Fox Corporation (FOXA) Earnings Call Transcript & Summary

Disclosure statement. For important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com. If you have any questions, please reach out to your Morgan Stanley sales representative. welcome everybody to Morgan Stanley's 2025 TMC Conference. We are excited to be kicking it off with Lachlan Murdoch, the CEO of Fox Corporation. Lachlan, thanks for coming back.

Ben, thank you for having me back.

Thanks for getting the conference started.

I'm surprised to get the invite again.

Glad to have you here. So maybe a good way to start. You guys have had a really tremendous last couple of years, and we've now seen the stock kind of react. I think it's roughly doubled in the last 12 months. just to sort of set the stage and get people up to speed, what do you think has been driving the strength in the business? What's working for you guys that's paid off so well?

First of all, again, sincerely, thank you for having me back, and good morning, everyone. Thanks for joining us. We've had a tremendous year. And I think we're in a fortuitous position where each one of our businesses is performing extremely well. You can say we're sort of firing on all cylinders, whether that's news, sports, tube, our digital business is doing incredibly well, entertainment and the TV station. We're doing incredibly well this year, and I think the market has given us credit for that.

What are you guys focused on for '25? What are sort of the real strategic priorities for you and the team?

For us, so in the last quarter, we had affiliate revenue growth in both cable and television segments. That's despite a roughly sort of 7% decline in subscribers. So despite that decline in subscribers, we were able to drive growth in the quarter. For the next year, we have a number of affiliate deals coming up, a little bit less normal. We usually about 1/3 every year. It's less than 1/4 of our distribution deals come up over the next year, and we'll be very focused on renewing them at positive terms for us. We're going to continue to push the strength of FOX News. FOX News is enjoying an incredibly strong leadership position right now. You always -- you're a little unsure after an election you often get a dip in ratings. We're not seeing that. We've gone from strength to strength. So we're going to continue to push the leadership of FOX News. And then we're going to invest in our digital priorities such as Tubi.

Great. I'm sure we'll talk about all those things in more detail as we move through the conversation. One of the things that often comes up when we're thinking about FOX and talking to investors is sort of the Pay TV ecosystem, which is obviously volatile and evolving all the time. We are seeing a real emergence of skinny bundles or as you apply name them Jack Bundle since they usually include your networks. These aren't new, but we are seeing a lot more in the kind of sports and broadcast sort of composition. How important do you think these are to the industry and to Fox as you think about the long-term growth for your company?

They're an incredibly positive evolution sort of development in the ecosystem. The skinny or Jacks are actually very accretive for us. wherein the majority of our networks are in each of these bundles. So for instance, DIRECTV announced there, I think MySports Bundle, but it's really Sports and News and Broadcast for us in terms of our network. So we have FOX Sports in the broadcast network in the broadcast TV stations, the FOX Television stations, we have FOX News in, FOX Business in, FOX Sports 1, FOX Sports 2. So it's effectively our entire bouquet of channel. So for us, that's a great position because if people move from a traditional bundle into one of these core bundles, smaller bundles, we actually -- we're not worse off. And in fact, if it can grow or the cable universe or at least ameliorate the declines were better off. So we're very excited about these smaller bundles, and they're certainly very good for our business.

Yes. And that was what I was thinking, just hit -- so the 7% decline that you've been seeing, if these are successful, maybe those could improve.

And I think in two different ways. I think there is a school of thought that these smaller bundles, skinny bundles or Jack Bundles will be targeted at Cord-Nevers, the $50 million or so households. In America that are either Cord-Nevers or Cord-Cutters. That's possible. But also, they'll almost certainly, I believe, be used to capture subscribers in the traditional bundle that are sitting down, right, that are canceling, that'll be used to spin down into these the some much cheaper, more focused bundle. So in either scenario, I think it will have an impact of ameliorating the decline on the cable universe.

The other thing that obviously has happened in sort of the world of bundles in the months has been venue sports shutting down essentially before it actually launched. You guys shortly thereafter announced plans to launch our own direct consumer service. I think you also have hired Pete to run that business. What are you guys paying for here? Why is this strategic for FOX.

So we -- I should preface this first by saying we are huge believers and put a lot of work into the traditional cable bundle. We think the traditional cable bundle has been the greatest value and service to consumers in this country. And it continues to be a critical and important part of our revenue makeup and how we distribute how we get our content in front of all of our viewers. So we remain really intensely focus on the cable bundle and the health of the cable bundle. Having said that, as we know, more and more people are outside of the bundle, more many people either severed their cord or never had a cord connection in the first place and we want to reach all of those consumers, all of those viewers however they want to engage with us. So whether it's traditional cable or whether it's without a cable in a direct-to-consumer service. And so that was our vision with venue to focus on those Cord-Nevers, right, but there's Cord-Cutters, 50 million households in the United States. And the same is exactly true with our direct-to-consumer service. We want FOX News, FOX Sports, our TV stations, our entertainment network in front of as many people as possible however they want to engage with us. Now we can do this because we have the technology. We've had it for a long time, but it's now been improved with the venue, we can import. We take the venue technology that we've spent a lot of time building. We can do without incremental programming costs. It's all the content we have. Currently that we're distributing in other forms. So there's very low, if any, incremental programming costs. And about The management team we brought Pete in. And Pete's focus at venue and now in our direct-to-consumer is entirely a new subscribers that are outside of the bundle.

Got it. Last year on stage, you gave us your prediction for subscribers for venue sports over the next 5 years, which you will never know if it was -- I'm sure it would have been right. Would you care to do the same for your direct-to-consumer range?

It's sort of in the same range, right? Because we're not trying to attack cable, right? We -- in a perfect world, we won't have any traditional cable bundle, a cable subscriber switched to our D2C. Now if they do, we're going to be made whole because the way we price it on our networks that are on D2C, but that's not our intent. Our intent is to really go after the people that are not currently in the system. And so similar to venue, the aspiration is really in the single -- mid-single-digit millions of subscribers range.

Okay. And we'll see this product later this year?

We'll see it. We're doing our best to launch it for the football season in the fall.

Great. All right. Why don't we shift gears to FOX News, which is obviously the biggest cash flows for the company. And you mentioned it earlier, but I mean the revenue trends for your business in cable, but FOX News really or outliers in a good way relative to the rest of the industry. So how do you -- particularly on the affiliate side, how is it sustainable, given all of the headwinds we know about to traditional TV that you can keep growing distribution revenues for that business over time?

For Fox News?

Yes.

Look, it comes down to great content, great journalism and a great brand, ultimately. If you look at the Fox News viewers, they're incredibly loyal. They're passionate about the service. They really see it as not just as a new service, but as a as a network for them. It's important to note that we don't see FOX News anymore as just a news service. We see it as one of the top 5 broadcast networks in the United States, even though we don't have the same distribution that broadcast has. In January and February, we were the #2 broadcast network, right, equivalent to the #2 broadcast network at FOX News, despite having a much smaller uniform cable. In January, we are only beaten by NBC. And in February, we're only beaten by CBS. And so that's how we view it, and that's how we're able to drive, frankly, the affiliate revenue growth that we've achieved.

Yes. I don't think I'm breaking any news here to say after the election, a lot of people feel like the whole country is sort of stepping to the right a bit politically. Is that something that you guys are reacting to as the network in terms of the program or how you manage the business? Do you disagree?

I disagree. Because -- here's why. FOX News has been the #1 news network for 23 years.

That gap has been...

23 years. So we see ourselves like common sense network. We cover stories that we believe our viewers are newsworthy and that our viewers are interested in that hasn't changed. I think what has changed is perhaps -- is sort of the reverse of what you're applying in your question is that the election and the election results have validated FOX News' position. And we've seen that most strikingly in our advertising revenues. We've had over 100 new clients since the election, right? Obviously, our ratings are doing tremendously well. Our share is doing tremendously well over 65% share of the cable news universe. Ratings are up something like 50%. But I think because of the election results, many advertisers have sort of rethought their positioning in this country and understand that the FOX News viewer ability does represent Middle America, and they're responding by with their checkbooks.

Got it. One of the areas you guys have been investing in a while has been FOX Nation. I don't know if that's still an area of investment and growth for the company, maybe you could just update us on that business.

So FOX Nation for those of you who don't know, is a subscription video-on-demand service we've had for a number of years, which really serves the FOX News super fan, super user, has grown very well, particularly this year with the strength of programming such as Yellowstone to Yosemite with Kevin Costner, and the same programming around that. So, The Lives of the Saints, Martin Scorsese producing. So it's done incredibly well, but it's a modest investment in the scheme of things, but it's also -- it's in the sort of 2 million to 2.5 million subscriber range, it is -- we know that they are the super fans of FOX News, and we can do longer-form programming with it, for instance. In fact, Marco Rubio, I saw a clip yesterday was referring to a long-form show we had explaining the Panama Canal to the audience. It's a part of history. It's an amazing history of the Panama Canal and why it's important. That's something we can't do on broadcast, it's long form, but we can do it on FOX Nation. And it's been a very successful formula.

One of the other things that's been a big topic post election is it's been the evolution of the news business. And I'm just wondering as you think about the long term for Fox News, which has continued to kind of pull away from CNN and MSNBC. How do you think about growing news distribution platforms like in particular, podcasting, social is not new, but more and more, just a younger demo, getting their news from non-TV businesses. Is that important as you guys think about the future of FOX News? And what are you guys trying to do to position yourselves to win there?

It's very important, and it's what we think about all the time, and we work very hard on. It's also important because about the strength of FOX News in the traditional universe. It's a 65% share. It's a lot of work to get the 70% say, you're never going to get to 100 and so probably not. And so the -- it's -- so you have to look at new markets. And also in this last one, what was obvious for everyone was watching was the emergence of sort of nonlinear untraditional nontraditional platforms and their importance in this election. So FOX News, for instance, in January, we did 410 million YouTube views for FOX News Clips, which was a record and far fast anyone else in the news category. I think we had like 122 million digital users in are generating about 2.2 billion page views for FOX News just in January. In social media, we had -- in January, we had 1 billion social media interactions and sort of shares. That's across TikTok, that's across Facebook, X, Snapchat. X, Twitter, so 1 billion interactions. So we're doing a tremendous amount in getting our content out there in front of that audience. Who still -- by the way, when they're surveyed on this, they say they don't get the news from traditional media, but often they are getting these other channels. So it's very important for us to sort of pursue that market. And then we made this investment this year just recently in -- announced a few weeks ago with Red Sea Ventures, which is a podcasting company, which actually does sort of -- as a third-party faciliation ad sales and podcasting for independent creators. And we're excited about that because we'll be able to put our own talent through that system, but we're also sort of exposed to third-party creators as well and it gives us a significant position into this new podcasting platform. So we're excited about that.

That's helpful. Let's -- I think the red seats being run, I believe, by your -- by Paul, right, your Tubi team. So let's pivot to Tubi. This has been another area of real success for you guys. I think you paid like $440 million, $440 million for this a few years back, and it's -- our estimate is about to exceed $1 billion of revenue in '21 and growing quite nicely. So what's the long-term vision for this business? Are you still in investment mode? Or how do you see sort of the long-term profit potential for Tubi?

Let me answer that in two different ways or in two different parts of that answer. First of all, Tubi is going incredibly well. And we can talk about some of the metrics and talk about why it's going so well. We are now at $1 billion run rate, annualized run rate, which is a great benchmark to have achieved, and I congratulate the whole team on that. but why is that happening? It's a tremendous service technically we'll talk a little bit later about the Super Bowl and what we did with the Super Bowl on Tubi. But we broke performance records and the tube users had a tremendous experience. But separate to sports, which is not usual on Tubi, has 275,000 movies and television programs. farm exceeding anyone else in the SVOD or AVOD market. And so as users come to tube, they are having a tremendous experience. And look, honestly, free is a great marketing position. It shouldn't surprise anyone. If you have a great service, that sort of library and it's , it's becoming incredibly popular.

Is there a way for us to think about sort of the profit potential or kind of the economics of the business? I think the business is still EBITDA negative at least the way you guys...

Yes, we're still investing in the business. We think it's a smart investment. We're being judicial about the investment. It's not it's not a huge investment. We think it's absolutely worth continuing to invest in. And the reason we believe that is because ultimately, it is the new broadcast network, right? It's delivered digitally. It's 97% on demand. It's not a fast channel service. It is very much an on-demand service, which actually makes our advertising impressions, much more valuable as an important part of the business. And so -- and so the business continues to do well on and continues to sort of deserve our investment in it. Ultimately, I think a lot of analysts have put in it should achieve a traditional 20% to 25% sort of margin, and we see no reason why it shouldn't.

Any timeline you want to provide for us as to when this becomes sort of an EBITDA contributor to the company?

No, we have a pretty strict business case for them to get to profitability that we're holding them to, but it won't be long.

Great. And then, yes, let's talk about the Super Bowl. We'll talk about it, obviously, on the big network. But for Tubi, why put Super Bowl on Tubi? Is there any risk around either your MVPD of relationships or even technically thinking able to provision that many simultaneous streams?

Yes. Look, there are lots of arguments the risks in putting it on Tubi, not least of which is the technological risk, putting people into that sort of funnel. But there's a huge opportunity for us and also, frankly, for the NFL, and putting it on to the NFL on Tubi. So the Super Bowl this year was -- despite not the best game, Super Bowl this year, we achieved a record rating, 126 million viewers. Which is tremendous given that it wasn't the most exciting game. But to be generated or that 24 million viewers came in at some point, watching Tubi. There's about 15.5 million concurrent viewers watching the stream, which is a tremendous technological success and each one of them had to register. And that was the critical thing for us. One, about 40% of the audience on Tubi had not used Tubi before. And our existing users who hadn't registered with us had to register and all the new users have to register. And that drove a tremendous amount of value for the long term for Tubi. From an NFL perspective, we gave the NFL and that game incredible reach, reach like Super Bowl has never seen before. 65% of the traditional Tubi user is not in the cable bundle, right? They're cordless. So they have access to that market. Of the users watching the NFL in the day on Tubi, 40% were between 18 and 34 years old, and half of those were women. So like for all of our content and our advertisers, Tubi gives you a tremendous amount of reach and that certainly happened during the Super Bowl.

Got it. Let's stick with the sports theme. So obviously, football is driving most of the sports success at FOX. But there are rights in the market this year and currently Formula 1, which you guys are federally with the past and the UFC and WE of which have been on Fox in the past. MLB, we know from the ESPN kind of relationship break that's been covered in the press. Are any of these interesting to Fox at a price? Or how would you describe your sort of sports strategy.

We'll look at everything, but we also look at it as a portfolio of sports and we're careful to -- we'll look at everything, but we'll drop sports, where we feel they're not achieving what we need to -- what they need to for our audience or for financially and we'll pick up sports. So we've dropped the expensive ones, we dropped like WWE. We dropped Thursday Night Football, right, which is important and we're able to adjust our package. This year, we've got Indie CAR racing just started last weekend. We just started also last week in the MotoGP. I'm forgetting another one. LIVGolf. And LIVGolf. So we think of it as a package. Clearly, though, for us, the Major League Baseball and the NFL are top sports.

Okay. Part of the sports story, of course, is driving. Helping to drive your retransmission fee revenues. And you have chatted about the bunch. I mean it's surprising to me how well you guys are growing your television segment distribution revenues. I think they were up 8% compounded over the last kind of 3 or 4 years. We're -- your competitors are not best we can tell, getting the same kind of pricing. So how do you sort of explain in the market what's driving your pricing pattern at broadcast. And as you go into these renewals, you mentioned you've got some this year, can this continue?

I think when we talked about this 2019, right? When we launched the company, we had our first investor. And we explained that the old FOX, parts that we sold to Disney that broadcast and our strength in sports was really we're using that leverage in our affiliate renewals to support a lot of other channels, right? In the new FOX, we're very focused, right? We have our broadcast network, our TV stations, we have FOX News, FOX Sports. So it's a very, very focused portfolio, and that's allowed us to really drive that affiliate revenue and also, frankly, retransmission revenue to new heights. I think in 2019, we were doing about $1.5 billion in retransmission revenue. And in 2019, I think Steve Tomsic, our CFO, put a bold and sort of aggressive target that by 2022, we'd had $1 billion in the new company and the new structure of our strategy, $1 billion onto our remission revenue. And it sounded observed right? It was $1 billion. Well, we achieved that by 2022. And since then, we've put out another 650 so actually a little bit more. So we've now doubled our retransmission revenue in 5 years, which is a great testament to the strength of those brands and to the wisdom of the strategy.

Yes. Do you have any concern that launching this D2C product might eat into some of your pricing power? Because obviously, you'll be broadcasting this now on an unbundled basis as you go into these renewals.

No, I don't think so. I think look, we are going to keep it very focused on the cordless universe. That's pretty clear. It's like with the venue media. We said, look, if you ever see us marketing D2C on broadcast TV, that's not the market we're going to go after, right? And if we're going to see that my head would explode. If you saw Tom Brady marketing, venue media on the halftime show, that's not -- we're not chasing subscribers, right? We are very targeting on incremental subscribers that will be accretive to us as a business. And the same is true with our D2C. So it's been very focused and it's going to be priced right, importantly, at a level, which really frankly is not going to be competitive with someone who wants that as part of their cable bundle. So we're big believers in the cable business, and we believe we are good partners with our distributors.

Yes. How about on the affiliate side, what's the relationship with the FOX affiliates because that's another area where they're under pressure. And also any concern that reverse retrans, as we called it in the past, slows down or goes the other way?

Absolutely. But by the way, we're in the broadcast business, too, right? And so we understand the pressures our broadcast can be under. But our the value that we bring through our sport tracks are very incredibly expensive and through our other programming, and we will continue to drive that business and drive the business for our affiliate partners. But we understand their issues, and we're doing our very best to continue what's been a great partnership with them.

Okay. I know -- I'm sure you know this Lachlan. Last year, the NBA had their rights renewal, $75 billion massive haul. And there's a lot of speculation. The NFL is looking at that and saying, we want to revisit our broadcast deals sooner than their contracts are up, which I think is still several years out. What is FOX's perspective on that? I mean if the NFL were to come to you to extend the deal, I mean, is that an opportunity for FOX in your view or a risk to the profitability of the company? What's your.

Look, we see it as an opportunity. NFL's, our largest partnership. They have an incredible product. And we've had a deep relationship with them for a very long time. So we see this amend and extend provision, which is still some years out, but it's something that is an opportunity for us to, frankly, deepen our relationship with the NFL. And as you can see from -- we just talked about the Super Bowl, what we can do is not just about what we can do from a Fox Sports perspective or a broadcast perspective. But as a company, we've become very, very good and very efficient at leveraging key events like the Super Bowl or like the NFL across all of our platforms, right? That includes news, stations, the network and FOX Sports and Tubi.

I know you don't speak for the NFL, but what do you think their perspective is on sort of the power of broadcast because they'll have a lot of streaming options that are growing as well. Do you think broadcasting is key to them?

I think reach is still key. Obviously, they're driving our financial -- for financial outcome, which is understandable. And it's completely fair. But reach is important if you're going to be the national -- if you are the national sport. And it's reached not through broadcast, broadcast is the #1 reach how you can increase our reach through other services. And as I said, Tubi is a great example of how we did that just a few weeks ago.

Got it. Wanted to ask you one question just on the ad market and then we can wrap up on kind of capital allocation topics. So 2023 for the TV market overall was pretty tough. Last year was certainly better. But post-election, we definitely heard some mixed things from companies that operate in the U.S. ad market. What's your update for us? I know. So we start the conference with you. You could take us through the portfolio quickly on how the ad market is from your perspective?

Sure. Well, let me give you an overview. So we're seeing a healthy ad market, and of course, we had in the last few quarters, we've had the election of political revenue and then we had obviously a tremendous NFL season, tremendous revenue cap of Super Bowl. We did $800 million of gross revenue in the Super Bowls. And that flows through also to the station group. So we've had a tremendous last number of quarters. But we're really seeing that growth -- that strength in the market the healthy nature of the market continue. We have our upfronts 2 months away. I think at the upfront, early May. And we're seeing a very healthy upfront marketplace, certainly for us. Now why is that happening, right? Because I understand from some other business, it's not necessarily as strong. Jeff Collins, who is our Head of our ad sales, a terrific job in leading a great team. He explains to me once it's like the ad market today is like -- it's got like a barbell shape, right? The middle is getting squeezed, right? So the middle, which is like linear entertainment, cable, entertainment, advertising, that squeeze because of the Netflix, and the Prime and Disney+ of the world. So that's going to squeeze and what's happened with that revenue. That revenue is still there, but it's going to be pushed out the edges. And what edge is it like we have big reach, right, like sports and news, we have reached, so you're having revenue pushed to the best quality programming, which is, frankly, live news and live sports. And then the is going to highly targeted advertising opportunities, but we're capturing that revenue in Tubi, which is really generating a lot of the advertising growth in Tubi. So if you think it's quite a simple way to think about it, the middle is going to squeeze out the way we position the company, we're capturing that revenue on both ends, the targeted end and the mass quality reaching.

Got it. That's a helpful way to think about it.

I know we're out of time but if you run through our businesses, scatter is up across news, entertainment, sports, we're seeing a very healthy market across all of our portfolio.

That's great. Okay. Let's wrap up here with some kind of capital deployment, capital allocation question. So sports betting is an area that you're quite bullish on. I know you guys have been focused on it for a long time. Is the way for us to think about the way FOX shareholders can participate in that really through your FanDuel option. Is that sort of what you guys are working on in terms of creating value here?

We have built the FanDuel option, which is tremendously valuable. We don't have to exhaust it to 2030. We are working through the process of getting licensed. When we exercise that option, we have to be licensed in '26. Separate individual markets. So that's a complex process, but one that we're very much engaged in. But then we also have the equity in FanDuel. I'm not sure people realize we have so $1.2 billion worth of equity in Flutter, the parent company itself. So we benefit both of those ways. We also just generate -- as the market continues to grow from advertising from all of the different players. So we're excited about the opportunity that sort of wagering sports wagering presents us here.

You guys have -- I think you're down to essentially almost a net 0 levered balance sheet or close to net cash, certainly under 1x to generate a lot of free cash flow. What should we be thinking about in terms of M&A appetite? And should we sort of pass this prologue? Is that the best way to think about what you guys might do in the future?

No, because I think we've made some very good acquisitions to be being very accretive to us, obviously. So we've -- but they've all been modestly sized. We continue to look at opportunities, though, and we will be acquisitive, but we want to make sure that we find businesses to bring into our portfolio that are going to be accretive to shareholders that don't look strategically make sense. And we're going to be prudent about which ones we pick

Any update on the Smart Matic litigation end trial?

We expect to go to trial the end of 2025 at this stage, and we're actively preparing for trial.

I did want to ask you, you recently promoted John now, and I think a lot of folks in the audience probably know John to President and COO as part of a new agreement. Is this mandate expanding? Or anything investors should take from that promotion other than he is doing a good job?

He is already across everything in the business. He is a valued and a really important partner of mine and a partner in all of our -- with all of our executives on our divisions. So I really couldn't be more pleased that John has resigned with us. It's an opportunity to think about, though, that our management team since 2019, when we came out of Disney, we were very careful in using who would be part of the new FOX and was really buy into the vision of the business and the strategy and be able to execute on that strategy. And with one or two exceptions, the management team has remained incredibly stable. Everyone's very focused. Everyone's working incredibly hard. In fact, we're actually being able to bring in some new people like Anjali Tubi who have, if anything, enhance that management team as well. So we're incredibly pleased, and I'm super pleased with him staying.

As we wrap up, Lachlan, and thank you again for kicking off the conference for us. Any last comments on sort of FOX's businesses and the long-term strategy to sort of drive shareholder value?

Very quickly, I know we're over time. Firing on all cylinders, right? News and sports are incredibly strong. We have Tubi as a growth business that just continues to go from strength to strength. We've just seen the just a bit of what it can achieve with what we were able to do with the Super Bowl and it's an incredible market for us, and we have the best balance sheet in the business. So we see the last year has been a tremendous year for us, and I think the next year is going to be even better.

Well, thank you, everybody.