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Fox News Plans a Streaming Service for ‘Superfans’

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Thanks to a relentless news cycle — and a dedicated fan in the Oval Office — Fox News has defied the downward trends in the television business, notching its highest-rated year in 2017 even as audiences dwindled for many networks.

But the mass migration of viewers away from traditional cable and satellite packages is accelerating. And now Fox News is plotting a leap into the uncertain digital future that rivals like CNN have so far put off.

On Tuesday, Fox News is set to announce Fox Nation, a stand-alone subscription service available without a cable package. The streaming service, expected to start by the end of the year, would focus primarily on right-leaning commentary, with original shows and cameos by popular personalities like Sean Hannity.

It would not overlap with Fox News’s 24-hour cable broadcast — not even reruns — because of the channel’s contractual agreements with cable operators. Instead, the network is planning to develop hours of new daily programming with a mostly fresh slate of anchors and commentators.

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“Fox Nation is designed to appeal to the Fox superfan,” John Finley, who oversees program development and production for Fox News, said in an interview. “These are the folks who watch Fox News every night for hours at a time, the dedicated audience that really wants more of what we have to offer.”

Mr. Finley said the network was still discussing the cost of a subscription.

The Fox News venture joins an increasingly crowded — and increasingly niche — marketplace for web-only streaming television.

ESPN is starting its subscription service, ESPN Plus, in the spring. About five million viewers signed up last year for HBO and Cinemax digital subscriptions. Last week, CBS said it counted five million subscriptions to its CBS and Showtime streaming services, and it plans to add two more stand-alone products, CBS Sports HQ and an offering branded for “Entertainment Tonight.”

Fox Nation, depending on its popularity, may prove more consequential to the country’s political life than the average streaming service.

Fox News already commands the attention of President Trump and many voters in his base. The digital product would bring viewers an additional dose of opinion programming beyond staples like “Hannity” and “Fox & Friends.” Live events, like question-and-answer forums, would encourage more direct interaction with anchors and commentators.

Fox News viewers “value our product so much, they go to hotels and if they can’t have Fox, they send us emails. They go on cruises, and if they can’t have Fox, they send us emails,” Mr. Finley said. “This is a way for us to meet that demand.”

Whether the venture would be a moneymaker is up in the air.

Fox News reaps more than $1 billion in annual profit, providing ample funds to hire a new team for Fox Nation, which is not expected to initially carry advertising. Mr. Finley declined to estimate his start-up costs, and streaming services in conservative media have had a mixed record of success.

The Blaze, a web-only service founded by the host Glenn Beck in 2011 after he left Fox News, struggled to attract interest and eventually morphed into a more traditional network distributed by cable and satellite providers. Bill O’Reilly, who was fired by Fox News in April, started a subscription service on his website that has earned little attention.

Mr. Finley said Fox Nation was not comparable to a personality-driven product. “This is not starting from scratch here,” he said. “Glenn Beck had a ton of viewers when he was here on Fox. When he left, it didn’t seem to me that they followed him. People are loyal to the Fox brand.”

The median Fox News viewer is 65 years old, according to Nielsen, but the network points to its website traffic and heavy presence on Facebook and other social media platforms as evidence that a web-only service can appeal to its audience.

Among Fox News’s main rivals, MSNBC has no stand-alone product. CNN has a streaming service, CNNgo, which offers some free original programming, but it otherwise requires an existing cable or satellite subscription. Jeff Zucker, CNN’s president, said in December that he was considering a digital product for the channel’s “Great Big Story” brand, which is aimed at younger viewers.

Fox News, though, is facing some new competition on its conservative flank. The potential expansion of the Sinclair Broadcast Group may bring more conservative programming to local television stations. Peter Thiel, the technology investor and Trump supporter, is said to be interested in creating a right-leaning media organization based in Los Angeles.

Asked if Fox Nation was a response to pressures from cord-cutting and other industry trends, Mr. Finley said Fox News loyalists “are not cutting the cord anytime soon.”

“I don’t think this is about competing with our rivals. It’s about serving our audience,” he added. “We know who our audience is. We know what they want.”

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Stocks are set for a correction and Japan could be among hardest hit: SEB

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Stock markets are set to see losses ahead, and Japanese stocks could wind up being the hardest hit, warns SEB’s Sean Yokota.

“For the next couple of months, I think you’re going to see some downside risk, especially going into the fall,” Yokota, Singapore head of markets at the firm, told CNBC’s “Squawk Box Asia” on Thursday. “I think stock markets are in for a correction.”

He said Japanese markets could “suffer the most in this environment” as the country struggles with rising Covid cases as well as lackluster inflation.

Japan is struggling to contain the spread of the highly contagious delta variant. Daily new confirmed cases have spiked nearly 500% from their July 1 levels, based on CNBC calculations using figures from Our World in Data. Japan’s markets have also tumbled in a similar period, declining more than 5% for July.

The country is considering expanding its Covid quasi-state of emergency to eight more prefectures, according to local news agency Kyodo News.

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Investor sentiment has also been weighed down in recent weeks by concerns over whether the global economic recovery from the pandemic has already peaked. While the U.S. economy is now larger than it was before the pandemic, its growth rate may have peaked at a much slower than expected pace.

SEB’s Yokota said he sees a slowdown in growth ahead.

“You can have transitory inflation, you could have transitory growth as well, where this pent up demand that you had fades away,” he said.

Higher inflation tends to pressure stock prices as it reduces expectations for earnings growth. Rising inflation in the U.S. has sent jitters through the market this year, raising concerns about whether the Federal Reserve may roll back its easy policies earlier than expected.

But, Yokota notes: “Japan was one of the beneficiaries of this inflation trade since they’ve been in deflation for 30 years.”

Even before the pandemic hit, the Bank of Japan has struggled for years to meet its ever elusive inflation target.

Official data released in July showed core consumer inflation in Japan rising just 0.2% in June as compared with a year earlier. That was the fastest annual pace in more than a year, according to Reuters.

Still, other major economies have reported much higher inflation. Consumer prices in the U.S. rose 5.4% in June from a year earlier, the biggest monthly gain since August 2008.

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Adidas Q2 sales fall in China as consumers boycott international brands

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LONDON — Adidas has increased its outlook for the year, despite a drop in sales in China where some consumers have boycotted the sportwear brand for its stance against alleged human rights abuses.

In its second-quarter earnings report Thursday, Adidas said revenue had picked up everywhere except Greater China, particularly in Europe and the U.S, driving a 55% hike in second-quarter sales from the previous year.

“We are seeing North America, Latin America and Europe having a very, very strong growth and we are seeing uncertainty in China, but I am very, very convinced that China will be very, very successful also for this year,” Kasper Rorsted, CEO of Adidas, told CNBC’s Squawk Box Europe.

The German sportswear giant’s net income came in at 397 million euros ($470 million) for the second quarter, in sharp contrast to the net loss of 295 million euros reported this time last year, at the heights of the coronavirus pandemic.

Online revenues fell 14% over the second quarter, as more consumers were able to visit stores. Adidas saw a sharp hike in online sales over the same period in 2020 when many markets were in lockdown.

Rorsted said online sales were undergoing some “normalization” from the abnormal levels seen last year, but he still expects “strong growth” in e-commerce going forward.

Adidas increased its outlook, saying it now expects sales growth of up to 20% year-on-year in 2021, supported by upcoming product releases and the fact that more people will be able to attend live sports events.

China boycott

The company’s China sales are being closely monitored by analysts and investors.

Adidas said Thursday that second-quarter sales fell by more than 16% in Greater China.

Pedestrians walk by a large Adidas logo inside the German multinational sportswear shop.

Miguel Candela | SOPA Images | LightRocket via Getty Images

“Because of geopolitical tensions, we did see an impact particularly in our online business in the second quarter in China, and we think that will over time normalize,” Rorsted said.

It comes after some mainland Chinese consumers began boycotting international brands that have taken a stand against the treatment of one of China’s ethnic minorities in the Xinjiang region, where many cotton plantations are found.

The ethnic Uyghurs, who live mostly in China’s west, have been identified by the United Nations, United StatesUnited Kingdom and others as a repressed group.

Earlier this year, Canada, the U.K, and the U.S. issued a joint statement expressing “deep and ongoing concern” about forced labor, mass detention in internment camps and other serious abuses committed against the Uyghurs in Xinjiang. The European Union in March imposed sanctions on Chinese officials it says are responsible for abuses against Uyghurs.

China’s foreign ministry has characterized such claims as “malicious lies” designed to “smear China” and “frustrate China’s development.”

Adidas has previously said that it has a “zero tolerance approach to slavery and human trafficking.”

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China’s harsh education crackdown sends parents, businesses scrambling

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New Oriental is located at the West Yintai Campus, Hangzhou city, Zhejiang Province, China, on August 2, 2021.

Costfoto | Barcroft Media | Getty Images

The Chinese government’s sudden crackdown on after-school education companies is raising costs for many parents and throwing millions of jobs into uncertainty.

In a country where parents prize a good education — and good grades play an outsized role in determining career opportunities — tens of millions of students across China drown in after-school tutoring courses every year.

But this summer will be the last one for educational institutions to legally sell such tutoring programs.

Since the central government officially released the so-called double reduction policy last month, local authorities in several provinces, such as Shanxi and Hunan, have ordered private businesses to suspend online and offline tutoring classes for children from kindergarten to 9th grade.

The policy states that one of its major goals is to ease the burden and anxiety for Chinese parents wanting to give their children a good education.

The guidelines focus on the nine years of compulsory education before high school — from elementary to middle school, and call for academic tutoring businesses to restructure as non-profits.

The policy also prohibits those businesses from offering classes on weekends, holidays, summer and winter breaks — effectively only allowing tutoring on weekdays with a limited number of hours.

The scale of the crackdown is “far beyond expectations,” said Alan Wang, an analyst covering education at Beijing-based asset manager Harvest Fund Management.

The industry was preparing for some regulations, but it didn’t expect an order for restructuring that included a ban on public listings, making the sector basically “not investable,” he said in Mandarin, according to a CNBC translation.

Some parents will still pay up for tutoring courses they can find, sending costs higher, he added.

CNBC interviews across the education industry reveal that the new regulations shocked parents and left businesses struggling, as millions of employees braced for job losses.

Chinese parents scramble for options

If the local Beijing government bans after-school tutoring institutions, one mother surnamed Zhang said she will consider forming a small group with other parents to hire private tutors for their children. 

That means hourly rates will go up and parents will pay less up-front deposits than if they had gone through an institution, said Zhang, who declined to share her first name on privacy concerns. 

Zhang said she will spare no efforts to invest in helping her two children compete for “very limited” high quality education in China. The family lives in Beijing’s top public school district of Haidian, and the older child, who is set to begin middle school in the fall, spends about three hours a day at online group classes and one or two hours of one-on-one tutoring a week. 

That’s less than her peers in the district, who study all day or at least half a day during the summer break, Zhang said. 

Her younger child, who just finished the first year of elementary school, is spending about half an hour daily on online group classes. Zhang had hoped to enroll her daughter in more offline tutoring classes as staring at the screen is damaging her eyesight. But the latest crackdown means it will be almost impossible.

“I feel this approach is kind of one size fits all,” Zhang said in Mandarin, according to a CNBC translation. 

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After-school tutoring can be costly, but many parents feel compelled to sign their children up so they stand a chance in the highly competitive college entrance exam system. 

Luna Cheng is raising her 13-year-old daughter in Shanghai’s downtown Jing’an district. She told CNBC she paid about 5,000 yuan ($774) for a two-week summer course with about 20 other students, comprising of three hours a day on mathematics. 

That’s a hefty sum for most households, who also face high housing costs. 

A 5,000 yuan course is about 71% of the average monthly disposable income of 7,058 yuan for urban residents in Shanghai, according to official data for this year. 

But the same course would far exceed the average monthly disposable income of 3,756 yuan for rural residents working in Shanghai, the data showed, although rural workers have seen their incomes grow more quickly than urban ones. 

In Beijing, the hourly rate of a private one-on-one class anecdotally ranges from around 500 yuan to 2000 yuan.

Despite the cost, Cheng said she wanted to enroll her daughter in more courses this summer, but her daughter did not want to sign up.

“I am a bit anxious,” Cheng said. Her daughter will begin physics class in the fall, and Cheng estimates that 90% of her classmates will be studying for it during the summer break. Without extra studying time after school, Cheng said she is afraid her daughter will not be able to catch up, let alone excel in the new subject.

Such fears push parents in China to spend a lot on after-school tutoring and help fuel a burgeoning industry.

According to a 2020 report by Oliver Wyman, the market size for China’s after-school tutoring for kindergarten to 12th grade students reached 800 billion yuan ($123.7 billion) in 2019.

The consultancy predicted the market will break 1 trillion yuan by 2025. The growth was further accelerated by the Covid-19 pandemic, especially for online tutoring.

The new policy may actually have adverse effects in the short term, especially since poorer families typically send their children to tutoring schools only because of peer pressure, Claudia Wang, partner at Oliver Wyman and lead of the firm’s Asia education practice, told CNBC on Monday.

“Now, they’ve probably given up,” she said.

Millions of jobs at risk

The consequences reach far beyond business owners and parents: the future of millions of workers also hangs in the balance.

As education companies struggle to comply with the new policies, many businesses will likely be forced to shut down.

The education service industry provides about 10 million jobs in China, according to a report in January by Beijing Normal University and TAL Education in 2021.

Tutoring centers focused on academic subjects should pivot to another industry as soon as possible, Citic Securities, a major Chinese investment bank, said in a note sent to its clients on July 23.

The “double reduction” is just the beginning, and more supporting policies will come to regulate nine-year compulsory education, said Citic Securities. The analysts said the risks for high school education-related businesses are not high at this time.

A senior employee of 17 Education & Technology Group — a U.S.-listed after-school tutoring company in China — told CNBC the company plans to halve the number of employees.

The source asked to resign when the central government released its harsh policy on the sector, but chose to stay longer to help the company pivot its business. However, “nobody really knows how,” he said in Mandarin, according to a CNBC translation.

Other education industry giants are reportedly preparing for a 30% to 70% cut in their labor force, depending on how local authorities implement the central government’s regulation and how much the firm relies on income from tutoring students who are kindergarten to 9th grade.

The ban on tutoring on weekends and summer or winter breaks particularly hurts the businesses, since those classes account for more than 65% of class hours for most privately run after-school tutoring companies, the source said. Banning those courses means the majority of employees will no longer be needed.

In the wake of potential layoffs, Chen Xiangdong, the founder and CEO of Gaotu, said in a letter to employees last week that he is “very, very sorry that we have to make this tough decision,” according to a report by Chinese financial media Lei News.

However, Wang, the analyst from Harvest Fund Management, said he did not expect much fallout from potential job losses because the government would likely have already considered employment issues before making the policy decision.

U.S.-listed stocks plunge

Some of China’s largest after-school tutoring companies — U.S. listed firms Gaotu Techedu, New Oriental and TAL Education — were riding a business boom before the summer crackdown.

These three tutoring giants reported double-digit growth in the latest quarterly earnings reports.

In the quarter ending Feb. 28, New Oriental recorded a 29% year-on-year increase in net revenues to $1.19 billion, with student enrollments in academic subjects tutoring and test preparation courses increasing by 43% to nearly 2.3 million registrations.

During the same period, TAL’s net revenues increased 58.9% from last year to $1.36 billion.

Gaotu said net revenue rose 49.5% year-on-year for the quarter that ended March 31.

Chinese education stocks listed in the U.S. plunged after news of the government crackdown, and lost more than half their value that day. New Oriental and TAL postponed their earnings report plans scheduled for this week.

New Oriental, TAL, Gaotu and 17EdTech did not immediately respond to CNBC’s request for comment on this story.

Among the privately held businesses, major players like Yuanfudao, Zuoyebang and Huohua Siwei successfully completed several rounds of fundraising during the pandemic, raking in billions of U.S. dollars. These “mega unicorns” are reported to have planned to list in the United States just before the policy announcement.

Companies that managed to go public ahead of the crackdown are suffering as well.

Beijing-headquartered 17EdTech was listed on the Nasdaq in December with an offering price of $10.50. Now, its share price is around $1.

— CNBC’s Evelyn Cheng contributed to this report.

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