see what the fourth quarter looks like.
I just want to reiterate that the business is performing pretty strongly. The impact is primarily associated with the entertainment advertising piece of this due to the nature of our clients and the nature of their business and how it’s impacted by the demonetization.
Viewing share is very strong and we’re very confident that the business, once it’s through this kind of speedbump over a quarter or two, will be able to get back on the trajectory towards the targets that we’ve outlined for 2018, 2019, 2020 and beyond.
Jessica Reif Cohen
Thank you.
Reed Nolte
Thank you, Jessica. Operator, next question please.
Operator
And we’ll go to Michael Nathanson with MoffettNathanson. Please go ahead.
Michael Nathanson
I have two for James. James, question for you on Hulu is, since this idea first came up about a year ago, there's been a large list of new entrants to the space.
You mentioned many of them, including Google. So, as an owner of Hulu, where do you now see the opportunity to take share in what's becoming a pretty crowded marketplace?
James Murdoch
Well, first of all, I think it's crowded in terms of the number of sort of names that are out there, but I don't think – I think it’s very, very nascent. We’ve seen Sling, obviously, first out the gate.
I guess Sony views Sling to actually be very recent and we expect the team at Hulu to be ready for a launch pretty soon. And we think there is a lot to play for.
We think it’s a big opportunity. I think, for us, I guess, and we’ve been sort of talking about this for a while, we think that that proliferation of downstream competition is really, really healthy for content creators and for brands like ours that robust, that are differentiated, that can really deliver content that works for customers.
So, we think that that, A, from a 21CF perspective, that proliferation is going to be a positive thing for our business and we do believe that it can reverse some of these overall declines in subscriber trends in the total MVPD universe and have that go forward. And then, with Hulu, in particular, as you saw, I think Mike Hopkins did a great job kind of unveiling a lot of the details of the service, of the planned service, at CES earlier this year.
I think that live viewing plus current plus the past seasons and movies, by really bundling the SVOD services with originals and library and past seasons in with what is the kind of current MVPD window I think is a very compelling offering that makes it simple for customers, that makes it exciting, and I think gives it a real unique, at this point, angle on the marketplace. So, we think it could be very exciting.
I think it's – I would just say, it is very early days. So, even though we've seen a lot of announcements and we’re seeing reasonable growth in these digital MVPDs.
They are just starting from very little over zero. And it's a big marketplace and one that I think is going to benefit from a lot of this innovation.
Lachlan Murdoch
I think, James, just to add to that and I think it’s important for people to remember, Hulu will be part of our [indiscernible] ecosystem of these new DMVPDs. But one of the reasons Hulu is embarking on this strategy is also to influence that ecosystem and what the core bundle.
So, while we expect it to be very successful in its own right. It’s already been successful in terms of having some influence in terms of how these packages of core channels are being put together.
Michael Nathanson
Okay, thank you.
Reed Nolte
Thank you, Michael. Operator, quick, next question please.
Operator
And we go to Richard Greenfield with BTIG. Please go ahead.
Richard Greenfield
Hi. A couple of questions.
In the US, you've got your Hulu product that you've talked about, and what's coming with the virtual MVPD for Hulu. But just wondering, given what you're talking about out in terms of the technology that you're going to be fully consolidating with Sky, with things like NOW TV, is there a path for Fox to build, I guess for lack of a better word, a direct Fox to consumer relationship rather than everything going through Hulu?
And what could that look like? And then, secondly, when you think about Hulu, it's an amazing product at $8.
And I think James, I know I've heard you speak at conferences about how when you launched the $12 product, it's actually driven home to people the value of the $8 product, and really shown people the value of watching ads. How do you prevent the launch of a $40-ish product from showing people how much value there is to not watching live, essentially highlighting how great the $8 is versus the $40?
How do you protect against that?
James Murdoch
Okay. Thanks, Rich.
So, look, I think, first of all, as I mentioned earlier, we’re really focused on the streaming customer experience in the platform that we can deliver streaming content on to enable us to have the capabilities. We talked earlier about advertising.
We talked discovery of content, engagement generally. I gave you some numbers in my opening comments around how some of that is working around the world in terms of those levels of engagement.
But I think the goal for us is first to, as I said, really create this product, a direct streaming product for customers available to many, many, many millions of households on an authenticated basis who are already paying for the programming and we can really enhance their experience with that programming and we can also really enhance our capability in terms of monetizing that, in addition advertising lighter loads et cetera. But, certainly, it's also an option for us in the future whether or not we’d like to have it independently priced access to that suite of apps, and that’s a decision that we haven't yet made, but one certainly that we feel we have the capability and the general wherewithal and experience in terms of managing direct-to-consumer businesses and subscriber businesses to tackle.
But, right now, we’re very focused with our MVPD partners and our new digital MVPD partners to making a customer experience that is as good as it can be, and those decisions around independently priced D-to-C platforms in the US is something that can wait. I would note that between the Hotstar platform, both the free one and the premium tier there and then the businesses at our affiliate Sky and the Tata Sky in India as well, many tens of millions of customers are on this vast direct to consumer platform today that is generating a lot of engagement and a lot of – a lot of growth and a lot of profit.
So, we feel really good about that around the world as well. And whether or not there’s a future for us in that, for example, the way that a CBS has taken some steps in those areas in the US is a decision that we can take at a later date.
And then, with respect to pricing, look, I think pricing and packaging around these things is a challenging sort of art, if you will. There’s a bit of science, but there’s also a bit of art.
And the question is how do you make those – how do you make the differentiation between those tiers really worthwhile for people if they want to step up and do something that’s little bit more expensive. And you try to create steps for them, both up and down, so it doesn't just become in or out of a service.
Certainly, we did that and have done that for years at the Sky. And I think the team at Hulu are approaching it in a pretty smart way.
A lot of it has to do with just how they’re planning the product in the future. So, I think you have to watch it carefully and you have to create packaging around that that makes it understandable for customers exactly what they're getting, it’s simple, it’s straightforward and then they can choose the prices that they like.
And I would say that – I think that the live programming, current and live sports, et cetera are hugely valuable. And we see that in the uptake and penetration of the MVPD world today and in the engagement numbers and audiences that we’re delivering either to our sports businesses at the RSNs or at broadcast network, as we talked earlier, and with the kind of recency and immediacy of new programming as it launches.
So, I think that does have value for people. But detailed pricing and packaging going forward for Hulu is a matter for them that they're going to, I think, be articulating probably pretty soon and then also probably developing it and changing it as it goes along.
Richard Greenfield
That’s incredibly helpful.
Reed Nolte
We have time for about one more question. Thanks, Rich.
Operator?
Operator
Yes. So, we go to Steve Cahall with Royal Bank of Canada.
Please go ahead.
Steve Cahall
Yes, thank you. Just a couple from me.
Maybe first, just to continue the affiliate fee discussion, I was wondering, you've given a lot of detail. Can you remind us what percentage of the base of subs you've put on new deals in the last 18 to 24 months and what percentage you have coming up?
And maybe if you could share the same for what you've got on retrans on the broadcast side of deals. Also then, also on cash, just wondering, you haven't talked a lot about working capital lately, what should our expectations be for working capital this year and can you give us any indication of how much cash you might have on the balance sheet when you get to the end of the calendar year?
James Murdoch
I don’t have that number just on the top of my head. It’s about 20% in terms of the sort of affiliate universe.
And we actually don't have going forward a lot of lumpiness. We try to space that out, so that every year, few quarters or so, we can step up here and there.
We’ve got actually not a lot in the next few quarters. Having done this recent deal, we’ve got a small one coming up and then it picks up again in 2018.
John Nallen
And, Steve, from a cash perspective, we’re a first half/second half company. So, the first half usually is not our biggest cash flow period, so we’ll have a very strong cash flow period in the second half of the fiscal year including collecting all of the $500 million that Lachlan referred to earlier from the Super Bowl yesterday, while all the payments for that programming had been made in the first half of the year.
So, it's quite a healthy and will be substantially growing position of cash before we get to the end of the year.
Steve Cahall
Is it fair to assume you'll be very selective in any stock repurchase between now and then?
John Nallen
I think it’s probably fair to assume that we view the best use of our capital now to be pointed toward the Sky acquisition, just providing a better return than, as we said before, the status quo which would have included buyback. So, I think directionally that's the way you should look at it.
A - Reed Nolte
At this point, thank you everybody for joining today’s call. If you have any further questions, please give me or Mike Petrie.
James Murdoch
Thank you. Thank you very much for joining us.
Operator
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