News Corporation (NWSA) Earnings Call Transcript & Summary

Thank you, Christina. Thank you, everyone, for listening. I hope you learned a few things about Dow Jones and share our excitement about our future. As one of the legendary leaders of the Wall Street Journal like to say, everything can be improved. We take that too hard. So this is just the beginning. So with that, let's open up to your questions. [Operator Instructions] So let's get going. Thanks.

Thank you, Almar. I'm Mike Florin, Senior Vice President and Head of Investor Relations at News Corp. I'll be moderating today's Q&A session. Our first question comes from Ray David at Schroders. Ray asked, could you elaborate on the long-term aspirations of doubling digital membership? Will that come from lower-priced ARPU packages?

Thanks, Mike, and thanks, Ray, for that question. First off, I want to acknowledge that it was a rough day on the markets. We happen to have the editor of the Wall Street Journal here with us, Matt Murray, who can offer a few thoughts.

Thanks, Almar. Thanks all of you for being with us today. As Almar said, it was a rough day here. It was an unusual day when you had stocks, oil and gold all falling at the same time. The Dow was off more than 500, oil 4.5%, gold at its lowest since July now, off 2.6%. And 10 of the 11 sectors of the S&P were down, which is pretty bad, led by materials and industrials. And look, a few things are happening here in the U.S. at the same time. The prospects for a stimulus deal, which were already looking low, are, as someone told us today, as close to 0 as it can be now that we've got a court fight ahead of us in the coming weeks. We don't just have a court fight, of course. We have a count fight. Concern continues to surround the election. Wisconsin, today, extended the deadline for counting votes until 6 days after the election, which makes the vote itself look like it's going to be messier. And continued uncertainty around the U.S. and China relationship, trying to impact the TikTok deal today where there was some open quarreling about what the deal meant between the 2 sides. So there's a lot happening right now. I should say it's moments like this that people turn to us, which is why we've got about half a dozen reporters filing, right now, in why markets are leaning, for the Wall Street Journal, Barron's and MarketWatch. And I'm sure you'll continue to see stories and analysis mount throughout the night.

Thanks for that, Matt. Always great to get a little bit of live analysis from the Wall Street Journal. So now on to Ray's question. We feel comfortable that we can double digital membership on the long term. The Wall Street Journal and Dow Jones are both part of the fabric of U.S. and global business. And so we are encouraged, but not surprised to see that our TAM is 90 million plus in the U.S. alone. And that's not even counting international. Dow Jones is unique in the market really on its own because of its unique quality journalism that you heard Matt put on display just now; because of the nature of our audience, whether its focused attention and its high net asset value; because of the interplay between B2C and B2B inside of Dow Jones. We are also, as you heard us allude to in the presentation, planning to launch new products with different ARPU points -- new price points, both at the entry level and premium level. Then there's also our experience in this arena. We have double digital membership before at the Wall Street Journal. We've seen significant digital growth at the Barron's Group over the past 4 years that I was there and led that digitization. We have a playbook. I would like Susie to share a few more thoughts on this very important question.

Thank you. I'd like to first talk about TAM and the opportunity, and then we'll touch on ARPU. From a TAM perspective, as we talked about during the presentation, we see this 90 million people in the U.S. alone who have an interest in Dow Jones and our type of news. So general news, but also, as we talked about, finance, investing, technology. And we really wanted to make sure that we could delve deeper into that to look at who was willing to pay, and we established over 56 million people in the U.S. who are willing to pay. But we definitely wanted to go deeper and understand who was willing to commit to pay and look to subscribe. And that's why we established this 12 million prospect pool in addition to our 3.8 million existing members who had a propensity to subscribe and a likelihood to subscribe. And we're really excited about that for a number of reasons. One, because that 12 million prospect pool had actually got bigger since the last time we did this research, which shows that our model of moving people down the subscription funnel and warming them up to the idea of subscribing has been working. So that's really encouraging news. But also, when we look deeper into who those 12 million prospects were, we found that over half of them were under the age of 44, which is also incredibly exciting for us. And we also found that they had a propensity to be more interested in content areas such as investing, which is obviously a really sweet spot for us and our products. I think the other thing to mention just on this is around lifetime value and how we think about both the unique assets that we have across our journals. Because in addition to the Wall Street Journal, we obviously have Barron's, now MarketWatch, but also our professional services -- our professional information services. So when we think about how we use that prospect pool, we want to obviously get them to subscribe potentially to a new MarketWatch subscription and then move them up the value chain to the Wall Street Journal or Barron's subscription, but then into professional memberships and cross-sell them into other professional information services. So the combination of the addressable market opportunity and the unique model that we have across Dow Jones for this portfolio of products is really exciting. And it's becoming increasingly easy to move people through that customer journey now that 75% of our membership is digital. So in terms of our ARPU, as Almar mentioned, we really see the opportunity to grow definitely our core premium price products like the Wall Street Journal, but also to introduce new products, such as the MarketWatch subscription, which would be a lower price entry point, but also additional memberships potentially around our C-suite franchises, which are more expensive than the Wall Street Journal membership.

Thanks, Susie and Ray, for your question. Entcho Raykovski at Crédit Suisse asked, what is the global membership opportunity? And how does that compare with the 12 million prospect pool in the U.S.

Thanks for that. Today, we are focused on the opportunity in the U.S., but we have a global mindset. And we know that there is a strong global opportunity. Only 10% of the membership base is outside the U.S. at the moment, and we know that we will have reached far bigger than that. We haven't yet set our TAM for that, but I really want to underscore that there is a global opportunity on top of the one in the U.S. In addition, we have a long-standing and unique commitment to coverage of international developments, traditionally with the Wall Street Journal and Dow Jones. Personally, I spent significant time in Asia Pacific and in Europe working for Dow Jones and the Wall Street Journal, lived in many different locations for Dow Jones. So I personally firsthand know that there is global demand for reliable, factual news and analysis for decision-makers. Right now, perhaps more so than in a long time, there's also a hunger for news from the U.S. outside the borders of the U.S. and the hunger for fair news synthesizing global trends. Dow Jones and the Wall Street Journal can most certainly serve these communities. We will set out to do so. We'd love for Susie to follow-up a little bit on all of this.

Thanks, Almar. I will just give you a bit of context around that growth. So as Almar said, 10% of the membership base today coming from outside of the U.S. and growing. And it's growing for a couple of reasons. Firstly, we're beginning to understand more about pricing differently by geography. And we've seen success with that and growing digital subscriptions. But also our digital model really allows us to make use of the scale that we can get, both inside and outside of the U.S. What I mean by that is with our dynamic paywall, we can use that scale and translate it into subscriptions by, again, back to the subscription funnel, moving people down the funnel and warming them up to the idea of subscription by promoting our journalism and getting them to keep coming back to our products and our sites. In addition, we're understanding more about our digital products and how we can increase engagement in order to reduce churn. And that's something both in the U.S. and internationally is really crucial. I might just throw over to Matt as well who I know wants to talk about international.

Yes. Thanks, Susie. I'll just make a couple of points, which Almar sort of touched on. It's worth keeping in mind that we have the largest international staff -- reporting staff of major U.S. media companies. At a time when organizations have been pulling back, we've remained committed to covering the world robustly. Our readers expect us to do that. They need to understand the world. But also, as Almar said, it's worth noting, when we talk about decision-makers, that many decision-makers around the world are in our readership today, and they look to us for coverage, not just in the regions or of companies, but in the U.S. They want to understand politics. They want to understand the economy here. And we bring our good work about the United States overseas as well. So there's a lot of opportunity, I think, that really sets us apart. You don't have to look very far in the U.S. media to understand how thin international reporting has gotten here or similarly, some of the reporting that's done overseas.

Thank you. Fraser Mcleish from MST Marquee. Fraser calculates the digital ARPU to be around $17.60. Can you please explain the difference between the ARPU and the headline price point?

That's one for Susie.

Thank you. I mean, firstly, I'd say it's a net positive, right? We're growing both our subscriber and membership volumes and our revenues, and you see that reflected in our 75% of the base being digital and almost 60% of our circulation revenue being driven by digital. What I would add to that is that we really think about 3 different growth engines. I touched on this before that today we have the Wall Street Journal and Barron's. In the future, we also will have MarketWatch. So when we think about the total ARPU, it's a calculation across different products, we also take a very flexible approach to pricing, thinking not just about different prices by geography, which I touched on earlier, but also by audience. So it's probably no surprise that products like the Wall Street Journal have high institutional sales, and we also think about pricing differently for entry points to subscriptions. But overall, we expect the growth to come from a mix of both, continuing to grow our core products at our premium price. We're seeing fantastic momentum there, bringing people in a longer-term discounted offers, but then gradually migrating them up to higher prices, and then also introducing new products and services that can attract new audiences. And as Almar mentioned, also going further up the chain and thinking about how we can create, additionally, price, products and services particularly for those decision-makers that we touched on during the presentation.

Kane Hannan at Goldman Sachs wants to know, as we think about the propensity to pay for the prospect pool, do we expect them to come at a lower price point, given the fact that they aren't existing subscribers today?

I can jump in there. I think it's a great follow-on question to the one that we just had, which is we do expect the growth to come from the mix of both expanding our core product at that premium price. The Wall Street Journal is priced premium versus other titles in the market. We've continued to actually increase our price over the last couple of years in digital. So we'll continue to grow that, and that's where we're seeing great momentum, but we also want to make sure that we innovate and take a very flexible approach to pricing to introduce new audiences and to really take advantage of that 12 million prospect pool that we can see because we know that across all the different products that we have within Dow Jones, we've got this opportunity to move them up the value chain over time.

Kane Hannan has a follow-up question. You've mentioned increased investment in risk and compliance and also in your tech platforms, but you're also going to benefit from the group's shared service program in fiscal '22. How should we think about the margin outlook for Dow Jones longer term? Is there upside from here?

Yes. Thanks for that question. Yes, indeed, we are planning to invest further in risk and compliance as well as in our technology capability to help our digital membership business, but there will certainly be scope to improve our EBITDA margins, so I'm going to ask Christina Van Tassell to highlight that a little bit more.

Thanks, Almar. Thanks for the question, Kane. Yes, we are very focused on increasing our efficiency in our operating model. We are benefiting from having a diverse portfolio, so that means we can pull levers when we need to. And we're just really shifting to be more agile in our operating leverage. I think a good example of that was last week, our announcements moving our print operations out of the Bronx. So -- and finally, you mentioned it in your question, we're very engaged with News Corp. on the shared service program and do believe in its yield. So -- and we also are very excited about by our scale. And so for all those reasons, we do think that there is scope to improve our margins over the next few years, and we're really excited about it.

Fraser Mcleish at MST has a follow-up, and along similar lines. Can you talk about cost growth? It's been low single digits for the last 2 years. Can that be sustained at that level? And where does that go going forward?

Yes. I'll take that as well. It's a good follow up. The short answer is yes. For all the reasons I just mentioned, with our increasing cost efficiency, programs with our agility, we do believe we can maintain it. We also believe that we have -- we're really -- because we are agile, even in situations like we had in Q4 and when COVID hit, we were able to pull those levers and adjust our cost base to continue to deliver 13% EBITDA growth in Q4 as well as for the year. So we do believe that we're on it. We know how to invest and how to maintain our margins appropriately.

Kane Hannan at Goldman Sachs asked, you noted 95% of risk and compliance revenues are on long-term contracts. Can you talk a little bit more about what these contracts simply look like, what their average length is and whether or not there are escalators or pay-per-use contracts?

Thanks, Kane. And this question is all yours, Guy.

Thanks, Almar. So clearly, there's no one-size-fits-all risk and compliance contract, particularly as we start to expand our business away from our -- well, away from core data, including more technology, more services. But what I will say is that those contracts typically tend to be multiyear. They're often -- there's an element of volume pricing in there as well. So as our customers' compliance needs grow, our revenues grow with them. We talked about the strong retention rates. And clearly, that's the foundation for those strong retention rates as the quality of our products themselves. But it's also worth noting that we are deeply integrated into our customers' compliance processes themselves, and that leads also to those strong renewal rates. And I guess the final thing I'd say about those contracts is they're often very hard fought. Getting through the procurement processes at some of the big banks represented on these calls today is often hard. So a key strategic pillar to expand and enhance our offering, having those 4,000 loyal customers already under contract is a key part of delivering on that strategy.