Twenty-First Century Fox 2006 Annual Report Download - page 40

Management’s Discussion andAnalysisofFinancial Condition and
Results of Operations (CONTINUED)
•Cable Network Programming,which principally consists of the production andlicensing of programming
distributed through cable television systems and direct broadcast satellite (“DBS”) operators in the United States.
•Direct Broadcast Satellite Television,which principally consists of the distribution of premium programming
services via satellite directly to subscribers in Italy.
•Magazines and Inserts,which principally consists of the publication of free standing inserts, which are
promotional booklets containing consumer offersdistributed through insertion in local Sunday newspapers in the
United States, and providing in-store marketing products and services, primarily to consumer packaged goods
manufacturers, in the UnitedStates and Canada.
•Newspapers,which principally consists of the publication of four national newspapers in the United Kingdom, the
publication of more than 110 newspapers in Australia, and the publication of amass circulation, metropolitan
morning newspaper in the United States.
•Book Publishing,which principally consists of the publication of English language books throughout the world.
•Other,which includes NDS Group plc (“NDS”), acompany engaged in the business of supplying open end-to-end
digital technology and services to digital pay-television platform operators and content providers; News Outdoor, an
advertising business which offers display advertising primarily in locations throughout Russia and Eastern Europe;
Fox Interactive Media (“FIM”), which operates the Company’s Internet activities; and Global Cricket Corporation
(“GCC”), which has the exclusive rights to broadcast the CricketWorld Cup and other related events through 2007.
Filmed Entertainment
The FilmedEntertainment segment derives revenue from the production anddistribution of feature motion pictures and
television series. In general, motion pictures produced or acquired for distribution by the Company are exhibited in U.S.
and foreign theaters followed by DVDs, pay-per-view television, premium subscription television,network television and
basic cable and syndicated television exploitation.Television series initially produced for the networks and first-run syndi-
cation are generally licensed to domestic and international markets concurrently. The more successful series are typically
released in seasonal DVD box sets and later syndicated in domestic markets and international markets. The length of the
revenue cycle for television series will vary depending on the number of seasons aseries remains in active production and
therefore may cause fluctuations in operating results. License fees received for television exhibition (including international
and U.S. premium television andbasic cable television) are recorded as revenue in the period that licensed films or pro-
grams are available for such exhibition, which may cause substantial fluctuations in operating results.
The revenues and operating results of the Filmed Entertainment segment are significantly affected by the timing of the
Company’s theatrical and home entertainment releases, the number of its original and returning television series that are
aired by television networks, and the numberof its television series in off-network syndication. Theatrical and home enter-
tainment release dates are determined by several factors, including timing of vacation andholiday periods and competition
in the marketplace. The distribution windows for the release of motion pictures theatrically and in various home
entertainment formats have been compressingandmaycontinue to change in the future.Areduction in timing between
theatrical and home entertainment releases could adversely affect the revenues and operating results of this segment. In
seeking to manage its risk, the Company has pursued a strategy of entering into agreements to share the financing of cer-
tain films with other parties. The parties to these arrangements include studio and non-studio entities, both domestic and
foreign. In several of these agreements, other parties control certain distribution rights.
Operating costs incurred by the FilmedEntertainment segment include exploitation costs, primarily theatrical prints
and advertising and home entertainment marketing and manufacturing costs; the amortization of capitalized production,
overhead and interest costs; and participations and talent residuals. Selling, general and administrative expenses include
salaries, employee benefits, rent and other routine overhead.
The Company competes with other major studios, such as Disney, DreamWorks, Paramount, Sony, Universal, Warner
Bros. and independent film producers in the production and distribution of motion pictures and DVDs. As a producer and
distributor of television programming, the Company competes with studios, television production groups and independent
producers and syndicators, such as Disney, Sony, NBC Universal, Warner Bros. and Paramount Television to sell program-
ming both domestically and internationally. The Company also competes to obtain creative talent and story properties
which are essential to the success of the Company’s filmed entertainment businesses.
In the operation of its businesses, the Company engages the services of writers, directors, actors and others, which are
subject tocollective bargaining agreements. Work stoppages and/or higher costs in connection with these agreements could
adversely impact the Company’s operations.
Television andCable Network Programming
The Company’s U.S. television operationsconsist of the FOX Broadcasting Company (“FOX”) and the 35 television stations
owned by the Company. The Company’s international television operationsconsist primarily of STAR Group Limited
(“STAR”).
The television broadcast environment is highly competitive. The primary methods of competition in broadcast tele-
vision are the development and acquisition of popular programming and the development of audience interest through
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