Fox Corporation (FOXA) Earnings Call Transcript & Summary

Look, I think it's a share of wallet, right? And so obviously, a consumer is going to only spend so much on their pay-TV bundle, right? Whether it's pay-TV bundle or pay-TV bundle in -- with -- combined with video-on-demand, subscription video-on-demand offerings. So there's only so much share of the wallet you can get. And what we found is, when it's been very successful in talking with our distributors, is that if our sport is exclusive, we deserve a higher share of the wallet, right? So we have to take that value from somewhere. And frankly, we're taking it from our competitors that are spreading out their premium sports content on too many platforms.

So maybe just to follow up on that. And again, you alluded to it a little bit earlier, but anything more you can talk about that pricing increase that you are getting maybe ahead of your expectations that you mentioned to offset what we all know that the higher levels of cord cutting?

So on the pricing, we -- as I mentioned a few minutes ago, we are 1 year into a 3-year cycle, right, where we renew all of our distributors. And what we're seeing in that cycle is we're absolutely -- we've set a price both for our retransmission and our cable channels in the market that exceeds our expectations. So we are driving, I think, best-in-class pricing increases in our brands because where we sit in the ecosystem we've talked about, that's what gives us the ability to do that. On the -- so 100% what we are, we are sort of best-in-class premium pricing. What happens in the cable ecosystem overall, obviously, we're seeing declines of over 7%. That's something we can't control that side of the ledger, but absolutely, we can garner within that the highest our pricing increases.

So this is a frequent question for Bob Iger, but now it's going to be one for you.

Right. That's a comment that makes me nervous.

No, you've been clear with your strategy, and it's optimized for the world we're living in today.

How does Bob answer the question?

He's like, well, this is the best strategy we have today because consumers choose to bundle.

Yes.

But at some point, how do you think about the option to take your sports content in the years ahead over the top, given that you have these rights, I mean, right to valuable?

Yes, it's a great question. Look, the true answer to the question is what's the best for the consumer, right? And at the moment, if you look at -- if you want to watch all the sports, you can possibly watch. You want to get every score in America, you're mad, you're a crazy sports fan. You want to pay the lowest price for it with the least amount of friction of having to swap in and out of multiple different services and different boxes on your TV. The best -- and if you're -- so for the consumer, I'll go on to the leagues, but the best service you have today is the traditional cable pay-TV bundle, right, or satellite pay-TV bundle. That today is serving the consumer the best, right? It's probably the lowest price when you add them all up. You have tremendous amount of reach. It's very simple to change channels between the sports. You get everything all in one place. Having said that, technology has changed and consumers change, behaviors change. And so as it changes, we think if you have premium sports, you're on Sports Business, #1 News Business in the country, we will be on every scaled platform, not relying on what technology that's delivered in, right? So whatever technology it is, whether it's a streaming service, whether it's a cable TV service, whether satellite service or some other service to map that we haven't invented yet, our brands will be integral to any of those businesses at scale, regardless of the technology. So we feel very well positioned there.

So maybe just a follow-up to hit it home a little bit further, are you willing to work with other sports networks to make that central hub for sports, to find that place online, to find all the different rights in one place?

I think you have to put the consumer first. So the answer is yes. If we can offer our consumers the best possible experience where they can engage with the best content, we are absolutely opening those conversations. Today, that is the pay-TV bundle that will change over time.

We've known you for a while, we keep going back to the thesis that the virtual build-out has not evolved the way we all thought, right? The virtual build, it's too big, the bundle. Price is too high, and we keep waiting for someone to slim it back to what people actually want, which is sports and news.

Yes. We used to call it the [indiscernible] they never caught on, but the skinny bundle, right? Now that's going to be -- or the core bundle, right? So the skinny bundle, the core bundle, what do people watch 95% of the time or 90% of the time? Can you create that bundle without all the add-ons? But it hasn't happened. It hasn't happened yet.

As sportsman find it probably frustrating to go from the app to app to app.

Okay. So can you discuss your appetite to bid on new sports rights like the NBA, who'll be here tomorrow? And why the leads will look to partner with you instead of digital bidders to have a bigger balance sheet? But why do they choose to partner with you? So appetite for more sports. And what are you offering leagues that they can't find with people who have bigger balance sheets?

So the NBA's easy. I hate to disappoint your guests tomorrow, but we are highly unlikely to bid on the NBA. We look at our sports portfolio and try to balance it overall. And in doing so, I think it's highly unlikely that we would bid on the NBA. But overall, why would sports leagues choose to partner with us as opposed to people with bigger balance sheets, maybe not more healthy balance sheet, but bigger balance sheets. And the answer to that is really reach, right? Broadcast is still the best place for sports. And frankly, if I were an NFL owner or an NBA owner or a team owner, I would want to be on broadcast TV. When we had Thursday Night Football 3 years ago, and we're simulcast, right? So we had a Live on FOX, Thursday Night Football, and we simulcast it with the NFL Network and with Amazon. Those games that were simulcast, 95% of the viewing was on broadcast TV, it was on FOX. 5% were shared between Amazon and Thursday Night Football. Then when we moved on from Thursday Night Football and gave it up when we released it a year early, and it went on Amazon, last year for the first year, Amazon's reach is down on average, if we look at the average of our season in the year before, 42%. If I'm a -- and by the way, that includes local market broadcast. So it's less than 42% on the app. If I were an NFL owner, that's a disaster for me. And so sports leagues, their owners really need to think carefully about the value of the sports as national sports as national brands reaching as many Americans as possible. And that's why, to your question, Michael, if I were a sports owner or a Commissioner of sports, I'd want to be on broadcast to make sure it's on broadcast more than anything else.

So you do have some sports rights that are coming due over the next couple of years, WWE, World Cup, Pac-12 and NASCAR, to name a few. How do you measure as you just mentioned with NBA, like when do you have too much sports? Or how do you evaluate those decisions as they're coming up?

We do it constantly and in real time as rights emerge. We look at all our renewals very seriously. We have tremendous partners. WWE and NASCAR have been tremendous partners of ours for a long time, particularly longer with NASCAR, and we value those relationships. But we have to balance the portfolio. We -- if you look at sports that we have passed on, that's as important as the ones that we've renewed. It shows, I think, the discipline of our approach. UFC, we used to broadcast UFC. We don't broadcast UFC anymore. We gave up those rights. Golf, we used to broadcast golf, some golf. We passed on those rights. And we look at the value of them both to our distribution partners and also from an advertising perspective.

Can you answer also that question, how it relates to what you're doing with the USFL? Maybe what you're learning and building out your own league? And how that may inform your decision to go forward with certain types of investments in sports?

Sure. So we're an entrepreneurial company. We like to build businesses. I think most of our -- the majority of the lion's share of our successes have been building businesses as opposed to acquiring businesses. And the USFL is a great example of that. USFL is a tremendous model. We're in our second season. It's doing very well. And we felt there was an opportunity in the market for a spring sports league, which NFL Football Ali, which is proving right. So we'll continue to see how that goes. We'll continue to invest in it. Importantly, it's broadcast with a broadcast partner, NBC. So again, that gives them the most possible reach we can give it to afford the success, so...

Let's shift over to sports betting for a second. Now the FanDuel arbitration is finally behind us, we actually had FanDuel butter here yesterday. Can you speak to the overall relationship with Flutter and including how you feel about their upcoming U.S. listing?

So I'm very excited about the U.S. listing. I think they're a tremendously run company. We now believe, like our value when our relationship with Flutter is really as an option-holder in their FanDuel business. And people forget as a shareholder in Flutter today. So we have 2 exposures to their business today. We have the 18.6% option in FanDuel. We think their U.S. listing, obviously, will reflect -- be reflective of the value that FanDuel has as the leader in sports betting in this country. Our 18.6% option is a 10-year option that we think is tremendously valuable. We all -- some people forget this, we -- part of our relationship with Flutter, we invested in Flutter. I think our investment today -- this is a few years ago, our investment today is worth over $875 million. That's sitting on the balance sheet that no one really looks at, but Steve is not hiding it anywhere. It's there if you do the math. And so -- and their U.S. listing, I think will just -- will further empower them and drive those investments, both in our option and in the core stock.

Anything you want to add in terms of FOX Bet and in the future?

So in August, both sides in FOX Bet can decide to move on from that partnership. And I think ultimately, mutually, we're going to decide to focus on our shareholdings in Flutter and our option in FanDuel.

Cool. Talk a bit -- let's go to the network and the entertainment side for a second. You have the cancellations of 9-1-1 and a few other shows on FOX Network. Should we think about a change in programming strategy to lean you more heavily on sports and scripted and away from scripted content? And is that the case because you don't own a piece of the economics of scripted? So give us a sense. I know it's been an evolving strategy for you. Charlie Collier left. Rob waves there now. So how are you thinking about programming prime time and the economics of that?

So the core part of that question, the first part, you have to answer on that question for people to understand is that the FOX Entertainment Network is unlike the other networks in the United States, and that it's 2 hours a night, right? So we don't have the headache or the opportunity or the challenge of programming the whole day for our affiliates. We program only 2 hours a night. That by the way, gives our affiliates and our own O&O stations tremendous opportunities, which I'm -- perhaps I can come to later. But we're only 2 hours a night. And so within those 2 hours, the balance between unscripted, reality -- obviously, sports is super important, but unscripted reality and scripted dramas and comedies really depends on the economics and on creative choices. So off-cam, we do have some scripted shows that are -- that we're launching. And then we balance our returning scripted shows purely based on the economics. So 9-1-1 was very expensive. As shows age, they get more expensive. And so you have to refresh them with younger shows. So 9-1-1, we've canceled. But 9-1-1: Lone Star, which is a spinoff that's very successful, which is younger, a younger show, it remains on the schedule. And that's purely because it's great to be #1 in broadcast networks, but we also need to do it with the right economics and the right cost.

So you hit on the TV stations. I'm wondering, can you further expand on the strategic value of owning the broadcast network combined with that overlooked TV station portfolio that you have?

Sure. So the broadcast network and the TV stations are -- they fit very symbolically together. They -- the network, obviously, with the sports that we deliver on the network, overlays our footprint for the TV stations and credit well. We designed the TV station group around the NFC, right? So I think we have 14 or -- 15 or 16 NFC markets that we broadcast on any given Sunday, it fits perfectly with our local stations, which obviously drives that local revenue. The fact that we keep our program with those 2 hours a night allows our local stations to produce and deliver a tremendous amount of local news into the local markets. We think local news is overlooked. It's incredibly important. It's important in the local markets and the fact that it's important to those communities. And we now produce over 1,200 hours of local news a week, local news, and that's very important. What that also does obviously, it helps the ratings in those markets, particularly as entertainment is soft -- softer. But when you enter these political cycles -- big political cycles, it's a tremendous position to it to have to be the #1 local news providers in those markets. And that garners the attention at the political revenue that we see every -- well, it used to be every 4-year, a big cycle. It's now every 2 years.

So you mentioned before that people may be overlooking the value of the Flutter shares. We often think people overlook the value of the studio a lot, which you kept in the Disney deal. Can you talk a bit about the value they own a lot and now your plans, right? The lot has a new development plan attached to as well.

Look, the TV studio lots and TV studio sound stages are only going up in value, right? As you've seen the explosion of subscription video-on-demand, of scripted and unscripted content, we are the beneficiary with our sort of physical infrastructure that we have in Los Angeles. And we can't -- you couldn't build enough for them. There's not an empty day that they're not leased out to a television producer. It was -- it's actually Disney that has the -- is the primary tenant on the lot and in those sound stages. And we only wish we could -- they give us back some of their leases because we continue to be able to charge premiums for that space. So we think it's a tremendous asset. It's a long-term asset. We've put in a proposed redevelopment of a lot, which really keeps it rounded in television production. It's an important industry in Los Angeles, and it's really going to be the future of the beta lot for many decades to come. So...

All right. Good. So maybe just kind of bringing it all together, wrapping it up. How can you give investors confidence that FOX's EBITDA and free cash flow, something that we focus on a lot, can continue to grow or at least remain stable despite the secular pressures facing the broader ecosystem today?

Well, I think it goes back to the conversation in the last half an hour. I think if you look at where we play, where we exist within this broader ecosystem, our focus on live news and live sport give those businesses tremendous leverage to drive both advertising revenue as audiences are shifting to news and the sport, out of -- certainly out of linear entertainment. So it gives leverage with our advertisers, but also importantly, with our affiliates and distribution partners. So we'll be able to continue to drive premium pricing there. The addition to the company of Tubi has been incredibly important. Tubi, I think, exists for about 12 years. We've owned it for about 3 years. Not only has the business -- I can't remember the -- grown about 4x or something, it's growth is accelerating, which is tremendous to see. I think there's reasons for that. It has 55,000 hours of programming on Tubi. That's 5x what Netflix has in their library. And it's free. And I think free is a great positioning market, particularly in uncertain economic times. So we see Tubi continuing to grow, continue to be a really bright spot in the future of FOX. We're at the beginning of this 3-year cycle, and so we're renewing our distribution partners. And we're seeing it work. We're seeing our pricing power be set in the market with contracts and new deals, and we see that continuing over the next few years. So the core business -- and I should say on FOX News, the FOX News remains -- listed the ratings. So I'd say they're probably even better now 10 minutes later, but they're -- I don't want to check. But the FOX News is going incredibly well. We're incredibly proud of the journalism at FOX News of all of our hardworking journalists there. And FOX News will remain the #1 news station, news channel in this country well into the foreseeable future. So we're very, very happy with our existing core businesses and then -- and the growth profile of those businesses. But just as importantly, our balance sheet is so strong that we're able to grow. We're able to grow both with prudent, careful and disciplined organic investment in our businesses, but also M&A. We don't have any -- it's a large M&A opportunities on the -- that we're considering today, but we have the ability to, and we're constantly looking. So we can grow organically. We can grow with M&A. And for shareholders, we can return value and we can return capital to shareholders via our dividends and via our continuing share buyback. So when you look across the spread, we think we're incredibly well positioned, and we're going to continue to grow.

Awesome. With that, Lachlan, thank you for being here. Steve, Dan, Gabby, thank you.

Thank you.