Fox Corporation (FOXA) Earnings Call Transcript & Summary

Good afternoon, everybody. Welcome to the FOX fireside chat at the Goldman Sachs Communacopia and Technology Conference. My name is Mike Ng, and I cover FOX and Media cable telecom here at Goldman. As a disclaimer, we won't be discussing the pending Roku transaction. With that out of the way, I have the wonderful privilege of introducing John Nallen, who is the President and COO at FOX. First and foremost, thank you so much for being here, John. It's an absolute pleasure.

Thanks, Mike. Thanks for having us all

Great. To kick things off, we can talk a little bit about a big cure strategy question. FOX is entering fiscal '27 off of what has been a record year in fiscal '26, the launch of FOX One, to be reaching profitability. Incredible underlying momentum at FOX News, the World Cup. So to kick things off, I was just wondering if you could talk about your key strategic priorities as we go into next year.

So maybe if I can do it in the lens of what we achieved in '26 and what we're looking forward to in '27. And despite your admonition, I will comment on Roku. But looking at '26, you're right. It was a record year across the board. We grew EBITDA 8% at $3.9 billion. We've talked about strategic priorities. We launched FOX One had an incredible World Cup. The new cycle was extraordinarily active. The Entertainment division we don't talk a lot about, had great rating success. And to be another strategic priority, ended the year with 35% top line growth in the fourth quarter 35%. I mean that is very significant. As we look into '27, our fiscal year, just began, I really don't see the underlying trends for growth having changed much. If you look some of the indicators from an ad sales perspective, our upfront was the the highest record upfront we have ever had double-digit gains in volume across the board, pricing gains, and it was really just a superb outcome. In subs, I'm more constructive than most about where I think subs are headed and where we are and the addition of FOX One has clearly been helpful in that regard. The new cycle is going to continue to be active. Tubi has started the first quarter really on pace with how it ended the fourth. So incredible top line growth once again. And of course, we have the midterm elections. But those -- that's going to be an important element for FOX into fiscal '27. But I would be remiss if I didn't at least comment on the top strategic priority that we've got ahead of us, which is closing the acquisition of Roku. And this is going to be a transformational transaction for FOX. We've -- we announced this morning that DOJ has made a second request, which was entirely expected. When we announced the transaction a few months ago, we said it would close in the first half of '27 we're not changing that at all -- in calendar '27. We're not changing that at all. This was exactly as we expected. And it's going to take 2 companies that are -- have their own growth profiles. And we think Roku now is at a real inflection point for growth, put them together and achieve both cost and revenue synergies on top, which is just going to end up as a superb transaction for the FOX and Roku shareholders. So I think FOX One, Tubi, Latin America, all strategic priorities as we look forward, would clearly getting the $22 billion Roku transaction done -- done integrated and affecting all the growth strategies as well -- the real top top priority for us.

Great. That's all very clear. I wanted to ask about some of the comments you made last quarter as it relates to the NFL. You said that FOX's current agreement with the NFL currently remains unchanged through the 2029 '30 season, which ended, I think, some speculation about a very early renewal. As that formal opt-out window before the 2030 season approaches over the next couple of years, how do you assess FOX's position as a preferred partner for the NFL, given the reach of the broadcast network, the local stations and digital platforms.

So take the NFL as just a wide question. Our relationship with the naval couldn't be stronger. And I put that to rest by, if you look at during the off season, we acquired 2 new windows coming into the '27 season. Week 10, we got a game from Munich to form a triple header on FOX that we haven't seen in a decade. Week 15, we've got a Saturday game that's brand new to us. But as importantly, beginning Sunday, we will be the broadcaster of record for the NFL in Mexico for the next 3 seasons. So we bring mutual relationship for the NFL by using our platform, FOX News, not only a broadcast network, which is obvious, but to bring FOX News, the local television stations and Tubi to the plate for promoting the NFL and promoting FOX as well NFL is a real asset for us. But our relationship with the NFL couldn't be stronger. It's 1 that's been -- if you look at the last 30 years, we've produced over 100 games a season every season for the NFL. My expectation is that's going to continue for the foreseeable future.

And maybe just zooming out a little bit and asking about broader sports rights and the broader sports rights portfolio FOX has been very disciplined in their approach to acquiring sports rights, anchoring around NFL but also the MLB, Big 10, NASCAR, other major events. With the big technology companies, the streamers continuing to compete aggressively for some of those premium sports rights. How do you assess the completeness of FOX's rights portfolio today? How are you thinking about perhaps things that may be coming up as an example, perhaps the World Cup?

So our rights portfolio is really strong. If you look, it's anchored by a foundational group of rights, college football, Major League Baseball, [ IndyCar ], which is recent to our portfolio in NASCAR. We have a core -- a bunch of other sports around it, but those are the core elements of the rights portfolio. If you look at the timing of those rights, the NFL, we have firm until the 2029 season, baseball through the 28th season. And then if you take college football and the motor sports, we go to the mid-30s in the portfolio as far as expirations. So you asked earlier about strategic priorities, clearly, the renewal of these rights with baseball coming up as the earliest is going to be a key aspect of the entirety of FOX to renew what our core rights to us. As far as the World Cup, clearly, and a shout out to our sports group, we had an incredible World Cup spanning our Q4 and our current Q1. The next set of rights will come up for 2 cycles, the 30 cycle in Iberia and the 34 cycle in Saudi. And of course, we're interested in being the broadcaster in America for the World Cup. But to the point in your question, we're disciplined about how we look at these sports rights overall, and we need to get a return. So we'll see how the bidding for those rights go. But look, if we can perform as well -- we're close to as well as we did with the World Cup this year in the next 2 cycles, we'd be pleased to be the broadcaster port.

Very clear. If I could please pivot to FOX One. It launched as a direct-to-consumer product aimed at cord cutters and cord nevers. With, I think, the company talking about very minimal cannibalization of the traditional ecosystem, and that was by design. What are some of the underlying engagement trends, retention trends that you're seeing in FOX One right now. How are you structuring carriage agreements and distribution agreements to make sure that FOX One continues to be additive to the overall affiliate fee revenue pool?

So zooming out a bit on FOX One, the promise of FOX One on to our pay TV distributors was and is that we're not going to compete with you, right? We're pleased for the pay-TV to be our major distribution arm, pay-TV system, whether that's digital or [indiscernible] and as a result, we're not going to do anything to encourage people to leave, pay-TV and come over to FOX One. And what you've seen is through the promotion and marketing that we've done for FOX One, it's all been addressed toward the cord cutters, the cordless community. In fact, the stats we know very clearly, 97% of FOX One acquisitions are from subscribers that do not have a pay-TV subscription, only 3% have some neutrality to us having moved from pay-TV over to FOX One, very small. So as we look at FOX One, what we said early on is we expect in the 3 to 5 years, $3 million to $5 million subscribers. We're not at all reducing or changing that outlook. But I can say that the trends on FOX One are above our expectations. And what was clearly, a benefit to us was the World Cup. We had a number of -- a good number of customer acquisitions coming into the World Cup. We've lost some of those coming out of the World Cup, which is as expected. But as college football, NFL and post-season baseball season comes about those are great opportunities for us on both customer acquisition and bringing back customers that have left the platform. So it really will be probably through the end of this football season that we'll be able to get a full sense of the cycle of how FOX One performs on a year in, year out basis. But I would say we're also very pleased with the engagement level outside of sports that FOX One subscribers have on to FOX News as well. So in those times, which is clearly every time except the weekend, we see a high level of engagement of FOX Sports subscribers on to FOX News channel and that just helps with the retention side of it.

Right. Super interesting. Could I ask about the go-to-market and bundling strategy for FOX One. You have the ESPN bundle. You have some other early partnerships. You have a partnership with Amazon, who's playing on an overall in distribution. What do you look for in bundling or distribution partners? And how do you evaluate the next set of partners to help grow the business?

So let me take them in turn. Bundling versus distribution partners or channel stores, really. So from a bundling standpoint, we have a limited number of bundles right now for FOX One led by the ESPN bundle. And if you look at the customer acquisitions that we've had for FOX One, if I look at the totality, very few have come from a bundled product. And that was a bit of an education for us, but what seems to be happening is FOX One subscribers are self bundling. They're taking FOX and then picking and choosing the other products that they want to complete, whether it's Paramount Plus, Peacock, Netflix, whatever it is that they're bundling on. So it's not a bundle offering that is attracting people to what is the ultimate skinny bundle, which is FOX One. That's not the case in channel stores from a customer acquisition standpoint. Because, as I referred to earlier, the whole promotion and marketing of FOX One is digitally centered, it's not surprising that we get a very high percentage of customer acquisitions from digital channel stores. Amazon and Roku being the top 2. So again, if I look at the profile of customer acquisitions in FOX One, I'd see a much heavier profile of acquisitions coming from digital channel stores and it will from bundles. I would say 1 comment overall on the distribution world is we were seeing in the pay TV universe, up until the last quarter, 6% to 6.5% declines in subs, but that has meaningfully offset by the additions that have come from non-pay TV from FOX One. So as I said earlier, I'm more constructive than most on subs. And I think just the traction we're getting on FOX One is what gives me that confidence.

That's very clear and very sensible once you lay it out like that. Maybe shifting gears to FOX News. FOX News Channel absolutely continues to lead cable news and ratings. But the digital commentary podcasting, those types of mediums are also rapidly growing. How is FOX News media approaching digital distribution across YouTube, social platform, streaming to capture those younger audience audiences while preserving the linear network leadership and the anchors of the economics of the overall business?

Well, you're right that the flagship brand of FOX News media are the linear channels, FOX News and FOX Business, in particular, that's the core of it. But for many years, the team at FOX News Media has been looking for adjacencies to what we do in the linear channel. And that started with products like FOX Nation, FOX Weather, the channels on Sirius, which -- some of the top channels that Sirius XM has. So that we've added to FOX News Media, both revenue stream and engagement levels by that. More recently, FOX News has leaned in very heavily on the digital and social side very heavily, such that now on YouTube, FOX News is the #1 news brand it just is buy and far. And it's not the channel. It's basically clips that we take from shows and segments that are heavily curated that are put on to YouTube that hopefully create a bit of a flywheel of engagement back to other products inside of FOX. Facebook, TikTok and X, FOX News is also the #1 brand, news brand. So this more recent phenomenon by FOX News of really leaning into digital is paid off such that the brand is elevated above all other news brands in the digital and social space.

Would love to talk a little bit about the linear business. And perhaps we can start with how FOX feels about upcoming affiliate renewals, carriage as you enter into fiscal '27, you have a larger renewal weighted towards the broadcast stations. How do you think about FOX's ability to sustain favorable terms as you head into these carriage negotiations? How does the breadth of the business strengthen your negotiation leverage here?