Twenty-First Century Fox 2007 Annual Report Download - page 41

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
of in-store marketing products and services, primarily to consumer packaged goods manufacturers, in the United States and
Canada.
•Newspapers, which principally consists of the publication of four national newspapers in the United Kingdom, the publication
of approximately 145 newspapers in Australia and the publication of a mass 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”), a company 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 Group (“News
Outdoor”), an advertising business which offers display advertising primarily in outdoor locations throughout Russia and East-
ern Europe; and Fox Interactive Media (“FIM”), which operates the Company’s Internet activities.
Filmed Entertainment
The Filmed Entertainment segment derives revenue from the production and distribution 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 tele-
vision exploitation. Television series initially produced for the networks and first-run syndication are generally licensed to domestic
and international markets concurrently and subsequently released in seasonal DVD box sets. More successful series are later syndi-
cated in domestic markets. The length of the revenue cycle for television series will vary depending on the number of seasons a ser-
ies 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 and basic cable television) are recorded as revenue in the period that
licensed films or programs 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 Compa-
ny’s theatrical and home entertainment releases, the number of its original and returning television series that are aired by television
networks and the number of its television series in off-network syndication. Theatrical and home entertainment release dates are
determined by several factors, including timing of vacation and holiday periods and competition in the marketplace. The dis-
tribution windows for the release of motion pictures theatrically and in various home entertainment formats have been compressing
and may continue to change in the future. A reduction in timing between theatrical and home entertainment releases could
adversely affect the revenues and operating results of this segment.
The Company enters into arrangements with third parties to co-produce many of its theatrical productions. These arrange-
ments, which are referred to as co-financing arrangements, take various forms. 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. The
Filmed Entertainment segment records the amounts received for the sale of an economic interest as a reduction of the cost of the
film, as the investor assumes full risk for that portion of the film asset acquired in these transactions. The substance of these
arrangements is that the third-party investors own an interest in the film and, therefore, receive a participation based on the third-
party investor’s interest in the profits or losses incurred on the film. Consistent with the requirements of Statement of Position 00-2,
“Accounting by Producers or Distributors of Films” (“SOP 00-2”), the estimate of the third-party investor’s interest in profits or losses
incurred on the film is determined by reference to the ratio of actual revenue earned to date in relation to total estimated ultimate
revenues.
Operating costs incurred by the Filmed Entertainment segment include: exploitation costs, primarily theatrical prints and adver-
tising and home entertainment marketing and manufacturing costs; 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, 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 programming 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.
Television and Cable Network Programming
The Company’s U.S. television operations primarily consist of the FOX Broadcasting Company (“FOX”), MyNetworkTV, Inc.
(“MyNetworkTV”) and the 35 television stations owned by the Company. The Company’s international television operations consist
primarily of STAR Group Limited (“STAR”).
The U.S. television broadcast environment is highly competitive and the primary methods of competition are the development
and acquisition of popular programming. Program success is measured by ratings, which are an indication of market acceptance,
with the top rated programs commanding the highest advertising prices. FOX and MyNetworkTV compete for audience, advertising
revenues and programming with other broadcast networks, such as CBS, ABC, NBC and The CW, independent television stations,
cable program services, as well as other media, including DBS services, DVDs, video games, print and the Internet. In addition, FOX
and MyNetworkTV compete with the other broadcast networks to secure affiliations with independently owned television stations in
markets across the country.
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