Fox Corporation (FOXA) Earnings Call Transcript & Summary

Good morning. So welcome to our first company presentation at our 26th Annual Communications Conference, our first virtual communications conference. We'll see -- hopefully, not our last. I'm very pleased to have John Nallen, Chief Operating Officer of Fox Corporation, with us this morning. John, thank you so much for being with us.

Thanks for having us, Doug. We appreciate it.

So as -- why don't we start off with the split-off of Fox Corp., just consummated last year. It's a new stand-alone company, 15 months old. It certainly faced a major test with the COVID crisis. I'm curious, what did the Board and management get right with the design and operational structure of Fox Corp.? Where is there still work to do in your view?

So I think if you look now at what was put together, you can be pretty comfortable that it's the right business. We put together a very simplified portfolio of assets, focused on live sports, live news event program. So if you look at what's going on, particularly in the media sector and most particularly in the entertainment sector, focusing on live was really the right strategy. We also -- I think if you think about other attributes that we brought to Fox, the culture that we had at 21st Century Fox News Corp., before that, of agile -- an agile company, rapid decision-making, we brought that over lean corporate structure. The conservatism that we have toward our balance sheet and leverage is a hallmark of the company and always has been. But then, I was reflecting on this before this conference, if you look at the year that we had, granted, severely interrupted by what's going on right now, but leadership positions across the board, FOX News stays #1; FOX Sports, #1 in live. The entertainment network goes from fourth to first, and the station's gained market share. A record Super Bowl; 7 Game World Series; an unprecedented number of affiliate deals that we completed; acquisitions, Bento, Tubi, Credible, and Nexstar stations. We then entered the sports wagering market. We authorized and executed on a buyback. So when you look at the last 15 months, there was a lot accomplished. And then as we look to '21, grant that we paused, remember we're June fiscal year-end, we paused with the interruption and the disruption and the uncertainty that comes out of COVID-19. Now with the news of whatever it was, 30 minutes ago, on retail sales and the reaction of the market, hopefully, that bodes well for what's to come. But all in all, I think if you look at the establishment of the company, the execution and the forward-looking opportunity, we're sitting in a pretty good place.

So let's talk about that forward-looking opportunity. How do you create the most value going forward? I know, subject near and dear to your heart.

Well, first, you have to start with the existing businesses. So for us to continue to focus on maintaining that leadership position that I commented on is vital because it supports the top-line pricing growth that we need to achieve to continue our growth. And in pricing growth, I mean, both in affiliate revenue as well as advertising revenue, and I'm sure we'll talk about both. So first and foremost, it's just growing the existing business. Second, I think it's expanding into adjacencies, like we've done with -- started to do with FOX Nation, FOX Bet, stuff with Tubi. It's how do we get into adjacent businesses that are naturally attached to that core growth businesses. And look, the third is kind of the beauty of the Fox Corporation as it exists right now is deploying our balance sheet and that cash flow that we generate for the best return. And look, that return could be in the form of capital returns. It could be accretive M&A, organic investment, but over the last 15 months, I think we've demonstrated our ability to do all of those. But the balance sheet, I think, is going to be a big driver of growth for the future. It's a unique attribute we have when you consider other companies in our space.

And we'll certainly be talking about that in a few minutes. Is fiscal '21 a good growth year for Fox Corp.?

I think it's hard to say for anyone if you look at what '21 has brought on. We're -- our fiscal year ends in about 15 days. So we look forward to the next 12 months. And we were set up nicely pre-COVID for a good '21. We had some comparison items. We don't have a Super Bowl this year. We don't have a World Cup. We've got a big election cycle. So those were going to be just natural oscillations of our business that you can predict well in advance. But COVID-19 has put in a great deal of uncertainty and disruption into our business. And it really -- I think it manifests itself for us in 2 big areas: first is the sports calendar, right? And I've read everything in the last 48 hours about some of the leagues, but what happens with baseball, college football, the NFL, NASCAR is back, those are big variables for us. And second is, which I'm sure is true for everyone, but for us, more so, is the pace of the economic recovery. And what the impact of that pace is on advertising, national and local, and on subscribers. And look, where it's manifested itself most for us, the economic issues, is in our local station business. That's a business that turns off and on rapidly. And it continues to be impacted, less severely than a month ago, and we can talk about that, by auto and retail, basically, consumer spending. Again, I'm encouraged by the retail numbers from this morning. But it does -- it is looking forward to what should be a pretty sizable election period, but we had planned that anyway, right? So I -- that's not positive nor negative. We had planned for a big election period. I think the overhang is how quickly advertising returns in the local markets. And as I'm sure we'll talk about, it's going to vary state-by-state, market-by-market.

So let's talk about that. Beyond television advertising, any other COVID updates impacts on trends? But certainly, very interested to hear how television advertising is doing, both locally and nationally, and where you do see variances based on whether markets have opened up or not.

So when we last spoke to you, you were one of the questioners and everyone else during the earnings call, we estimated the major impact to our Q4 was going to be out of -- a, out of advertising and b, out of local. And we gave you a range of $200 million to $240 million impact. We're now looking at the lower end of that range because we've seen some key categories in local markets return. So the pacing that we told you then was down 50% for Q4 has improved to basically the low 40% range, with June itself, basically, down 30%. So the trend is in the right direction. Where we're seeing that, remember, our station group is a major market station group. So when you think about the cities that got hit the hardest, that's where we are. But certain of our middle-market cities like Atlanta, Detroit, Houston, Phoenix, they were turning on quicker than those big-city markets, and we've seen advertising return a bit quicker, hence the down 30% in June. What it means for Q1, we can see out to about July and still see that kind of trend occurring. Beyond that, I'm really not going to guess.

So before we -- certainly encouraging, but before we delve into some of the revenue streams, oddly, I wanted to start a little bit with OpEx. I mean, Fox has been relatively unique as not having had to address its cost structure as aggressively as some of the others that were more directly impacted by the crisis. And I'm just curious, from your standpoint, whether you do see permanent changes, whether it's distributed workforce or what have you that would have some cost benefits for Fox Corp.? And what kind of efficiencies you are pushing through in this environment?

Well, I think it goes back to your first question, which was the establishment of Fox 15 months ago. We had the -- I mean, it's rare you get the opportunity to stand up a public company and plan for it inside of a public company. And we had that opportunity pre the 21CF sale and the spin-out of Fox. So as a result, we were able then to design a really efficient organization. We just had that luxury. We had that ability. But having said that, we did take some cost initiatives with COVID. Management team were foregoing salaries. We reduced other salaries for an extended period. We've got a hiring freeze on. We announced that there'll be no merit increases for the next year. So that's on the one side from a cost standpoint. On the other side, we recognized the importance of our colleagues across the country to making Fox tick. So we've signed up to pay for all their medical benefits, free telemedicine, and we've made some pretty big contributions into the communities we're in. But I think like every company, we've learned a lot during this 3 months. And my sense of this is it's going to play out over a year. People will start to return. They're going to try to figure out what the level water is and how they can operate their business differently. We'll test a few things. And then probably a year from now, we'll know permanently how we're going to work. I don't think there's any sense one Phase 1 return where people are going to say, "This is the way we're going to work going forward." It's just -- it's going to be trial and error. And then eventually, people will figure out a different way to work.

So let's shift over to distribution revenue. So that's another area that tends to set Fox apart, given the amount of growth you have in distribution. Can you talk about the price value of your networks at this point? Again, you're putting up the fastest affiliate growth in the industry by far. What's the outlook for retrans and cable network affiliate growth going forward?

As a whole, it's 50% of our revenue, right? I come back to a simple company, roughly 50-50 between sub-affiliate fees and advertising revenue. For us, and we -- I go back to the Investor Day where we talked about how simple this is, right? We offer a unique proposition to the distribution partners. Basically, 6 channels built around 3 brands: sports, news and the network and entertainment, with exclusive and highly engaging programs. It's not much more difficult than that. So in the last year, we completed, as said earlier, an unprecedented number of affiliate renewals. We only had one where we had a bit of a back-and-forth, and we were off for a little bit of time, but both sides determined the right value mix there. Having said that, we are now, from a pricing standpoint, talk about volume whenever you want, but from a pricing standpoint, we're locked and loaded for all of next year, most of the following year, and we don't have any major renewals until 2023. So we've set the ground work for pricing of our product in the market. And now we're really pretty much volume-dependent on where our revenue is going to move. And it's nice to have the kinds of #1 positions we've had because when you think about the offering that distributors have to their customers, it's these kinds of products that they must have inside their pay-TV to operate.

So you mentioned volume, and I'm sure investors are curious what you're seeing on the pay-TV subscriber side.

At some -- I took a look at your report as well, where you were looking at -- I think you called down 6% or around the trailing 12%, you see a tempering to around 5.5%. That's about what we're seeing, down 6% from a trailing 12%. I know that a few major distributors have expressed a bearish tone toward where they think volumes go. On the other side, we know there's a lot of TV viewing. There's strong pent-up demand for sports. I don't know -- the wildcard to me is I don't know what impact the stimulus has had on subs being retained inside. I think -- look, the bias to me is negative, it's pressure on subscriber volumes. But I don't think we're going to really know until the fall, until stimulus shakes out, until employment comes back, and then people are making semifinal decisions about what they want for their video and all. Do they want a pay-TV bundle, they just want an AVOD service, do they want to staple together a few SVOD services. I think that's still shaking out, and we probably won't know any conclusions on that until later in the year.

And I'm not sure how you approach this, but certainly, you're making some big programming decisions on some of these long-term sports contracts. You might talk about one of those in a little bit. Do you have a perspective as to where the bundle shakes out in the longer term? Is there sort of a ceiling for penetration based on your view of the use of sports and news, the importance of sports and news in the future? Or is that something that's just too difficult to predict at this point in time?

Well, I'll give you a prediction. I don't know whether it's too difficult. But look, my view has been that the bundle continues to contract. But there will be a bundle, putting together a set of products to offer them cheaper than if someone acquired them individually, products that a customer wants. It's the heart of retailing, all right? And I think the bundle centers around -- for us, centers around broadcast, sports, news and lifestyle. It doesn't center around entertainment. There are just too many other choices now in the market to a consumer to get different entertainment. I mean, you look at the quality of the product that's being offered in the various SVOD markets and maybe even some of the AVOD products, I should say. I'm not sure entertainment is as core to the bundle and the pay-TV universe as it has been through its lifetime. And I think what will happen is you'll get distributors squeezing down to a core product, maybe led by digital MVPDs, and then people just bringing their own entertainment to their household. Just like the connectivity companies, we used to call them cable companies because the connectivity companies are more bring-your-own, bring-your-own video, bring-your-own audio, bring-your-own security. There will be more bring-your-owns. It could be pay-TV, but certainly on entertainment, SVOD, it will be bring-your-own. So I think it comes back to a core bundle being in those genres I described. And there's a market there that still creates for us a very healthy business that supports the kind of programming investment we make in sports, that supports the investments we make in news and entertainment. And I think it's a very healthy business at that level.

It puts you in a very interesting position relative to a lot of the other companies as you approach your OTT strategy, which sort of naturally what I wanted to talk about next. I think one of the things that we all think about is when is it advantageous for each media company to look at the cord-cutters and cord-nevers and say, "I need to offer my product more directly to those people and try to monetize that audience though that also risks my core pay-TV bundles." Since you're so central to the pay-TV bundle, how do you think about -- what would you -- how would you articulate your OTT strategy at this point? And how do you think of that cross-over? At what point do you more aggressively go after an à la carte business model?

So I think taking those in a couple of different ways. The -- our OTT strategy, different than others, at this point, is defined by basically 2 words: rational investment. We are looking to invest in a -- where we can see a return, and we are not going to compete at the -- what I just described, at the big entertainment genre, SVOD areas. It's just not what we're going to do. If you take Tubi aside for the moment, our philosophy has been how do we deepen engagement with our existing audience? So in sports, it's FOX Bet; and in news, it's FOX Nation and the digital products that come out of FOX News. And then from entertainment, what we've done now is to make a big investment by acquiring Tubi. Having said that, the Tubi investment is one that is rational. We're not spending big money into original programming. What -- we added 800 titles last month to Tubi's library. And you didn't hear about a big market deal with one of the third-party producers to do that because that's the kind of pace that Tubi operates on. So from an OTT strategy standpoint, you shouldn't expect us to compete with those that are looking to create a long-term big business out of SVOD. That's just not -- it's not where we're going to play. And so back to your second question, though, about when is it that you go after that group of cord-cutters. I don't think we're at that moment. I don't see it in the near-term for us to be offering a FOX bundle, à la carte outside. I mean we've got a massive business in the pay-TV world. We have fantastic partners in there. We're not about to go compete with them on different terms altogether.

The -- I guess, I'd be remiss if I didn't try to pin you down. I think there was a mention of 7% affiliate revenue growth for fiscal '20. Do you -- it's almost over. Any willingness to comment on that goal at this point?

No, I'll wait until we deliver our earnings release in 60 days, whatever.

Okay. Why don't we shift over to the other half of the revenue, advertising side? What's your outlook for the upfront at this point? How does the rest of the calendar year play out for Fox?

Look, I think the upfront is in -- we're all using the term, the upfront. I'm not sure what the upfront means in the market that we're in. It looks very different than prior years. We've got some clients, not all, but some making some minimum long-term commitments. I think you see that in areas where they're looking to secure inventory that they're sure they're going to need. Retail is a great example of that. Tech is an example of that. Other clients are just going to shift to scatter and buy on an as-needed basis when the economic picture becomes known. But one thing we do know is there's going to be a flight to quality. In this area, from a national advertising standpoint, there's going to be a flight to quality. And sports is going to play a big, big role in that. Original entertainment across broadcast and cable will play a big role in that. And national news is going to play a big role over that. For us, we're remaining flexible for the advertising partners. We're ready to transact when they're -- when they feel good about ready to lean in and make some commitments. But I think the shape of the sports calendar is what everyone is just waiting to see how it's going to last. The one thing I would say is that we are mindful around pricing since any reset on pricing is lasting. So we're really focused on establishing the appropriate price in the market, recognizing that's a multiyear benchmark once you establish it.

Yes. It's an interesting environment. The ad buyers are talking about a bit of an improvement in scatter month-to-month, April to May to June. I'm not sure if Fox is also seeing that same improvement and there was a lot of excitement about the cancellations for the September quarter for national upfront buys where you can cancel upwards of about 50%. And whether that would actually suggest for the media network companies a third quarter that could be sort of even, in some ways, more challenging than the second quarter that might have been held up by the upfront. I don't know if there's any comments you're willing to make on sort of the pace of scatter and how that's evolving and any dynamics around the September quarter cancellation options for the upfront?

September cancellations, for us, were manageable. They were not out. They surely were out of the important year, but they weren't wholesale where we were alarmed by it. We are seeing returning demand in the marketplace for scatter. The pricing is clearly softer than where it was, recognizing we had a scatter market that was the best -- we, as an industry, had a scatter market that the best in a decade. But we're still seeing pricing that was above upfront even with a softer market. We're seeing categories that are leading this like tech, telco, finance, those are ones that are active in the scatter market. The laggards are the ones you'd expect, quick service restaurants, retail, studios, auto. But there's a market, but the pricing, I would say, is much softer, still above upfront, but much softer than we had pre-COVID.

Any upfront CPM increase prediction for us? I know you said the upfront wasn't going to be a normal upfront. But at some point, we'll also be talking about some sort of average price increase.

Yes. I think for us, of course, I can only speak for us. But for us, it is so dependent on the sports calendar. I can't really speculate. I need to know what's the shape of baseball, what's college football going to be like. We've got 2 golf opens coming this fiscal year, one in September, one in June. And of course, the expectation that NFL is returning. But until -- and the announcement that NFL is returning. But until there's a lock -- until it's all locked down, I don't think you're going to see a lot of robust activity for us in the ad market.

Any -- what's the update on college football returning? I'm not sure what factors you're looking at or what the big tenant other commissioners might be telling you. And what's the backup plan if there is no College Football this year?

Well, look, I don't think that's the case. I think if you take 3 major fall sports, baseball, you read this morning as to what's going on there. So we'll wait to hear from them as to what the conclusion is. College football, the issue there is there are just so many teams involved, so many universities involved, so many administrators that have to make decisions. Not only about football, but about their own universities, right? Are they -- when are they returning? How are they returning? And some of them has said if kids don't come back-to-school, they will not play football. So you may end up with certain conferences playing different schedules, may be certain teams within a conference not playing because the way their schools have decided to come back. But I think in the next -- clearly, in the next month, mainly because you've got to get hundreds of thousands of kids moving around the country back to universities, there will be announcements as to what the shape of the college -- what the shape of the university's year will be, semester. And therefore, what the shape of the college football season will be like. I think what we're saying -- what we said before is whenever they're ready to play, we're ready to produce. The case in point was NASCAR. The pent-up demand for NASCAR was incredible. I think you saw it in golf this past weekend, the pent-up demand for that. We're sold out of NASCAR. We've got no more units. We -- people were just clamoring to get in there. So at the moment, we're just waiting and ready to produce.

So why don't we switch over to some of the networks. FOX News, how is that performing? I think one question I often get is how directly the ratings at FOX News translate to ad revenue? And just any thoughts around FOX News as you look forward.

Let me -- before I jump in, I should have at least said, if you turn to the NFL and sports, just to finish that. If you look at the schedule we have, it's -- when they're playing, it will be a significant schedule. Best Thursday night schedule we've ever had. Sunday came in the week, it's fantastic. And for the first time ever, we've got a -- the NFL has, and we have a Christmas day game. So that should be a pretty impressive schedule coming up. FOX News is just doing fantastic as the #1 news provider. There's been some discussion about advertising. FOX News hasn't missed a beat. Advertising has held up strong throughout, the ratings have been superb. It's on pace to have its highest viewership year in its history, and we're going to 27 years. The ratings -- the way advertising works inside of news is it's more about your share of voice and news. Not so much your absolute ratings, but how you perform against your competitors. FOX News being #1, therefore, permits it, from a pricing standpoint, to command premium pricing because of where it positioned itself. As we look forward, there's a big news cycle currently, but there'll be an equally big one, probably, coming off of what we're going through currently for the election cycle. And when we look at the election coverage back in history, it's a really big year for FOX News, will be a big fiscal year for FOX News on a national basis. And then, of course, our local stations will have -- will enjoy the benefits of that election spending and election coverage on a local basis. But it's more FOX News having -- its audience is so significant compared to the competitors, that's where the premium for advertising comes in.

Anything notable on FOX Nation?

Interesting, like any news service, and I think all of the SVODs have found this to be the case, you pivot as you learn more. What we've learned is that the subscribers look to FOX Nation, not primarily, but more than we expect, as an adjacency on entertainment and lifestyle content. So documentaries, some of the movies that we put on, some of the entertainment, less so the news or opinion side, just less so. But what surprised us is how much more some of this other product is seen as an adjacency for the FOX News audience. So as a result, we're looking to acquire, again, rational investment, product that fits in entertainment and lifestyle to supplement what we have there and provide a more robust library to those subscribers. And as we do that, we'll promote it more and more market [ saturation ] more and more. So we're learning as we go along. We're only roughly a year into this, and we're pleased with where Fox Nation is.

Why don't we shift over to Fox Broadcast? How was the first year as an independent broadcast network?

As I said, in your first question, going from last to first is a pretty good place to be. It's only happened one other time in broadcast history. So we couldn't be more pleased with what's going on, both on the sports and the entertainment side of the house. Masked Singer, 9-1-1: Lone Star, LEGO Masters, Prodigal Son, all of these -- these shows didn't exist a year earlier or maybe 2 years earlier. And through the marketing platforms that we've had, and of course, the content, Charlie and his group have just put together a great good schedule. Granted, it's been interrupted by what's going on with COVID. But look, in the first year, you couldn't ask for -- to go from last to first, it's a pretty good outcome.

I'm not sure if I should ask about the NFL first or the margins at the broadcast network first because I think we think there's some link to those over time. But why don't we just start with the margin structure of the FOX network. Now you've gone from last to first, but we compare the profitability for that network over a long period of time to peers, the margins tend to be a lot lower or in some years, negative. Is there anything structural there? Or should investors think about a path to a much higher level of margin over time for the Fox Broadcast network?

First, I've seen this -- we've had this discussion before. And I'm not sure when you compare our pure network with others, if that's the comparison that we're -- we've got, apples-to-apples, and whether the same profit pools are reported inside of one versus another. That said, we're always focused on improving television segment margins. And the key is it goes back to one of your earlier questions, which is the strength and the trajectory of affiliate revenue. Our ability to hold costs in place with the kind of programming that I described yet achieve outsized growth in affiliate revenue is what will continue to improve the television margin. I think as we look out on a multiyear basis, that's exactly the trajectory we're on. The cost being held pretty well, yet revenue and pricing, growing well above that pace of cost growth. So that's the trajectory that we're on.

So then we'll switch to the NFL side, where I think there's some concern that, that's one cost area that might grow in the future. I was trying to think about, how can I ask you about the NFL in a way that would actually sort of entice a relatively open response. It's a very difficult time for you to talk about, but...

Good luck. Good luck.

Yes, so I've decided to do it. Yes, we're listening in. Have discussions begun in earnest with the NFL yet regarding renewal of broadcast contracts? And what should investors be focused on for FOX regarding that key contract?

So I think -- so from a discussion standpoint, all I would say is that we, and I like to believe others, are in very, very early stage discussions on renewal, very early stages. So -- and that's really as much as I'd say, because there's not much more to say except early stages. The thing you should focus on, that investors ought to focus on is to get away from the press headlines, AAV growth, average annual value growth. It's absurd when people look at up-blank paid rights, taking a 9-year contract and putting an average over that period against a following contract. Let me give you an example. Our last contract, the one that we're in right now, had an AAV increase of 54%, right? Big headlines, Fox pays 54%. I think some of the other networks were up 70% on the same thing. Yet the last year of our contract, to the first year of the new one, it was up high single digits. Give me the NFL, the ability to have that kind of programming and be up just those steps. That's where the focus should be, which is what did you charge yourself last year? What's the cost of the product going into the next year? The AAV is a press headline that just makes it great on the sports pages, but it really has no relevance to the business. If I did the AAV of my affiliate revenues compared to another year, you'd say, "Wow, that's fantastic." But no, you always measure me on how did I do last quarter -- never mind last year, how did I do last quarter compared to this quarter. Now I think getting away from this AAV concept is a place investors ought to be focused and say, when you look at the totality of the contract, the rights they got, how the rights differ from what they had before, that's where investors ought to be focused on.

I can't wait to see how you write that next press release with the NFL contract. So just quickly on the entertainment side for FOX Broadcast. Obviously, a big investment last year. You've talked about the new shows that were put on the air, some of which were renewed. My understanding -- so 2 aspects of the question. My understanding is those investments were reported on a cash basis. So to the extent that a show supersedes the second season, ends up having SVOD revenue and syndication revenue, that there could be some profits that come your way at some point. And I'm trying to figure out, does the level of investment entertainment programming step that up in year 2, maybe year 3? Or do you just replace the shows that didn't work with new shows and the level of investment is similar? And then separately, is there profits coming from that first year that could offset any investment you're making in entertainment program?

Look, there are -- remember, one of the assets that our shareholders got a lot of value for was the sale of a studio in the Disney TradeTech. So we no longer own the studio and don't have that kind of library value that we used to have in the 21st Century Fox days. So what we're doing is, increasingly on new shows, taking an ownership stake in these investments. Not 100%, we own a piece of the show. So that if there's a tail to the back end of it, we'll earn-out. There's not a carrying cost that's left, meaning, to your earlier point, whatever the cash was before the show, that's been burned off as part of that season's airing of the show. But look, we hope a few of these shows will have some kind of life. The syndication is a term of art now. I'm not sure whether it's syndication on cable or syndication in SVOD or syndication in AVOD. But still the primary part of our schedule, if you look at it, take Sunday night, the big shows there are owned by third-parties, not by us, The Simpsons, Bob's, Family Guy. But increasingly, if you look at new animation product, we are an owner of those where if the first 3 I mentioned are any indication of the kind of value opportunity we have, then we're making pretty good investment.

Makes sense. Why don't we switch over to FOX Sports? Curious if any comments on the outlook for FOX Sports. But also there's a lot of investor interest in sports betting. And you have a complicated investment. If you want to touch on the outlook for the sports bet side and how -- what kind of value you think that might create for Fox that could be helpful.

Well, I think, and many have been writing about it, that sports wagering is going to be accelerated across the states now given the likely fiscal issues that states are going to have and looking for opportunities to raise funds. In our case, like I said, it was one of the initiatives that we took out of the blocks. We started with a relationship with Stars Group, where we took roughly a 5% stake in the top company. We then formed a company called FOX Bet inside of that. We got a brand license fee, an advertising commitment, we get some incentives on driving traffic there. And we have an option down the road, over a long period of time, to acquire 50% of that FOX Bet. Now that whole structure got flipped into the merger that Stars Group had with Flutter. Now our interest in that combined company is around just above 2.5%. We took a little piece of the equity raised that happened a couple of weeks ago. All of the structures around FOX Bet stayed in place. So the advertising, the brand and our ability to buy a piece. But in addition, we now have the option to acquire 18.5% of one of their companies, which is FanDuel. So that collection of assets, I think, is a nice start for us and a nice platform for us to participate in what is going to be a really massive growth engine coming out of wagering, this is talking 4 or 5 years for this to be an $18 billion business from a standing start 5 years ago, a very, very small business. So we're really excited. We've got great partners in this. And as the sport season comes on, you'll see us leaning in more and more on the wagering side.

And can you remind people on the 18-plus percent option to invest in FanDuel, is that at fair market value? Is that a predetermined price point?

It's a fair market mean.

So shifting over to M&A, even though in a way we just touched on one of the early ones, you have several more. Any updates you want to give us on some of the recent acquisitions?

I think a couple that aren't talked about enough is, we bought this business called Bento Box with an animation studio. It's a studio that produces content for us and the third-parties. Right now, they've got 16 shows -- 16 animated shows in production. So it's a nice bolt-on to the entertainment business to feed kind of aspirations we have in animation along Bless The Harts and some of the other shows that we've put out there. Credible has had continued success. It doubled its loan volume last quarter and continues a great path of growth. The Nexstar stations, I think people don't focus enough on our station group. We're in -- if you go back to the NFL, that group now, after the Nexstar acquisition of both Seattle and Milwaukee, we're in 14 of the 16 NFC markets -- team markets. It was great to fill out that footprint. And of course, Tubi, I commented on Tubi. We see that as a real significant growth engine for the company over the long term. As far as M&A overall, I think, look we were -- given the uncertainty, most of us in Fox, in particular, we're mindful that there may be opportunities there, but we're not very active right now.

The -- of course, Milwaukee has to be smart given that the Packers are the best team in football. But the -- anything notable on Tubi since you acquired? I know it was very recent, but is the pace of growth what you would hope for?

Yes, like -- I saw a report last night that AVOD services pre-COVID were viewed by -- 1.5 AVOD services we viewed by household. That number is up to 3.2. And post -- the beauty of that is the amount of sampling that goes on an introduction of those service as to what is now double what was the year beforehand. And the expectation is that, that number hovers around 2.8 per household after COVID because of the introduction of people to these platforms and the fact that they're engaging and will continue to do so. So that's only good for Tubi. And most specifically, in April, and May, Tubi had 150% increase in total viewing time. As I said earlier, it continues to add library products. So it's just unfortunate that it's the pandemic that caused us, but viewing for all AVOD services, certainly for Tubi, are enjoying a real benefit.

So for the last question, sort of asking in 2 parts, but one of the things that I think is notable about Fox is pretty strong balance sheet, a lot of liquidity. You mentioned that early on in your remarks. You mentioned that it should be a great source of value going forward. So I guess 2 parts. One, are you comfortable deploying that excess liquidity at this point? If not, sort of what are the factors you're looking at? And then separately, we've had a lot of discussions over the years on buybacks versus M&A. I get the sense for Fox Corp. under your and Lachlan's leadership, that there's a real desire to invest in growth. There's a preference for, I would say, growth M&A, over returning capital to shareholders. Though, as you said, you've done both. And I'm just curious if my sort of perception is right. And any thoughts that you have, especially given how the crisis has impacted equity values?

So let me make a few comments around that. First, in connection with the pandemic, we went to the market to get, what I refer to as, break-the-glass cash, right, in case the world fell apart. We raised $1.2 billion in a very active, successful debt raise. I view that debt, that cash as locked away, and the cash is being used, in essence, pre-fund some debt maturities that we have coming up, so it's not available. I've always -- in the past, when I look at leverage, I always look at gross leverage, I do not look at net leverage because the cash is there to be -- to create a return. In this case, I will take off that $1.2 billion. I'll go back to that to determine what my gross leverage is because of how I'm going to use that cash, how we're going to use that cash. With that said, if we go back to the Investor Day and discussions we've had since, yes, we look at capital allocation in the round, right? M&A, organic investment and returns, either dividends or buybacks. But at any point in a cycle, you're going to emphasize one versus another. But I'd say your inference that over the long term, us looking to build our business and build the enterprise would be the bias that we have as opposed to not biased, but just a bias towards shrinking a denominator. What our focus is, it goes back to your very first question, how do we deliver -- or second, how do we deliver value? Part of delivering value is creating growth in the enterprise. We'll get growth out of, as I said earlier, the existing businesses. We get growth out of adjacencies, but we'll also get growth out of acquiring businesses and building them into real value generators.

Any closing comments that you want to offer, John?

No. Look, it's a difficult time for us all. I'm actually pleased to have the opportunity to connect with everyone virtually, but you are hosting this and I looked at the agenda, and it's a pretty significant agenda. I'm glad you could attract everyone to get together, and I'm looking forward to what's going to be covered.

John, thanks so much for your time this morning. Thanks, everyone, for listening in, and we look forward to that update on the next earnings call. Thanks so much, John.

Thank you.