News Corporation (NWSA) Earnings Call Transcript & Summary

Hi, everyone. Thank you for joining us today. It's Entcho Raykovski here. For those who don't know me, I cover Australian media at Credit Suisse. I'd like to welcome today Robert Thomson, Chief Executive at News Corp. Robert, thank you for joining us today. Before we jump into today's presentation, just to mention to everyone who's listening to us on live stream, if you have any questions, please e-mail them to me at [email protected]. Email address should be at the bottom of my screen, and I'll endeavor to kind of work them into today's presentation. Robert, I know we've only got 30 minutes, so I'll launch straight into it. As I said, thank you for joining us today.

To begin with, can you please talk about the impact of COVID on the company, on News Corp and the actions you've taken to date to offset that impact, given the pretty unprecedented times that we're facing?

Now it's pretty fair to say a pandemic is indeed unprecedented, Entcho. And what you've seen, I think, more broadly among many companies, and it's not dissimilar for ourselves, is that COVID expedited what you might call preexisting conditions and has prompted our leaders in Australia, and actually around the world to take bold, sometimes difficult, but ultimately necessary decisions. And many of you will be aware of the cutbacks in Australia, the transition of many of our publications there from print to digital only, the sale of AAP, which is actually founded by Rupert's father, Sir Keith Murdoch, many years ago. So these are not easy decisions to take, and they have been thought about and grappled with and got on with around the company, around the world because it's very clear that the crisis has changed some things temporarily and changed other things permanently. And part of the IT leadership is to tell the difference between the two. Obviously, going from company to company, the situation is different. For example, with books in the U.S., which is through HarperCollins is a very important market for us. At the opening weeks of the crisis, there were clearly logistical issues with Amazon. And they had passed. But at the same time, you had a large number of people wanting to read because they were stuck at home and looking for the best books in the world, and there would be HarperCollins books. Equally, with our newspapers and mastheads around the world, there's been a vast amount of interest in the crisis. And so you've seen traffic sort of record levels really at most of the mastheads ranging from those in Australia to the Sun in the U.K. through to even MarketWatch because of the financial market volatility as well as, obviously, at the Wall Street Journal. The question then becomes, how do you turn that COVID cohort and the interest into a habit? And obviously, the best measure of that is subscription. And so far, we've seen subscriptions of those properties rise significantly as we indicated at the last earnings call. And then in digital real estate, obviously, inspecting a home hasn't been possible. At the same time, you've seen, particularly in April, as we indicated, on the earnings call, we've seen a surge in traffic to the sites, REA and REALTOR in particular. Your -- so how much is that people perusing? And how much is that -- people seriously thinking partly inspired by the crisis, seriously thinking about a change in lifestyle, which means a new home somewhere else. And we're starting to see some sense in those patterns now of people taking an interest in areas outside dense urban populations, whether that translates into action, time will tell, but what you can certainly see is that you have the initial interest, that in the past has led to action. And for Foxtel in Australia, obviously, sport is an important part of what Foxtel provides the Australian public. The largest sports, Rugby League and Aussie Rules have only just resumed. Clearly, there was a downturn, as we indicated in Kayo, which is the sports streaming service in Australia, but the sports have returned. And as I indicated on the earnings call, there had to be a reset in sports prices, and there has been a reset and that's been of significant value to Foxtel. And meanwhile, in recent days, for those who don't know, we've launched an entertainment streaming service called Binge. Binge is what you do, and Binge is what it's called, because you still, in Australia, don't have the new normal as yet. And so the need, the demand for entertainment is great. And in that sense, it's an ideal time to launch a new product that can provide entertainment for people who are craving some recreation given the enforced situation, which made people find themselves.

Got it. I mean a few things we can pick up on there. But perhaps, one, you spoke about increasing digital subs. On the earnings call, you talked about a 20% year-on-year growth in digital subs at the Wall Street Journal. Can you perhaps talk about the extent to which you think that's resulting in a permanent shift to an increase in those digital subs? I mean, obviously, there will be some timing issues related with COVID. But are you seeing an acceleration? And can you actually see a benefit from the current situation?

Well, it's a very good question, Entcho. We certainly had a reset of the subscriber base, reset higher, that is. And often, people make comparisons between, for example, the situation of Dow Jones and that of, say, the New York Times. But you look at the numbers as reported by the 2 companies. And New York Times, profitability was down 15%. But as you know, News and Informations Service profits were up 15%. News is going to -- obviously, a significant proportion of that was Dow Jones, which we don't at the moment break out separately. And then on advertising revenue last quarter, our digital advertising was up 25% at Dow Jones, whereas, it was down 8% at the New York Times. And so you're seeing quality come to the floor, reliability -- and information that people trust has a premium value. There's a premium for that premium use. And so as you also are aware, we have a new Chief Executive at Dow Jones, Will Lewis had done an excellent job and left the company in a very sound state. And Almar Latour has come in is immediately focused on the crisis. And as you say, what are the consequences of the crisis? And what -- as I mentioned earlier, what are those that are ephemeral, what are transient and what are permanent? And it's up to us now that we have that audience at Dow Jones, and the pressure is on Almar and the team, you have that audience make the most of that audience. And the way to most -- make the most of that audience is to bring people on as subscribers and make sure that as subscribers, they have a satisfying experience. So far, the signs are positive, but the challenge is all on us.

And Robert, you mentioned that Dow Jones has been doing better than some of the peers when it comes to the ad market and ad revenues as well. What are you seeing within the ad market? Are you still seeing a pretty tough external environment. And just -- I mean, you've touched on, I guess, the reason for the ad performance, but do you think it's that premium offering, which is driving it?

There's a focus on quality quantifiable demographics. And now that's what you get at MarketWatch. That's what you get with The Wall Street Journal. It's a reliable environment. It's what people refer to as a safe space. But most importantly, you have an audience, for example, The Wall Street Journal, which is prepared to pay for a subscription. Therefore, they're prepared to pay for things. Therefore, they're an attractive advertisers -- audience for advertisers. And clearly, digital has been stronger than print. But if you were looking at The Wall Street Journal this week, for example, in print, you'll have noticed, it's very public. You will have noticed an improvement in print advertising this week compared to last week. And so there are signs of recovery even in print. But longer term, which is really what we're talking about, the viable, the sustainable, longer term, we have a lot of confidence, not only in The Wall Street Journal brand, but our brands in Australia and our brands in the U.K. because we have absolutely no doubt about the quality of our journal.

We can spend a lot more time talking about Dow Jones and The Journal, but I wouldn't mind just touching on the U.K. and Australia, which have been a little bit more challenged, particularly when you look at some of the April numbers that you indicated on the earnings call. What are some of the things that you've got to do within those assets, particularly in Australia? You'd spoken about a strategic review of the community in regional newspapers. So I guess how is that progressing? There was some news flow that it hasn't gone so well. So I'm interested in your comments and just the sort of actions that you can take.

Yes. And what we did have a strategic review and the net result of that is that we're suspending the printing of over 100 community and regional titles in Australia. Now some of those titles, unfortunately, will be closed permanently, and some will become digital-only mastheads and be part of our national digital network, and obviously complement the role of REA as well in providing digital real estate services to our readers and customers. And look, that's not a decision that was taken lightly. There is -- it's an unfortunate action, it's a necessary action. And we -- that action was taken cognizant of the consequences, being respectful of the tradition of those papers, but also being very aware that it all very well to have a tradition, but it's our job to fashion the future. And that's why that, frankly, dramatic action was taken. And that changes the cost base fundamentally. It still gives us a digital reach, which is important. But frankly, with a lower price tag.

Got it. It's something that is, I think, quite topical right now with, particularly in the Australian markets, following the digital platform's inquiry, the ACCC has been mandated to determine a commercial arrangement between the digital platforms and the news providers. What are your expectations of what the ACCC can deliver? And I'm just -- I just note that Facebook have said in their submission that they don't really want to share any ad revenues with the news providers, so we'd be very interested in what sort of comments you can make, particularly given that they use some of that news in their feed?

Well, it's not just in Australia, but it's around the world now that the regulators are reaching a similar conclusion. And what I would call a conventional wisdom about digital has been replaced by a collective wisdom about digital. And that collective wisdom realizes that digital platforms have to pay for content. And frankly, our experience of Facebook in the U.S. has been positive. As you know, Mark Zuckerberg, and I have launched Facebook paying for content, not just paying for content, but as a point of principle, allowing the flow of data back to publishers, and also allowing their publishers to sell advertising directly against their own content rather than being within a fenced-off content community. Each of those principles were a prerequisite for us doing a deal with Facebook. And certainly, the understanding we have with Facebook is that similar deals will be rolled out. And not just with us, it's never been just about us. It's about publishers generally, but similar deals will be rolled out globally. So Mark Zuckerberg is definitely a person of his word. And so I expect that, that will indeed evolve in coming months. But when you think back a few years and look, Entcho, you know that this has been a cause of our company and of cause of mine since around 2006, 2007. And at times, I've certainly felt like a digital Don Quixote, tilting at these tech wind mills. But now I think the ecosystem -- and it is about the ecosystem. The ecosystem is changing fundamentally both in terms of the relationships between these companies and publishers, and obviously, also in terms of the relationship between these companies and regulators. Now the 2 are connected. But we will deal with both the regulators and try and provide whatever information is useful to them. But we'll also negotiate with the digital companies. And if the deal makes sense to us, we'll do a deal.

Did you expect it can be material enough to the earnings of News Corp Australia?

I certainly expect that. I expect it to make a difference. And when you look at Dow Jones, we have a Facebook deal, we have an Apple deal, there's always been the possibility -- you have the Google deal at the right price. These numbers do add up. They become meaningful. And because you were really looking or at least Rupert and Lachlan myself were looking for 2 fundamental changes. One, it was digitally dysfunctional, the ecosystem. The ecosystem had to change; and two, the terms of trade have to change. And both are in motion at the moment. And both, to your question, will make a meaningful difference when they come to fruition.

Got it. Perhaps we can turn to subscription video services. And I mean that's fairly topical, as you mentioned, around now having had to restart, new agreements has been signed both with the NRL and the AFL to have extended the current NOL contract by 5 years is part of that. I guess to the extent you can, can you talk about the financial benefit of the renewed contracts? I suspect that there's only so much you can give us. But then we're also interested in, obviously, the NRL deal was extended, AFL deal wasn't. Was that -- did that just come down to the negotiation and not getting the right deal on the day and you -- it's something that you'll revisit down the track? Interested in your thoughts.

Well, you asked if there's a financial benefit. And can I quantify it? What I can say, is it's definitely a financial benefit. And there has definitely been a reset as promised in those prices. And look, the thing to understand is that the partnership that we have with e-sports, it's not just a Foxtel or Kayo Sports partnership, it's a partner -- a broad partnership. Our papers in print and digitally devote a tremendous amount of space to these sports. We devote a tremendous amount of energy to cultivating grassroot sports in Australia and from the family to the field. And when we make a commitment to a sport, it's a real commitment in time, energy, expertise. And so we have a long-term commitment to Rugby League. We have a shorter-term commitment to Aussie Rules. I think the leaders of both sports appreciate that. Look, if you want broadcasters to create specific channels, which we've done. For the sports, if you want publishers to devote a lot of space because those sports have prominence, we will do that, but it has to be on the right terms.

Got it. The -- and then this is not just related to Foxtel and SVS, but just more broadly, obviously, there are some renegotiations of sport rights taking place right now. Is your view that this is something which is opportunistic? And then perhaps in the post-COVID world, we return back to inflation in sports rights? Or do you think there is that fundamental reset that's taking place right now?

In Australia, there is a fundamental reset. And it varies country by country and sport by sport. You have to look at what is the broadcast infrastructure, say, in the U.S. compared to the U.K. compared to Australia. So it's hard to generalize about Premier League or Major League Baseball or -- and say, oh, this sport got that rating, as you know, Premier league prices have come down. Australia has a certain number of broadcasters and a certain number of people who are not only broadcasters, but who are committed to the sport and are committed to the community. And we're one of those broadcasters. And it has to be viable for us to commit that resource, commit that time, energy and expertise. And so sport by sport, we will make decisions about whether it's appropriate for us to go full bore in partnership with the sport. What we're not going to do is one, overpay for rights in a new environment and -- or two, be half-hearted about it either way.

Link to sport, Kayo, as you mentioned, on the earnings call has suffered because of the lack of sport, but that's to be expected. Is your expectation now that sport is back on, you'll see an uplift back to previous level and potentially above? And then how do you -- I guess, how do you think about the addressable market for Kayo subscribers longer term?

Yes. Well, obviously, it's a bit early for me to comment and for legal reasons, I'm limited in what I can say. But the return of sport makes a fundamental difference. In a way, it was interesting having people stay on as our subscribers. Given that the main reason, the 2 main reasons in Australia are A-League and Australian Football, Australian Rules. So the return of those sports, you -- anybody who tracks viewership numbers or have noticed that the audiences for Australian Football at the weekend were extremely large. You can draw your own public conclusion about that. So -- and the beauty of Kayo is that it's an opportunity for us with a streaming service to repurpose rights that we've already paid for. And we can -- and the beauty of Binge, which is the entertainment streaming services, is that we can not only repurpose the entertainment rights that we have, but repurpose the Kayo platform to deliver those programs. So it is a very sound strategy that Patrick Delany and Siobhan and the team in Australia have adopted. And we're very confident at this stage about the prospects for the company.

You mentioned Binge. Can you perhaps talk about the value proposition because it does -- I mean much like elsewhere in the world, streaming can become a fairly crowded market with a lot of different operators. How do you pitch Binge to the consumer as a new entrant into the space?

Well, obviously, we have the advantage of our digital platforms to help with the marketing, and Michael Miller and the tech administrator have done an excellent job partnering up with Foxtel. But Binge is distinctive because of its distinctive programming. It's a great service. It's technology is excellent. And look, if you want to watch HBO Max, then you have to buy it in not only for the next few years but far into the future, given the deal that we've just done with Time Warner. So it's about the programming, it's also -- but it's also about the technology. And we're very proud of what the team in Australia have put together. And as I said, we already have rights to those programs for -- and the question Australians has always been -- will more than 30% of Australians pay for content? The answer is absolutely yes. And yes, there's a certain amount of competition in the Australian market. The Binge is a completely unique service. And that will become very obvious to the people. Both the price point is very accessible and the content is irreplaceable.

Perhaps we can move on to books. There were some supply chain issues at HarperCollins early in the crisis. Have they now been resolved? And then there's a follow-on to that, I guess, similar question to the one I asked about Dow Jones and digital subs. Can you conceivably see a book offsetting perhaps some of the weakness in physical books, if not near term, at least longer term.

Yes. It's an interesting question because those who track the book publishing industry closely will notice that 4 or 5 years ago, e-books raised up to around 23%, 24% of sales and then actually dropped back to 16%, 17% in most markets. And because of the difficulties in distribution, which for understandable reasons, clearly, there was an increase in e-book sales. Audiobooks slightly went the other way because you would have presumed that e and audio would be the 2 main platforms, given logistical difficulties with physical books. But because it was extremely clear that quite a lot of audio listening was done during commuting and commuting in many cities came to an end, actually, audio fell off a little bit and then has come back again of late. So -- and it really relates to my earlier point about what changes in behavior will become habitual? And I think if companies that understand that and contract that and understand both the commercial consequences of that, but also the sociological context, they are the companies that are going to do well over the coming months and years. As for physical books in the U.S., which is obviously our largest market, Amazon is back distributing on a regular basis. The orders to Amazon themselves have been very strong of late. You have Barnes & Noble took advantage of the crisis and the forced closure of many of the stores to renovate those stores, and they're going to put books back, front and center, which is good for publishers. And the chap running Barnes & Noble now who's formerly what you might call Britain's best bookseller, a guy called James Daunt. And you can already see the positive impact he is having at Barnes & Noble. And any positive impact at Barnes & Noble is positive for HarperCollins.

I'll just ask a quick question on REA. Now I appreciate their own separate entity, but given the lifting of a lot of the restrictions in the Australian market, do you feel better about listing volumes and that short-term impact? The restrictions on auctions, open house inspections all gone. So arguably, that should be trending in the right direction?

Well, if we look at sheet sign now is making predictions. But look, one would expect that, as Entcho, you should say that as the restrictions on inspections are eased as people can actually look at properties. I mean it's hard to buy property just on the basis of photos and videos even if you have a wonderfully navigated tool by an agent. It's a huge investment -- most important investment most families will make. And so I think we are at a stage where for a lot of families, existential questions are being asked about where they want to live? How they want to live? But the time spend at home has prompted that kind of individual introspection about the home. So when it's possible for the market to return to a form of normalcy, I would certainly expect an increase in listings. And as I said earlier, if you look at the traffic, which both REALTOR and REA have been receiving in recent months. Generally, that traffic does translate into action of one kind or another. And that at least has been the traditional pattern. So in a sense, it would be surprising if that were not a future pattern.

Got it. And then at Move, you've provided certain relief measures to your customers in March, are those still on push? And do you expect considerably to remain in place for the near future?

Well, the team at Move, the new CEO, David Doctorow, Tracey Fellows, who overseas our global digital real estate operations, have really been listening to the realtors about what made sense for them. And so there are a couple of options that the agents have here in the U.S. for a relief because it's important to us that the realtor network remains strong. And it's also a sign of good faith at these times of difficulty that your understanding and cognizant of the context in which people operate. So it's hard to generalize about precisely agent by agent, what it is, but where agents have indicated to us that a certain type of relief would make more sense. We've obviously been open to that. And as the market begins returning, you're seeing a gradual opening across U.S. states. I mean you obviously read about it each day, each passing day. The opening becomes more evident. As with Australia, you would expect the inspections to increase, sales to increase and whether that built-up demand, well, what you imagine is built-up demand from families who've been talking among themselves about their circumstances. Does that demand to visit the site become action to buy a house that we should all see.

We're just about out of time, so maybe a very quick last question. You still have a sizable cash balance. If you exclude the Foxtel debt, which is obviously nonrecourse, how do you think about deployment of that cash? I know it's a common question that you get asked, but are you more likely to lean towards capital management? Or do you see opportunities in the current markets?

Well, obviously, during a crisis, your first -- the imperative and your first instinct should be to conserve and preserve cash because you're in a moment of a deep uncertainty. And we are unlike any other media company in that our cash balance is strong. And you've seen in media and in other sectors that companies that have overborrowed, well, they borrowed money and they are on borrowed time. We're the opposite. We are in a position to be opportunistic when opportunities arise. And one sense is that in some of the sectors that we're operating, where we have companies that are growing significantly, sometimes rapidly, that in some of those sectors, opportunities will arise. And we're in a position to the benefit, the long-term benefit of our investors, our shareholders. We are now in a position to take advantage of that. And so we're not going to be rush about it. We never have been. But we certainly have an opportunity in the coming months to deploy that cash in a way that will benefit the company long term and benefit investors long term.

Got it. We might wrap it up there in the interest of time. Robert, thank you so much for joining us today. It's much appreciated, and everyone on the live stream as well. I hope you found it useful. I certainly did. We might wrap it up there. But again, thank you.

Cheers.