Fox Corporation (NASDAQ:FOX) (0.5%) (FOX/FOXA – $36.53/$36.64 – NASDAQ), headquartered in New York, New York, owns a high quality collection of cable and television networks focused on news and sports content. Fox News remains a powerful brand and the most watched news channel. Given Fox News’ high ratings, live viewing, and position as sole provider of right leaning news, we expect the company is in an excellent position to demand increased affiliate fees from distributors. While still small, the company launched Fox Nation, an OTT news service meant to serve as an add-on service for highly engaged Fox News viewers. News is typically watched live which, should limit cannibalization from SVOD alternatives, such as Netflix and Amazon Prime. News viewership in general, and Fox news in particular, benefit from increased political engagement associated with a more contentious political cycle. We expect Fox News will be a beneficiary of a potentially extended 2020 political cycle. Fox Broadcast Network should benefit from substantial retransmission revenue growth over the next three years. We expect the Fox Broadcast Network could generate an incremental $1 billion of contractually recurring retransmission and reverse compensation revenue over the next three years. The Fox Broadcast Network broadcasts substantially more sports programming than competing networks. The channel features both Sunday and Thursday Night football broadcasts, Major League Baseball, FIFA, NASCAR, and United States Golf Association (USGA) events. Fan engagement and live viewing has made sports programming highly valuable to channels in retransmission renegotiations. The spin-off of Fox Corporation was a taxable event, which resulted in a step-up in the company’s tax basis. FOX expects to be able to shield $1.5 billion of taxable income per year for 15 years, which should result in a net cash benefit of approximately $360 million per year. At a 10% discount rate, we estimate the net present value of the tax shield at $2.7 billion or ~$4.40 per share.
From Mario Gabelli (Trades, Portfolio)'s Gabelli Asset Fund's second-quarter 2019 shareholder letter.
