News Corporation (NWSA) Earnings Call Transcript & Summary

Good afternoon, everyone and thanks for joining me. My name is Tom Beadle, and I'm from the TMT team at UBS based in Sydney, Australia, and I'm the lead analyst for News Corporation. It's my pleasure to introduce Susan Panuccio, the CFO of News Corporation. So welcome Susan.

Maybe to begin with. It's been an eventful 24 months, to say the least, with COVID-19 impacting News Corp's advertising revenues and print subscription revenues amongst other things. You've made significant restructuring across most of your businesses in response to COVID-19, which has probably accelerated some structural challenges. Some businesses such as book publishing have benefited. You've turned the corner at Foxtel and have made a number of acquisitions and have now actually started a share buyback as well. So you've done a lot, obviously, over those last couple of years. But what are the strategic priorities for News Corp over the next 12 months to 3 years and where are the opportunities?

Thanks, Tom. And look, it's lovely to be here. So thanks for that introduction. Look, you are right. We've, like many companies, I think the last 18 months to 24 months have been very busy. And we've managed to accomplish a lot across many of our business units around the globe. And we had a great year last year, and it's really pleasing to see that we've built on that momentum in Q1 with the results that we've just recently announced. We had revenue up 18% for the quarter and EBITDA was up 53%. So that is really pleasing to see sort of semi post-COVID world, but the results are continuing. As far as our strategic priorities go, we do often talk about our 3 core pillars, so digital real estate, Dow Jones and Book Publishing. And we have recently made acquisitions in the course of the last 12 months across those pillars. So we've had IBD within Dow Jones. We've had Mortgage Choice for REA, and we've had HMH within Book Publishing. We've also consolidated the ownership position between News Corp and REA with Elara, our Indian real estate venture. And hopefully, we'll also close the Opus transaction in early 2022, pending obviously a larger deal completing. And so we'll be focusing on the integration of all of those businesses and obviously continuing on the momentum across all our businesses, but particularly within those 3 core pillars. You mentioned Foxtel, and we have talked about that on previous earnings calls about the fact that Foxtel really has transformed itself over the last couple of years, and that has given us different optionality. We've talked about potential permutations around what we're having a look at, and we'll obviously be working through those in the coming months and years. And look, we'll continue to invest organically in the business. It's what we do well. It's really important to our core businesses, and we will continue to look at M&A opportunities if they make sense and the margin profile makes sense for our businesses. And the other really important thing that we've managed to land over the course of the last couple of years are these content deals with the tech platforms, particularly the big deal with Google. We've got deals with Facebook and various other tech platforms, and it's really important, particularly for our Dow Jones and News Media segments that we really work on those contracts, and we see the true value of those contracts come through. So there's lots of exciting opportunities that we've either delivered and we're in the process of delivering. So we're looking forward to the next 12 months.

Great. Well, look, we'll try -- we've got a lot to cover, I guess, today. I'll try and get to as many businesses as we can, but maybe starting with digital real estate. You've spoken in the past to become a global player in digital real estate and have key operations in Australia, the U.S. and India as well as your position in PropertyGuru. Do you have plans to expand into other geographies?

Look, we're focused on expanding the addressable markets that we're in with REA and REALTOR. So across the U.S., within Australia and within India. We're firmly of the view that we still have potential within those markets. We see a huge opportunity within the U.S. market, and we have been successful with our acquisition strategy within REA, within the Australian market. And look, we're always interested in looking at opportunities that may arise across many markets. But we do want to continue to focus and make sure that we do address those that we're in. And if we think about the U.S. market, I mean, it's a massive market, and it still remains incredibly fragmented. They've got a $75 billion commission pool that can be played in a $65 billion TAM for mortgages. There's $16 billion for titles. And so we do think there's still a lot of growth within that market.

Great. And maybe just moving to REA Group, they continue to deliver double-digit revenue growth with the exception of the interruption to listings when COVID first hit. But can you talk about how REA fits into News Corp's portfolio of businesses and the value that News Corp delivers to REA Group?

Look, as I've mentioned earlier, digital real estate as a segment is a really core growth pillar for News Corp. And part of that, obviously, REA, is a very key part of that digital real estate segment. The #1 priority for us are the operations of our businesses and how we maximize our profit potential within the companies and their respective markets. As you'll no doubt be aware, we have Tracey Fellows, who's come over here, and she's now our President of Global Digital Real Estate. She's come from REA. She also was interim CEO of REALTOR. She's working clearly very closely with David Doctorow, who's our current CEO of Move realtor.com. And both of those are working closely on the strategic direction of REALTOR, but more importantly, the collaboration with the REA Group because both companies are moving into different adjacencies. REA probably is a little bit more developed in that path than what REALTOR are. And both companies want to continue to evolve the consumer experience. And so whilst there are differences in the marketplaces and the models are very different, there's a huge amount of IP and collaboration that can happen between the companies, and we're doing our most to maximize that to get value for both companies.

Great. And maybe moving on to move. Opcity within there has driven a significant amount of revenue growth at Move. Revenue grew by 36% in FY '21, despite the impact of COVID-19 and also continued to be strong in the September quarter as well. So can you talk about the drivers of this and just provide an update on how the business is performing?

Yes. Look, we're really, really pleased with the REALTOR performance. And I think the REALTOR that has come out of COVID is a very different business to what it was going into COVID, and that's really, really pleasing for obviously the team at REALTOR and also for us at News Corp. And that 30% year-on-year revenue growth in Q1 increased revenues for that quarter up to $180 million, which again was very, very pleasing. Look, there's a few things that are leading to that. One is the robust macro environment and notwithstanding the ups and downs of COVID and the different impact on the markets. It's been a very buoyant real estate market over here in the U.S., and that is really helping and has helped drive the growth within that business. We are seeing continued strength in the traditional core lead generation business, which we perhaps didn't expect to grow at the extent that it had grown, and that is off the back of lead volumes declining. So in Q1, they were down 18%. But we have actually seen a much stronger demand because of that robust macro environment, and that has driven higher sell-through and enabled us to exercise some pricing power. So yield has increased as well. And we are seeing record home values over here in the U.S. and higher transaction volumes, and that's helped drive the referral revenue growth as well. So we've had actually the core lead gen business growing, and we've had the new model via Opcity and the referral model growing. So we've had sort of the best of both worlds, I guess, over the last 12 to 18 months.

Great. And can you talk about or frame the revenue opportunity for Move over the medium term? And also, can you just talk about how Move is differentiating versus say Zillow and other competitors? And also, I guess, what you might think about Zillow's move to exit from iBuying?

Yes. So look, we remain incredibly positive about the opportunities for ongoing growth at Move. And that's largely as a consequence of those numbers that I talked about earlier, when you think about the market size within the U.S. and the commission pool size, the TAM for mortgages and titles. So we do think there's still a lot of potential for us to grow that core business at Move. As far as differentiating from Zillow, look, I think our focus is on providing choice for our consumers and customers. It's not a closed model, it's a choice model. And we do think that, that helps drive engagement within the REALTOR business. So we offer an industry -- or to the industry and open platform. It serves as a marketplace for the industry, including iBuyers as an example. And we're focusing on maximizing the revenue potential on a market-to-market basis within the U.S. given that it's so fragmented over here. So we manage that transition of leads between the models based on the needs and the demands in any given market. So we're also focused on driving adjacencies in the addressable market. So we've acquired Avail, which was a smaller rental offering. So there's lots of things that we're doing. But I think fundamentally, the difference between us and Zillow is that we provide this open choice in the models that we operate in. As far as Zillow exiting iBuying, I think probably as a CFO, the best thing that I can say is I'm very comfortable with the path that REALTOR has chosen to be a provider of choice for consumers. That's probably the most diplomatic thing I can say.

Okay. No, fair enough. And maybe actually on the consumer side of things, can you talk about some of the initiatives that you've taken to improve engagement and how that might move -- sorry, flow through to revenue growth? And just generally speaking, how you feel that move in realtor.com is positioned versus competitors?

Yes. Look, it's a good question. I think maybe I'll touch on consumer engagement and then I can talk about some of the initiatives. So we're now at about $97 million average monthly uniques at REALTOR for -- we delivered those results in Q1. That was up 7% year-on-year. It has slowed down slightly from the peaks that we saw obviously in the previous year as a consequence of COVID. But we are still -- we're comparing against difficult comps, but we're still at levels that are above the pre-COVID levels. And I think that goes to the heart of what I was saying is REALTOR has come out of this business -- out of this COVID situation very different positioned to what it went into. We continue -- and the business continues to gain share versus the competition. So based on the September comScore's results, REALTOR's traffic growth outpaced the growth of Zillow and Trulia, and that has happened to 20 months in a row. So we are making inroads into that from a competitive perspective. And what are some of the initiatives that the team are focusing on that's helping drive that performance? So there's a couple of things. I think building on that seller marketplace that I've talked about, it gives the consumer choice and confidence. We've done partnership deals with other players in the industry, so Opendoor, Knock and EasyKnock, so we can provide choice for that particular consumer experience. We have multiple automated valuation models that consumers can use rather than just one that they come in and have a look at. And obviously, the referral model via the acquisition of Opcity is helping us give consumers a different way and a different path in order to complete their home purchase. And on top of all of that, the team are really constantly focusing on SEO and how best to optimize that in order to continue the traffic growth. And I think as a consequence of all of that, that is helping us monetize the audience in a much better way, which is contributing to our revenue growth.

Great. We might switch tack and move to Foxtel, where there's obviously an increasing focus. There's plenty of speculation of an IPO next year, obviously. There's a recent launch of over-the-top services at Foxtel has driven a turnaround in subscriber numbers and the restructuring of the cost base, including the renegotiation and extension actually of key sporting rights as well over the last year. So can you talk about the strategy here for Foxtel? Do you think the Foxtel has reached an inflection point? And can you talk about Foxtel's ambitions on a 3- to 5-year view?

Look, I think like a lot of our businesses that we've seen over the last 18 months to 24 months, we're really, really pleased with the performance of Foxtel. And it was really pleasing that the team at Foxtel were able to highlight that progress and the transformation at the Strategy Day that they had in September. And I think that was a really good way to convey the really strong work and positive work that, that business has done. As part of that Strategy Day, they did outline some of their key ambitions over the course of the next 3 years. And there were 4 key ones, I think they're focused on. One, they wanted to get to over 5 million subs. That compares to sort of roughly 4 million subs at the end of Q1 2022. They have an ambition for approximately AUD 3 billion in revenue. And that is a really different position to what we went into this business when we consolidated a few years ago, where the business was on a downward trajectory. And with that and with the strong cost work that they've done, they are looking at the opportunities around margin expansion. And again, that's a very different narrative for that business to what we saw a few years ago. And more importantly, from a capital efficiency perspective, they aspire to reach CapEx at a level of about 4% of sales. And that will see it having come down from, obviously, a higher level to that in past years. So I think there's some really important and good initiatives in there that the team are focused on and that they've outlined to the market. As far as an inflection point goes, it's a really -- is a good thing for us to talk about now. We probably didn't want to talk about this a couple of years ago, given where the business was. But it is a very different business like we've talked about REALTOR to a couple of years ago. They're now in a position where they're scaling their OTT revenues. They've got the Kayo and Binge brands that are out in the marketplace. They've recently announced Flash. And both of those brands are building very, very nicely within the marketplace. They have done a lot of work on stabilizing broadcast and that has come via focusing on these high-value customers. They've been managing to push ARPU up as a consequence of that small increments, but still keeping it stable to moving it upwards. And they've been focusing on churn where they've seen that come down over the past couple of years. They have taken a bit of a hit during COVID with their commercial venues. We've called that out in the earnings, and we expect that, that will bounce back as those venues start to open up and the marketplace starts to pick up. So when we sort of think about an inflection point, we're now in a position where we actually have got a growing, scalable business that is helping to offset that broadcast decline. And that broadcast decline is stabilizing to an extent that we didn't see a couple of years ago. And so I think all of that is really, really pleasing, and we have been seeing really good strong growth in subscriber numbers. So I think the Foxtel today is, as I keep saying, very, very different to the Foxtel that we saw perhaps 2 years ago.

And yes, Foxtel's obviously launched the iQ5 set-top box recently. Can you just talk about the opportunities that, that presents?

Yes. The iQ5 box is really interesting. Again, a really pleasing initiative that the team has implemented over there. So it's an IP-enabled box. So effectively, customers can still connect via the satellite or they can connect via IP. And that's really important because that helps drive that capital efficiency equation that we talked about. We don't need to have truck rolls or expensive installation going out in planting a satellite. They can actually obviously enable via IP. So that's really important. It is also really important when we think that we've got customers that are still on cable that we need to transition over on to satellite or onto a new device. Obviously, the aim will be to try and get them on to the iQ5 box. And because it's a new and more updated box than obviously the one that came before it, it delivers 4K streaming at a lower cost than the previous set-top boxes. And it also continues to provide that premium customer experience to those high-valued and longer-tenured customers that are really important to us and also helping us to maintain ARPU and push ARPU up. It's also a great box because it actually streams and aggregates -- sorry, it aggregates a lot of our streaming options. And so it has a lot more features than the previous box, and it's lower cost. And so it's sort of a win-win, I think, for the business.

Right. And pay TV penetration in Australia has historically been fairly low, less than 30% before the OTT players like Netflix arrived, I mean, does Foxtel have a target for the household penetration going forward that you can share? But at the same time, is it even the best way to think about it, just given you can sell multiple products, for example, Kayo and Binge into the same household? Or should we think about it more as like that $3 billion revenue business that you mentioned earlier?

Yes. I mean I think we think about it in a couple of ways. I mean, if we think about households within Australia, Foxtel is in nearly half of Australian households that have subscription TV. So I think the stats are around sort of 10 million households. So 8 million subscribers from those 10 million households, we're in about 4 million of those. And if we think about the landscape as we move forward with that business, it's SVOD that's driving that growth within the Australian pay TV market. It's obviously not broadcast product. And so when the team thinks about what the growth opportunities are for that business, which has led to some of their aspirational comments that they mentioned at the Strategy Day, they think that SVOD subscribing households will increase to about 85% penetration by 2025. It's currently about 77%. And I think that each household will subscribe to about 3.6 services on average, which is similar to what we have here in the U.S., up from a level of about 2.7 now. So when we think about the market and framing the opportunity for Foxtel, that is how they've managed to frame this goal of 5-plus million subscribers, I guess, from that fact base. And as I said, that compares to the $4 million that they're currently at the moment. And so their growth will come from a combination of a couple of things, increased market size, increased market share and households subscribing to more services. So all 3 of those will contribute to that growth going forward.

And just on the content side of things, obviously, content is sort of the most important part really here with Foxtel. Do you -- how should we think about it? Like do you think Foxtel needs to make more of its own original content, just given that balance of power has shifted from distributors such as yourselves to content owners over the past sort of decade, let's say? And how might Foxtel achieve this?

Yes. Look, it's a good question and a well-debated question, I think, by many in this company and obviously, within the industry. I mean what I would say is, I think Foxtel is an established partner of choice for studios and distribution partners. And they're also a long-term partner of key sports codes, such as the AFL, the NRL and cricket, that we obviously have over in Australia. And it's uniquely positioned as a consequence of that to have access to this leading drama, entertainment and sports. And it also aggregates apps such as Netflix and Amazon on its box. And so when we think about all of that and the content that Foxtel has, it actually has a huge wealth of original content within the confines of the contracts and the negotiations that they've done. And when I -- when we think about Binge as a product from an entertainment perspective, it has more than 10,000 hours of content within that particular product. 56% of Binge subscribers watch 3 or more series in a month, and 24% watch more than 8 in a month. And so that tells us that actually the customers are engaged and they're getting access to the content that they want. I think domestic content is going to be important in that overall mix going forward. We see that in various different markets, particularly here in the U.S. And as we know, the government legislation over in Australia means that Foxtel is required to spend 10% of its total expenditure on drama channels and local drama content. So they do produce original content in conjunction with obviously doing these partnership deals. And look, we think that they will be able to continue to have these relationships going forward, given the strength of the relationships that they've had in the past and more importantly, because they're growing those products. So Binge is growing, it's getting that audience. And so actually, that is making them able to do these deals on an ongoing basis with the content providers over here.

And maybe one final question on Foxtel from me. Just around costs, do you think that the cost base at Foxtel has been rightsized? Or do you think more can be done there?

I'm the CFO, I never say the cost base is rightsized. I think what I would say, though, is that the team have done a huge amount of heavy lifting over COVID, and that has resulted in many drivers of cost reduction. So whether it's via content renegotiations, whether it's in entertainment or sports, whether it's making critical decisions about content that's needed and dropping certain content that they previously would have paid for, they're not paying for going forward. And massive rework of the organizational design and structure that has led to many, many heads leaving that business over the course of the last 12 to 18 months. So I would say that they've done a lot of activity to rightsize that business. And in fact, our guidance for this year is that their costs in local currency will be relatively flat. And when you think about that in the context of notwithstanding COVID and the renegotiated contracts, but inflationary pressures that generally go into these content deals, I think that is a very, very, very good outcome for the team. So I would say, like every business, there are always opportunities to rationalize their cost base going forward. They will continually look to innovate and work on efficiencies, particularly in the back office, so we can free up those really important dollars to invest in the front end and the content for consumers. But I think a lot of the very, very heavy lifting has been done, but there will continue to be transformation activities as they move forward.

Great. We might move on to Dow Jones now. And maybe just to begin with, can you discuss the digital transition at Dow Jones. Your digital subscription revenues have been growing. They grew, for example, by 17% in the first quarter and annualizing at almost $600 million a year now. You had 3.6 million Dow Jones consumer subscribers as at September 2021. Can you talk about the size of the long-term opportunity for Dow Jones? What's -- and for example, what's the size of the TAM in the U.S.? And what about the international opportunity there?

Yes. Look, I mean I keep talking about all our businesses were -- all of them are doing very, very well. And actually, COVID has been -- I can't imagine we say this in lots of different ways, but it's been quite good for the businesses in many aspects because it really has helped them focus and crystallize the importance of their priorities and what they need to focus on. And Dow Jones has been doing a fantastic job. It's a company that 75% of its revenues are digital. That's up 73% from the previous year. 61% of its advertising revenues were digital in Q1 and 66% of its circulation revenues were digital. And so as far as sort of media -- traditional media businesses go, it's gone a long, long way to transforming itself into a digital company. And that's really important for us as an organization. If I think about those numbers sort of broken down a little bit from the subscriber perspective, we've got about 4.6 million total subscribers at DJ. They are up about 18% year-on-year, 3.6 million of those, as you mentioned, were digital-only. We think the longer-term opportunity for Dow Jones, as the team articulated at their Investor Day back in September 2020, continues to remain focused on the U.S., and that's not to say that there's no other opportunities. I'll talk about those in a moment. But they -- the guiding principle that Dow Jones gave back in -- at that September 2020 Investor Day when their subscribers were 3.8 million, they guided and said that they're looking to double the subscriber base to give you some sort of sense as to what their ambition is. And when we think about the U.S. market, the numbers that they talked about at that Investor Day back in September 2020 was that within the U.S., there is about 90 million college-educated and interested consumers in Dow Jones core content. Of that, 56 million consumers are currently paying for or willing to subscribe for a new service. And of that, 12 million prospects are highly likely, very likely to subscribe to a News product. So if you compare that to sort of the numbers of where we are now, that would suggest that there is quite a good runway of growth within that business going forward. And that doesn't include the international opportunity, as you spoke to. At the moment, most of Dow Jones and the Wall Street Journal subs are actually within the U.S. and North America. We have about 13% of our subs outside of the U.S., so international markets across Dow Jones, 11% of the Wall Street Journal. And so I think there are still opportunities to expand that product internationally. And I think those opportunities will start to build from now as they build on the U.S. market.

You've obviously made a couple of acquisitions within that segment as well that I'd like to talk about. I guess one yet to complete being Opus. But you've announced a $1.15 billion proposed acquisition there that if it's completed, the largest acquisition News Corp has ever made. So what was the rationale behind that? And can you tell us a bit more about the business and how that is -- how it fits into News Corp's overall strategy? And also, can you provide an update for the time line on the transaction?

I'll do my best across those 3 questions. Look, I think the Opus opportunity was really interesting. It was an opportunity for us to acquire a very valuable asset at an attractive price because it's a forced disposition. And the Opus and the related assets within Opus are appealing to us because of their position in the energy and commodity ecosystem. They focus very much on pricing benchmarks. Their businesses are very stable and they're resilient to the economic cycle. So there are lots of good facts when you think about that business. And the importance, we haven't talked about it yet, but the importance of PIB, so the Professional Information Business, within Dow Jones is increasing in scale given the importance of Dow Jones and one of our core -- and given it's one of our core priority areas across News Corp. And so looking at assets where we can start to scale out that professional information business was really important to us. And this asset came up, and it was, as I said, very, very attractive at a good price with a lot of factors that were going in our way. It's nearly 100% digital. It has 95% recurring revenues. Its adjusted EBITDA margins were over 50% in the last fiscal year. And it operates in a market that actually is growing and is very large, and there's a lot of opportunities in there. And so we were really excited when this asset came up. And so yes, it was our largest acquisition that we've done. But pleasingly, I think a really important one and a really important one for Dow Jones as we move forward. When we think about it from a News Corp perspective, as I've already alluded to, Dow Jones is a core growth pillar. So looking at assets we can build out that business is really important to us. It's a digital business, and it has recurring revenue. So it ticked all of those boxes. As far as completion, we're hoping early calendar 2022. That clearly is dependent on the larger S&P and IHS deal, but that's sort of the time line that we're expecting.

Great. And the other acquisition that you've made recently was Investor's Business Daily, where you acquired that for $275 million. Could you talk about the rationale behind that acquisition and what that business adds to Dow Jones? Are there any potential synergies here? And also, can you just share any thoughts or learnings about this business since you acquired it? What surprised you about this business?

Look, I think the rationale is actually not that dissimilar from Opus, albeit they are different businesses. It's a business that had 128,000 subscribers across its platforms last quarter. 100,000 of those are digital. So it's predominantly digital-only business. It has minimal overlap with those subscribers to the Dow Jones' existing subscriber base. So it's additive to that business. And we do believe that there's good opportunities for us to bundle the propositions between that business and obviously the core Dow Jones business as it moves forward. The vast majority of those revenues and subs, as I mentioned, are digital, but also high margin, rapidly growing and profitable. So obviously, important addition into the Dow Jones family. And more importantly, they have a really exciting sort of suite of trading tools that were new to our business that we're hoping to leverage from. So there's a -- and we've got a very good Dow Jones -- excellent, I would say, Dow Jones sales force that they can leverage from in order to help them grow that business. So sort of the thoughts and learnings as we think about that business, I think, as I said, we've got -- we've had minimal bundling to this point, so I think that's an opportunity going forward. It's a highly engaged community, the community that operates within IBD and the subscribers that come in, and that probably surprised us a little bit just how engaged they were. There's a high level of innovation within that business. I think, as you know, there's 20-plus products that they have out there. For a relatively small company, I think that's really, really impressive. They, like many of us, have been completely in a virtual work environment, and they've done a great performance, in fact, exceeding the expectations that we had in our business case. And I think more importantly, that these acquisitions actually can bring a new level of innovation to the core business team at Dow Jones that gives them something to learn from. And we must remember too, with Dow Jones, certainly on a large scale, they haven't done any acquisitions for many, many years, certainly since we acquired them. So actually having new teams coming in with new ideas and new ways of doing things in completely digital world, I think, just adds to that business. And it's invigoration, I think both business across the board. So that's been the most pleasing aspect.

Great. And maybe a final question on Dow Jones. Dow Jones' EBITDA has -- margin has expanded pretty significantly in the last few years. It's gone from 13% in FY '19 to 15% in FY '20 and almost 20% in FY '21. Can you talk about the drivers of this expansion? Can you continue to see operating -- some operating leverage come through? Are there any areas though that you need to invest in for the long term that might slow margin expansion, at least in the short term?

Yes. Look, I think when we think about last financial year, it was a combination of revenue growth and obviously cost control. I think many businesses, as they went through COVID, took a long hard look at their costs and they had a look at costs that they could probably do away with versus the areas that they needed to reinvest. So I think there was a combination of that when we think about the last sort of 12 to 18 months. As we think about the last quarter and moving forward, the business will continue to focus on margin expansion. They are getting top line revenue growth, and that really is what's driving the margin expansion at the moment. But we are investing in that business, and we will continue to invest in that business, particularly in the product and the marketing areas, no different, I think, to probably many businesses. And we'll balance that as we go forward with that top line revenue growth and the right level of sort of cost control moving forward. But there will be investment in that business, and that will ebb and flow depending on the new products and the different services that we launch. But we're really, really pleased with that margin expansion. And I think that goes to the heart of the fact that Dow Jones is really a digital business, and that really helps with those margins. And when that top line revenue growth comes in, a lot of it can drop to the bottom line.

Right. I'd like to quickly touch on the book publishing part of your business. That business continues to surprise everyone with how well it's going. And you've doubled down in a way with the Houghton Mifflin Harcourt acquisition. Can you talk about some of the recent drivers of HarperCollins growth? How much has been as a result of changes to consumer behavior and lockdown? Do you have any data that you can share around that? And also how should we think about the evolution of this business over the next 3 to 5 years?

Yes. Look, I think we -- it probably surprised us as well, actually. Certainly, going into COVID, we saw operating trends within that business that were significantly enhanced to what we obviously had seen before we went into COVID. And just recently, in order to give you some stats and to sort of orientate ourselves, Q1 revenues were up 19%, and segment EBITDA was up 20% versus the prior year. Part of that, obviously, we've had HMH as you mentioned, that we acquired. And look, HarperCollins, under Brian Murray, have done a fantastic job in the past of acquiring businesses and extracting synergies. And so when we see opportunities that come up that we think are naturally synergistic with that business, and we know that we can get those hard cost synergies out, then they make perfect sense. And we know that the team have got the capability to integrate them and do very, very well from those businesses. The other thing that we're seeing within the businesses are the strong backlists and our backlist within HarperCollins contributed, I think it was about 62% of the contribution in Q1, which is a pretty high percentage, and HMH actually has a very, very strong backlist. And so that was very complementary to that business. As far as consumer behaviors, the overall consumption across the industry remains higher than what the pre-pandemic levels were and materially higher than the historical low single-digit type revenue growth, which is obviously very, very pleasing. We do say at all our earnings calls that we will continue to watch these trends. I think as markets open up and consumers sort of get back into the way of life, where that settles down, I don't think anyone really knows. But what is very pleasing is that as those markets that we operate in have started to open up, we are still seeing those trends being significantly higher than what they were pre-COVID. To give you some sort of sense, if we exclude the $50 million contribution from HMH that we had within Q1, then the book sales post pandemic are about 22% higher than the same period in financial year '19. So that's a pretty significant difference when you think about the business going into -- COVID, coming out of COVID. And something that, obviously, we're very happy with, and we'd like the momentum to continue. As far as the evolution of the business goes and as we think about that going forward, what's really important to us is that, that business can continue to invest in the leading and emerging authors because actually having the right content to continue to drive that growth and provide those new books and opportunities to consumers is really, really important. We will continue to focus on the integration of HMH and getting out those synergies. We publicly quoted that we can get $20 million of synergies out. So that's really important that we unlock. And the businesses will continue to focus on international expansion and margin expansion within those international markets as they look to build those out. And let us not forget that within HarperCollins, even though the traditional book part of the business has obviously done very, very well, then clearly, there's still opportunities for growth in audio and e-books, which is an important part of that business. So it's really, really pleasing to see how our performance is going. And it's a great cash converter, and it's a really, really strong performer within the portfolio.

And we might move to News Media quickly. Now you've done a lot of work there to reset the cost base over the past year or 2. How is that business positioned now? And what are the challenges that remain there?

Yes. Look, I think for me, I mean, I grew up in the operating divisions of News Media. And so I sort of have a fundus in my heart for some of these businesses, and they've done it very, very tough over the last few years. The thing that was really pleasing in our Q1 results was it was the biggest driver of our total segment EBITDA improvement going for Q1. I mean so that was quite surprising. We haven't seen that for quite some time. Their revenues were up 18% and their segment EBITDA was $34 million versus a $22 million loss in the prior year. And that came off the back of a 6% increase in cost as the revenue was scaling back up. So that was really pleasing to see. Obviously, not complacent about that at all, but really pleasing to see. And we actually saw improved operating performance across all of our businesses. And Robert has obviously publicly quoted about the New York Post getting back into profitability or was it ever in profitability, maybe is a question. And so that's really pleasing to see that business as it's transferring into a digital world. When we think about the challenges within News Media, clearly, print remains challenged due to the secular headwinds that we see, albeit it has been improving in recent quarters, and we have had some strong results off the back of that. But we will continue to push the digital growth and the digital transition within those businesses within News Media, and we're really encouraged to see the progress within digital advertising across all of the regions actually in Q1. The businesses will clearly focus on ongoing transformation. It's part of their DNA now. And so that's not to say there's going to be significant cost cuts in different markets at different times. But it will say that those businesses will continue to focus on the evolution, and where they can get efficiencies, they will. Sometimes, they will be greater than others, and they will continue to focus on that going forward. But I think we like to now talk internally about the opportunities that come for News Media. So we've got a mix of revenues that's changing, and it's becoming more reoccurring as circulation and subscription revenues grow, and they become less dependent on advertising, given the challenges that the advertising market has had. Circulation and subscription revenues accounted for 49% of the revenues in Q1. So that gives you a sense that they're nearly sort of at par with what the traditional advertising mix had looked like. We see opportunities across these businesses from these new tech platform deals that we've done. And whilst we are getting licensing cost revenues coming in as a consequence of those deals, the opportunity remains within those businesses to maximize the revenue opportunities within those deals and to learn from those teams and those tech platforms in order to drive greater subscriber growth going forward. And so I think there's lots of opportunities that still exist notwithstanding the challenges within News Media.

Yes. It's a good point you make about the opportunities in this business. I mean can we talk a bit about such examples of the growth opportunities. There's the initiatives such as talkTV that you're launching in the U.K. next year. Just can you maybe talk to us a bit more about that business model in particular? And just any other growth initiatives in News Media that you'd like to highlight?

Yes. Look, I think the U.K. TV project has been talked about for a while. And it's how do we monetize our content, this fabulous content and journalistic capability that we have across many of our businesses. And how do we enable that to provide a new revenue stream, particularly for a business like News UK. And we've seen them successfully do that with wireless where they're starting to integrate some of their traditional mastheads with Times Radio going into wireless, and we're starting to see wireless scale up now. And so we wanted to see whether there was an opportunity that could exist for us to do that from a TV perspective. And so Talk TV was sort of initiated, which will be focused on news bulletin. So hourly news bulletins, sports, entertainment shows as well as current affairs, debate, opinion, documentaries, all the things that are part of the DNA, I think, in many of the new rooms that we have. We are looking to produce high-quality shows at low cost. That's really important. So then we can actually look at how we can scale the revenue opportunities off the back of that at a very low cost, clearly, with some investment upfront as we look to scale that business. We're going to have a streaming channel available on linear TV as well as OTT. And as I said, we'll leverage the content that sits across the U.K. portfolio, like we have done with wireless. I think the other thing that's important and exciting about U.K. TV is the Piers Morgan contract that we've signed. So that was announced probably a few months back. He is going to be producing columns across some of our mastheads. So it's not just within the U.K. He will have a global TV show that will screen in the U.K., the U.S. and also Australia, so we can leverage the portfolio across the group. We've also managed to do a deal with our sister company at Fox, where we can leverage the content going into Fox. And we've done a book deal with HarperCollins as part of that overall global deal. So that sort of shows the uniqueness of our assets that we had around the globe. We have the ability to attract this really good talent coming into the business and actually monetize it in different ways across the globe. So we're quite excited about it. It's obviously early days. It hasn't launched yet. We're expecting it to launch in the back half of this financial year. And we're very excited about the opportunities that, that may bring. When I think about other opportunities across News Media, the business is a wonderfully innovative, when I think about them. When you think even down in Australia, the Australian business has recently launched a product called Code, which is a digital sports destination, which is a new way of looking to monetize the sports content that they have. We have numerous different advertising initiatives and video, audio initiatives that we work with our tech platform partners on that we're trialing and testing in the various different markets. And so there's lots of opportunities, I think, for us to start to reimagine what those revenue streams will look like within the News Media business, which gives me a lot of confidence as to how they may progress going forward.

A couple -- probably a couple of more topics for me before we run out of time. But you mentioned the Facebook and Google deals just before, can you just talk about how important these deals are? Just how does it change the way you distribute and monetize your content? I mean you mentioned that you're incentivized to sort of grow that News Media business as sort of part of those deals. And also, can you talk about the rough size of these deals and just the phasing from a financial perspective?

Yes. Look, I think from an importance perspective, why don't we start with that because they're very important to us and as an organization, I think, actually to the industry as a whole. I think it's important because they recognize that there is a value to the high-quality content that we produce. And there is a recognition that, that value exists and there's now obviously a monetary exchange as part of that recognition. I think also, it provides much needed financial assistance to many of the mastheads. So put ours aside, which we have some mastheads that do require that. It is a -- it helps provide ongoing investment in journalism and new products for many, many businesses out there or mastheads out there that perhaps don't have the backing that we have at News Corp. And so I think there's many things why these deals are really, really important to the industry and also important to News Corp. As far as the deals themselves, they are confidential, we've said they're confidential. I think the wording that we've said in our earnings is that they'll add significant revenue annually into 9 figures. That's all the guidance that we've given in relation to the size of these deals. The Google deal, in particular, when I talk about making sure we maximize the benefit of these deals is more expensive. It's not just the content licensing deal. It includes the development of subscription platform, sharing of ad revenue, investments in audio and video journalism. And so I think that puts the onus back on us as a news organization to make sure that we do maximize and we learn from these new products that are coming out into the marketplace and we partner with Google to ensure that we can actually deliver value for our organization, our shareholders over and above what that core content licensing deal is. And as far as the phasing goes, I'm just thinking about what I said at the earnings last time. The revenues will build over the course of the year. So as the products launch, in the various different markets, we will start to scale up the revenue accordingly with that. So we haven't launched some of the products in the U.S. market as an example. The revenue allocation will sit across Dow Jones and News Media and more of the incremental dollars we'll see in News Media. And we haven't given out exactly how that's going to land. And clearly, it will depend on that phasing of the products. But it's going to be a really important revenue source, both within Dow Jones and within the News Media segment.

Great. And maybe one final question for me, as we're almost out of time just around the balance sheet. Back in April, you issued $1 billion of senior notes, which was subsequently used as part of the purchases of -- or sorry, used as part of a number of acquisitions. There's also plenty of speculation though that News Corp is looking to IPO Foxtel and you're obviously undertaking a share buyback at the same time. So you're in a vastly different position today versus 2 years ago, where you had a large net cash position, but you're still generating plenty of cash flow at the same time as well. So going forward, how should we think about capital management? What's an appropriate level of gearing?

Yes. Look, I think, firstly, maybe talking about the buyback, I think the buyback authorization was really important to us. We had a lot of investor feedback in relation to a share buyback. And it reflects the strength of the business and our confidence and the Board's confidence in the future of this business moving forward. And it helps us maintain a healthy balance between reinvestment and capital returns. And so I think there's lots of good things about why that buyback is important to us. When we think about the appropriate level of gearing going forward, when we don't give out a gearing ratio or a gearing target, we haven't done that to the market. What I can say is that the Board and management constantly review the capital allocation policy, and we make sure that it is balanced. And we do like to do reinvestment, as you noted, across our businesses, and we've done that both organically and via M&A. But we remain focused on that strong free cash flow generation, which obviously can take us forward and help us with that capital allocation moving forward. What I will say about targets, not giving any targets away, is that suffice to say, we've always maintained a very healthy balance sheet and a conservative balance sheet. And that's probably a nice way of ending that question.

Great. And a nice way to, I guess, end our conversation. Look, Susan, thank you very much for your time. We really appreciate it as always. This is the second time in a row we've hosted at News Corp virtually the UBS Conference. So fingers crossed, we'll have you back next year, but be doing this in person.

Well, thanks, Tom. It's been a pleasure as always. And yes, fingers crossed that it will be in person next year. Good luck with the rest of the conference.

Thanks, Susan.

Thanks. Bye.