Fox wounded, but not because of News Corp crisis

NEW YORK/LOS ANGELES Sat Oct 1, 2011 5:14am IST

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NEW YORK/LOS ANGELES (Reuters) - After a summer of scandal, the spotlight has shifted from News Corp's phone hacking crisis to its entertainment business, where its TV network and movie studio are searching for fresh hits to meet sky-high expectations.

Fox's tentpole shows -- "Glee," "The X Factor," and "Terra Nova" -- debuted this month to audience figures that fell short of Hollywood's expectations, partly due to out-sized ratings hopes and partly to the highly competitive, fragmented TV landscape that has made business tough for all the networks.

For "Terra Nova," believed to have cost Fox about $20 million for the first episode and featuring Steven Spielberg among a roster of a dozen big-name producers, the ratings bar was set extremely high.

But the premiere episode pulled in only half as many viewers as the 20.5 million that tuned into "Two and a Half Men" on CBS the same night, putting it in danger of being labeled an underachiever.

The premiere of "The X Factor," which creator Simon Cowell predicted would match the 20 million-plus viewers that his former show, "American Idol," regularly generates, only drew 12.1 million viewers in its premiere.

As soon as the ratings came in, the questions began: can "The X Factor" live up to its hype? Will "Terra Nova" make economic sense? Can "Glee" return to the success of its first season?

"You could look at it as the glass is either half full or half empty," Brad Adgate, senior vice president of research at advertising firm Horizon Media, said of Fox's initial ratings results. "They are doing better than they did last year at this time. But I think they were expecting that they'd be doing even better."

Fox's first week may have disappointed some, but it was hardly a disaster. After the initial week of the 2011-12 season, Fox trailed CBS in total viewers but was the top network among the 18- to 49-year-olds most prized by advertisers.

Fox executives point out that its 18-to-49 audience has grown from a year ago, and the fall schedule is stronger across the board than it has been in years. They also hold out hope that "The X-Factor" can develop into a bona fide hit.

Preston Beckman, Fox's TV scheduling chief, insisted the network was happy with its ratings and couldn't control what Cowell said ahead of the debut.

"For us to assume that 'X Factor' would come out of the gate and equal 'Idol' ratings just wasn't true," he said in a recent interview.

Moreover, analysts said the ratings, even if not blockbuster, should satisfy advertisers, some of whom have paid up to $400,000 for 30-second spots. "The ratings haven't been amazing but I don't believe they're at any risk of failing to meet their ratings guarantees to advertisers," said Collins Stewart analyst Thomas Eagan.

IS THE PHONE-HACKING SCANDAL TO BLAME?

Though the phone-hacking scandal dominated headlines and consumed the public this summer -- forcing News Corp to shut down its 168 year-old News of the World newspaper, fire several top executives and abandon its $12 billion buyout of pay TV group BSkyB -- analysts say it hasn't had much of an effect on the overall performance of Fox's television and movie slate.

"The distractions at News Corp have been at the upper management level but not at the operating level," said Eagan. "We see considerable health in the networks and entertainment business."

Indeed, Fox still ranks as the strongest broadcast network behind CBS by most measures. And it will only get stronger as the year goes on -- Fox historically starts slowly in the fall TV season before its ratings are supercharged by the appearance of "American Idol" midseason.

The network still has several new and returning shows to roll out, including proven hits "Bones" and "House." Fox also has high hopes for new shows "Allen Gregory" and "I Hate My Teenage Daughter," both of which won't begin airing until later this fall.

Fox already has one new hit on its hands with the Zooey Deschanel comedy "New Girl," whose premiere generated more than nine million viewers, ranking it as Fox's highest-rated fall comedy debut in a decade. The show has already been picked up for a full season.

MIXED MOVIE RESULTS

News Corp's film studio, 20th Century Fox, has performed unevenly all year long, releasing unexpected hits like "Rio," a 3D cartoon about the misadventures of a Brazilian macaw, and flops such as "Glee - the 3D Concert Movie."

Starring the cast of the hit television show about a high school choir, "Glee" had weak box-office sales, though it was cheap to produce and could yet turn a profit.

The studio's $766 million in box office receipts this year give it just under a 10 percent market share, good enough for sixth place through Sept. 25, according to industry tracking service Boxofficemojo.com. By comparison, Warner Bros. ranks first, with $1.44 billion in box office receipts and an 18.6 percent market share.

"Fox has had a credible year. It wasn't a crazy great year by their standards, but they certainly had some successes," Wunderlich Securities analyst Matthew Harrigan said.

For instance, tentpole film "Rise of the Planet of the Apes," a modern-day prequel to the classic sci-fi tale about chimps that launch a revolution, generated bigger audiences than industry pundits forecast.

Conversely, ticket sales for superhero sequel "X-Men: First Class" were "not what you'd hope for in an 'X-Men' movie," said Lazard Capital Markets analyst Barton Crockett. He added that the movies was a "modest disappointment, not a major one."

Fox Filmed Entertainment spokesman Chris Petrikin has a different view of the performance of "X-Men: First Class," however.

"We regard 'X-Men' as a huge success," he said. "It reignited the franchise and has done more then $350 million worldwide." He added that the film performed strongly enough for Fox to make more sequels in the future and characterized the film division's overall performance as "terrific."

Fox's biggest release this year is likely yet to come. Family comedy sequel "Alvin and the Chipmunks: Chipwrecked," which will be released right before Christmas, is projected to collect more than $200 million from domestic theaters, according to Crockett.

Still, "nothing stacked up to the tail of Avatar this year," Crockett said. Part of the problem the studio faces is the tough year-over-year comparisons because of the phenomenal success of "Avatar," the top grossing movie of all-time.

"I think things will get exciting at Fox studios when they come out with some Avatar sequels," Crockett said. The second of three "Avatar" films is set for release around Christmas 2014.

(Additional reporting by Yinka Adegoke in New York and Jill Serjeant in Los Angeles; Editing by Peter Lauria, Gary Hill)

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