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Fox Banks on Cable Fees, Sports to Offset Ratings Slip

Tickers in this article: DIS FOXA TWX

NEW YORK (TheStreet) -- 21st Century Fox , the television and movie company that split from its publishing assets in June, has outperformed its chief rivals Time Warner  and Disney  in 2013 as the company controlled by Rupert Murdoch won increased fees from station owners and pay-TV operators. The entertainment giant has also shown early success with the rollout of Fox Sports One.

Fox has gained 50% this year compared to Time Warner, which has gained 42% and Disney, which has added 37%. By comparison, the Standard & Poor's 500 Index has advanced 23%, poised for its best year since 1997. Fox shares were dropping 0.8% to $33.87 in mid-day trading.

Fox trades at 22.5 times estimated 12-month earnings, its highest level in more than three years, according to data compiled by Bloomberg. Disney trades at 20.4 times earnings while Time Warner's price to earnings ratio is 18.3 times.

One area of concern for investors, says Credit Suisse media analyst Michael Senno, is ratings at Fox's flagship station where viewers have tended to trail rivals among the Big Four. Ratings for the critical 18 to 49 year-old demographic have declined for seven consecutive quarters with viewers of X Factor down 30% compared to the same period a year ago.

Sports fees continue to drive profits. Senno forecasts that sports programming will represent more than 50% of Fox's advertising revenue for the New York-based company's fiscal year that began Oct. 1. The Secret Life of Walter Mitty, the feel-good drama scheduled for a Christmas Day opening, is expected to gross as much as $135 million, according to BoxOffice.com.

"Fox is hoping for a lot out of 'The Secret Life of Walter Mitty,' said Phil Contrino, chief analyst for researcher BoxOffice.com. "That should be a very healthy earner both domestically and abroad. It's a crowd pleaser, a very uplifting movie that you feel good about, and that kind of movie does well around the holidays."

The Counselor has had mixed success at the box office while it's been mostly skewered by critics. Conversely, 12 Years a Slave is an early pick to win Best Picture at the Academy Awards, a distinction that Contrino says will be worth a lot of money.

"Its early numbers are assuring, it's doing a slow burn as Fox isn't rushing it out to 3,000 theatres right away," Contrino said, adding that the film is expected to gross $90 million. "We expect very steady earnings; it could hit north of $80 million in North America, and that's very good for a movie that is that intense."

--By Leon Lazaroff in New York