Twenty-First Century Fox 2014 Annual Report Download - page 21

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include DBS, cable television systems and the Internet. The license agreements reflecting the subscription pay
television arrangements generally provide for a specified number of exhibitions of the program during a fixed term
in exchange for a license fee that is based on a variety of factors, including the box office performance of each
program and the number of subscribers to the service or system. Among third party license arrangements that units
of TCFF have in place in the United States for subscription pay television exhibition of motion pictures is an
exclusive license agreement with HBO, providing for the licensing of films initially released for theatrical
exhibition. Units of TCFF also license programming to SVOD services in the United States. Such licenses enable
the consumer to view individual programming selected by the viewer for a subscription fee, typically on a monthly
basis. In international markets, units of TCFF license motion pictures and other programming to subscription pay
television and SVOD services operated by leading third parties, as well as to such services operated by various
affiliated entities. In addition, units of TCFF license motion pictures and other programming in international markets
for exhibition on free television networks, including basic cable programming services, both to independent third
party broadcasters as well as to services operated by affiliated entities of the Company.
Competition. Motion picture production and distribution are highly competitive businesses. The Company
competes with other film studios, independent production companies and others for the acquisition of artistic
properties, the services of creative and technical personnel, exhibition outlets and the public’s interest in its
products. The number of motion pictures released by the Company’s competitors, particularly the other major film
studios, in any given period may create an oversupply of product in the market, which may reduce the Company’s
shares of gross box office admissions and may make it more difficult for the Company’s motion pictures to succeed.
The commercial success of the motion pictures produced and/or distributed by the Company is affected substantially
by the public’s unpredictable response to them. The competitive risks affecting the Company’s home entertainment
business include the number of home entertainment titles released by the Company’s competitors that may create an
oversupply of product in the market, competition among home media formats, such as DVDs and Blu-rays, and
other methods of distribution, such as EST and VOD services.
The Company faces ongoing risks associated with controlling unauthorized copying and distribution of the
Company’s programs. For a further discussion of issues relating to unauthorized copying and distribution of the
Company’s programs, see “—Intellectual Property.”
Television Programming, Production and Domestic Syndication Distribution
Twentieth Century Fox Television (“TCFTV”). During fiscal 2014, TCFTV produced television programs for
FOX, FX, ABC, CBS, NBC and Netflix. TCFTV currently produces, or has orders to produce, episodes of the
following television series: Backstrom, Bob’s Burgers, Bones, Bordertown, Empire, Family Guy, Glee, The Last
Man on Earth, New Girl, The Simpsons, Sleepy Hollow and Weird Loners for FOX; American Horror Story for FX;
Cristela, Fresh Off the Boat, Last Man Standing and Modern Family for ABC; and American Dad for Turner
Broadcasting System. Generally, a television network or cable network will license a specified number of episodes
for exhibition during the license period. All other distribution rights, including international and off-network
syndication rights, are typically retained by TCFTV, utilized by other units of the Company or sold to third parties.
Fox 21, Inc. (“Fox 21”). Fox 21 produces television programs for major U.S. cable networks. The company
produces Sons of Anarchy and Tyrant for FX; Homeland for Showtime; Brickleberry for Comedy Partners; Salem
for WGN America; Legends for TNT, Witches of East End for Lifetime; and Rush for USA.
Television programs generally are produced under contracts that provide for license fees that may cover only a
portion of the anticipated production costs. As these costs have increased in recent years, the resulting deficit
between production costs and license fees for domestic first-run programming also has increased. Therefore,
additional licensing is often critical to the financial success of a series. Successful U.S. network television series are
typically (i) licensed for first-run exhibition in international markets, (ii) released in DVD and Blu-ray box sets,
(iii) made available for EST, including individual episodes and full series, (iv) licensed for VOD, PPV and SVOD
services, including individual episodes and full series, (v) licensed for off-network exhibition in the United States
(including in syndication and to cable programmers) and (vi) licensed for further television exhibition in
international markets. Typically, a series must be broadcast for at least three to four television seasons for there to be
a sufficient number of episodes to offer the series in syndication or to cable and DBS programmers in the United