News Corporation (NWSA) Earnings Call Transcript & Summary

Thank you for being here.

Thank you.

So let me ask the first question, this is the understatement of a lifetime. The past few years have been very trying for all of us. Now with that said, we don't want to celebrate bad times. But what benefits do you think the pandemic has created for your business?

It's an intriguing question, you can't be too positive about the negative. But there is no doubt that for every business both culturally, technologically, certainly promotionally the pandemic was the ultimate stress test of where your business was in its evolution, how could culturally with distance, and ultimately, how it could cope commercially. And we were fortunate -- in some respects, we're more digital than we fully appreciate it. We're on our digital journey better than anyone in various respects, actually. But what we've seen over the past few years and what we have now is a fundamental reset for the company. In that, for example, digital real estate revenues 59% higher than they were 2 years ago. The Dow Jones revenues are 23% higher. And the book revenues at 23% higher. Do you want to ask the question again?

Yes. No.

Pretend nothing happen. It's -- so it's -- so in that sense, with those sorts of numbers, that sort of growth, it's a very different kind of company. There are other challenges along the way, that have actually simultaneously been sorted out. Again, as you know, better than most people in the country, if not the world, the little over content that we had with the big digital, which has been resolved, not only in our favor, but to the benefit of journalists and publishers everywhere in the world. And we're still waiting for the commission checks from other publishers. They haven't yet arrived. They could have sent it to Rupert, if not to myself, very happy to cash on behalf of News Corp investors. But that too has led to a very different marketplace for publishing generally, which was under itself a gradual prepandemic and during pandemic when, obviously, publishers very dependent on print had even more difficulty. And even more difficult now with supply chain, the logistical disruption that we're seeing in right around industry. And so again that emphasis on digital and that almost exponential evolution over the last 8 years has meant that we're now in a position where we're a little less vulnerable to supply chain was or a little more able to take advantage of digital distribution.

Any, as we would argue that the pandemic separated digital ready from the digital not ready, right? So you had spent time building to that. And if anything, those that who were not prepared really suffered lost share in the past couple of years?

That's a really clear set. We -- one of the first things we did, you'll recall when we were reincarnating the new News Corp was to sell the Local Media Group of Dow Jones because I had a sense that local papers, regional papers were going to struggle. And so frankly, we're a seller when Warren Buffett was a buyer. And prepandemic, we converted most of our community on regional newspapers in Australia to digital-only. That was a painful decision given the history, the provenance of the company. But at the time, we thought a necessary decision and really, we're thankful we did -- when we did it because it meant that the full mails from -- of the pandemic pass.

That was going to my flip side question, what businesses have been structurally more damaged now and print certainly, but that's not the problem that you have -- is there anything else you see within your portfolio where -- or just generally, you think the headwinds have accelerated the past couple of years that you have to be more proactive about now?

Yes. When we saw issues, we tended to act recently. You remember, we had a company called Amplify, which was a very idealistic, but certainly not very profitable enterprise in providing digital curriculum for kids, but it was just -- you had all sorts of obstructions, some institutional, some just purely commercial. So we sold that. News America Marketing, which was a combination of coupon business and in-store marketing as newspapers around the country disappeared and dissipated, the in-paper coupon business diminished greatly. So we sold that. So some of it, we could see some -- see it coming because of the secular trends. And in a way, what you had during the pandemic was an exponential expedition of those trends. And as you indicated, time has always digitally compressed. And if you you're vulnerable pre-pandemic, you are particularly vulnerable during the pandemic and now with macro volatility, you have another phase of vulnerability, which is another stress test.

Well, it's really interesting because we're going to cover e-commerce and digital marketplaces. And if you just look at like targets results of Walmart's results, it's almost in many ways -- and I see this in streaming as well, that the pandemic was both a curse and a blessing, right? So in streaming, well, look at everyone who signed up for streaming, we have to be into that business, right? So it's always been a dangerous time because it may have brought forward demand. It may have brought forward competence. It just may have changed the landscape. And then all of a sudden, we're now in a slowing macro at the wrong time where everyone's investing, right? It's much better than you guys had done this way back when we thought this through 9 years ago about the patterns that you wanted to invest behind.

Correct. And streaming it's a first example you bring up because if you think about human nature, people learnt how to a stream, right, which were a tech challenged middle-aged person. It was a bit of an effort and they've figured it out. It was made a little easier by having icons on the screen. And eventually, people that's how you stream and to the point where a grandfather finally worked out how to stream. Well, what you have now is a generation of people who've learned how to churn. So having figured out that you can fairly easily jump from service to service. So it does make streaming very vulnerable unless you really do have collection and portfolio, absolutely compelling content, which for Foxtel in Australia, we're fortunately we do because Binge is definitely the best collection of movies and programs and likely made programming and drama. And Kayo, which is the sports streaming, we would just have unmatched rights there. So sports streaming is a lot less vulnerable then drama stream.

Right. Yes. You're focused on a seasoned team.

You'll watch in Australia, football or Rugby League or Cricket or Formula 1, which in Australia to has taken off as here. And so there's a reason day after day, week after week to rather than what you might call concentrated viewing.

Well, that was in the great history of Hubert Murdoch in terms of the bets he's made, that's been 1 of the smartest things we ever do is buy sports rights back at Sky, here at Fox just understanding the power of sport.

The congregating power, and I think with the most recent NFL deal as well as very smart move by Lachlan and the team at Fox. And -- but it's also -- it's not just what you have, it's what you do with those rights. So in Australia, you're seeing that given the choice between a terrestrial and Fox Sports [ race ], the programming around the event is drawing people into our services. And so if you have the event, it's not -- the point is not to have the event and broadcast it, it's using it as a pivot point for appointment viewing.

Right. Okay. Robert, I want to ask you as you mentioned that some of the things you've trimmed along the way and some of the things you've added. So there are verticals that you see is continually attractive to invest behind. And how do you assess when you exit a business like you've had in the past, News America or Amplify, right? So it gives a sense of the math you're doing and the kind of the calculus of getting bigger in this sector versus getting out of the sector?

Yes. Well, we identified early on 3 core areas that we thought were likely to produce growth for investors and for the company. One was digital real estate. We acquired REALTOR. It's an incredible success story. What we paid net-net, say, $650 million for REALTOR, to what's REALTOR worth now. Over the last 1.5 years, aggregate it's the fastest-growing digital real estate site in the fast -- in the largest market in the world. So around REALTOR, around REA in Australia, where we own 61.4% of that. Where we acquired Mortgage Choice, which at the time of increasing interest rates is a particularly valuable property. And then Dow Jones with IBD, resi business with Opus and base chemicals that don't last 2, we acquired as a result of necessary antitrust action by a certain merger. So we acquired a bit of reasonable rather attractive price. And they fit in perfectly to the Dow Jones operation, which has been growing already rather well. And the third area is book publishing, HarperCollins, we bought HMH Books & Media division. It's, again, Brian Murray and the team expert are consolidating, gives us a great backlist. We had a hunch that backlist become more important in front list, because you tend to make more off backlist than front list given marketing costs and so on and so forth. And that's proven to be correct. So those are -- that trip tic of focus has what we said we were going to concentrate what we have concentrated and we've been focused on not overpaying for assets at a time when, frankly, most people were.

Well, let me ask that -- so that's a good segue to this. Given the meltdown you're seeing in digital assets today, right, do you think this is a once in a lifetime generation for you to go on the offensive to buy assets that are in your kind of your target list?

Well, we've always said we're going to be opportunistic. And I would -- if I mentioned company, the price goes up.

So buy a PA.

But your instinct is no doubt correct, which -- but we're at an early stage of the volatility. I wouldn't buy it an early stage of volatility. I'd buy mid- to late-volatility.

So you think we've seen nothing yet.

We've seen nothing yet. The idea that -- I think we're all agreed that inflation is not going to be transient. The only thing that will be transient in certain countries in central bankers because they got it wrong. And so the -- not just central bankers, obviously, government policy in certain places made it different. But it's -- it will have a profound impact. And a tragic impact in many cases on economies, on societies, and you're seeing it already in the Middle East. And we know that an increase in food prices in many countries leads to political instability, which is why the Chinese government has been hoarding grain. If you look at the stats there, it's absolutely fascinating. I have a sense of what's coming. And so whether it's a country or a company, you are once again going to be stress tested your culture, your core business and your prospects.

Right. And your balance sheet and cash flow...

Your balance sheet. So as you know, we borrowed at rather attractive rates ahead of the increase in interest rates. So we have -- we're in a good position to take advantage of opportunity, but we're not going to do it at ridiculous prices.

Okay. Can you talk a bit about the change or the change in demand for news content that's coming out of the pandemic? Are you seeing any shifts in type of content that your consumers are looking for? And how you've reallocated your journalistic dollars to fit that?

Look, there's a huge amount of interest in the war in Ukraine. There's a huge amount of interest in what are the consequences of economic volatility for me, my family for my society. The -- we certainly have committed a lot of resource to reporting on Ukraine, not just reporters but security and because you have to do it properly and safely -- as safely as you can. Safety is not guaranteed in those circumstances, tragically. And so yes, we're more generally focusing on specific breaking news stories, but also trying to the objectively objective in identifying themes at a time of hyper partisanship, polarized society. When you could see, for example, with the growth in audience at [indiscernible] at Market Watch. Frankly the New Corp Post, which has grown remarkably, which covers all sorts of things, including President Biden's laptop. Funnily enough that can be true. And where some news organizations are ignoring some stories, I think readers have a sense of that. And they maybe ignoring them for critical reasons. If you have the objective of being objective in the pursuit for news, in time like this you'll have a larger audience. an audience that trusts you with that obvious trust puts a huge amount of responsibility, the burden of responsibility on you to be as factual as possible.

So let me take you to an area, we've discussed over the years, about large digital and the battle you've waged for a while in terms of being treated fairly and properly with copyrights. So how do you think the power dynamics have shifted recently between the major internet platforms and publishers. So give people who don't know the backdrop, what's changed and what's sort of happening so far.

You're right, the first time I spoke publicly about this was in 2007 when I was asking of evidence as of the then editor of London, the House of Lords committee. And at that moment it was clear that as an editor the provenance was being challenged. The news was being commodified, there is no doubt that Google News in those days was using it's own font. It was Google Find News and the hierarchy of news from [indiscernible] to proven journalism. But if you flatten things out, you undermine that hierarchy. So that's what happened. And as a society we are still living the sort of consequences of that. And then there was debate over whether Big Digital was driving traffic to you so you should be thankful. As most newspapers in most countries were in serious trouble. I don't know how thankful you should be because the cost benefit analysis will tell you that Big Digital was doing very well out of professionally journalist content and professional journalists weren't. Where you have over 40% of journalists losing their jobs over a decade in the U.S. And so that was what informed with our pursuit of this issue and the News Corp Board, Rupert Lachlan was incredibly supportive because we're out there speaking at a time when it was frankly unfashionable. When it was -- we were perceived to not get it, right? And I mean I think you have -- you modish yourself in the sense that you were present about this, too. And -- but it was uncomfortable because you -- the many other publishers sort of the cool thing to go down to the plex and hang out with the geeks. And -- but actually, that was a fatal attraction for many of them. And so as you know, we've reached agreement with Google and Facebook. Facebook in this country, Google and Facebook -- Google globally, Facebook in Australia around payment for news content. And there's a continuing debate about ad tech, which is still to be resolved. I'm not sure I can say too much about that at the moment, but you've seen some of the disclosure coming out of the Texas Attorney General. I'm sure if you -- it's a good read actually if you to see how the ad tech market works. And that's of concern clearly to publishers because you're to a certain -- if you don't have a subscription model, which we do many of our publications and are ad dependent, then you are very much vulnerable in those circumstances. So that will play out over time. And then more importantly, as a society, there just needs to be more transparency. How algorithms work. And as a person and as a company, transparency in the transaction that's going on because there has been a fundamental imbalance in power, as you alluded to in your question. And therefore, unless there's transparency, what is my data worth really? That transaction I'm making with a company that's harvesting my data. What is my content worth? How is an algorithm able to be very subtly manipulated to promote the story or that story or vary this or make a certain story disappear. If those -- if we think those algorithms are powerful and subtle now, how much more powerful and more subtle, more incremental in their biases will they be in 2 years,5 years, 10 years. If we cannot agree on standards of transparency and standards of behavior now as a society, the ability for company A or company B as a virtual monopoly to manipulate product prices, audience. It will be real and almost imperceptible.

So on that point, you're able to negotiate settlements for you vis-a-vis platforms without much government interference, right? So what you just said...

Australian government.

Australia. But in the U.S., as of Section 230, it seems like we even can't agree on what the issues are about regulation. So how much hope do you actually have that what you guys described it can be fixed through some type of government review or redoing antitrust rules or even Section 230 rewrite.

Proposed legislation working their way through Congress at the moment, that pertain to this issue. We will see. But generally something about having this agreement but not a lot of legislations net-net at the moment. But what there is now is a much higher level of winners, what you might call content [indiscernible]. This wasn't when you were -- and I was first talking about this, we knew it wasn't here. Because the time there was this -- common dissonance, the digital dissonance. So we were trying to explain these issues to people and they either were unaware of them or just weren't okay enough with technicalities. What we have had apart from ourselves, a couple of companies not many, speaking up. You had a level of interaction among particularly 3 regulators, which was fascinating. And changed fundamentally the global debate. That was Rob [indiscernible] Australia. Margrethe Vestager, the Executive Vice President European Commission and Draya [indiscernible] and Draya is one of the CMI in U.K. And they were sharing staff, they were sharing -- because it is such a complicated area. But the documents that they've produced and the level of understanding they've reached has been a platform for regulation. We are not really a regulating company.

That's the irony here, I was actually going to go there. I was like I am talking to the CEO of a company...

But it was that complicated, that convoluted. We felt that unless you -- and these companies are powerful to the point of near omnipotence. But unless you really shook it up, you won't go in to reduce the imbalance.

Right. Let me ask you is, do you think the problem is also Section 230, where they have safe harbor. And if you go back to the issues that you were charged in the beginning, like, look, this is infringement copyright, you're actually -- you're taking my copyright and you're monetizing it, right? So do you think it was that first decision to let -- these platforms have safe harbor, which lets them actually turn the blind eye, let's say, all types of...

That's one issue, I don't think people understood how it works basically, just how the market works, how the content was valued, how the content was promoted. The impact on provenance over time of cutting off the link between the creator and the distributor. It was just a fundamental imbalance between creation and distribution. The profits went to distribution and active journalistic creation was fundamentally undermined. Section 230 is -- it's not the safe harbor laws. Should digital publishers be held to account for what they're publishing in the same was the traditional publishers are.

The issue of the debate is, it's one thing to post something online. Lot of things have an algorithm to then drive engagement through moving posts, prioritize. And that actually means, i understand I have the right to post whatever I want, the company has the right to then benefit from safe harbor...

Making editorial judgment about I will get more traffic if I do this. Which is how is that different to moving the story up or down the page. Because you think you'll have more readings. And once you make an editorial judgment, you're probably a publisher.

I want to take it back to the world at hand. We can talk of this offline, I'll write a note about it. You gave us some foreshadowing of potential disruption ahead. Can you talk about how the advertising demand fared throughout these macro challenges. You have rising inflation, supply chain, war in Ukraine. And the largest companies that are able to withstand these pressures, any of the small SMBs that are backbone of digital. So how nervous are you about what you see in terms of the ad markets and the macro at this point in time.

We don't give specific guidance so maybe I could give vague guidance. What we've seen -- and you'd remember from our Q3 results. Big increases in digital advertising book and actually some recovery in print but that was partly pandemic-relate, print advertising at the height of the pandemic had obviously fallen. So some of that was kept back. It was good to see in relation with print. But we are continuing to see good numbers at Dow Jones. We are continuing to see really sectoral ad growth which is yet unaffected by economic activity in particularly digital in most of our properties. And seeing big audience as net digital ad growth tends to positively correlate with yield and ultimately, revenue.

Right. Okay. So let me ask this question. You -- when you said my priorities back in the day, there were 3 things. one was digital real estate; second was Dow Jones in terms of -- and then to book portfolios that was you add on. What I hear and was covering the company, but I follow closely is how does the real estate -- I realize in the days, you had classified now as the real estate asset. But how does the real estate position weight to the rest of the company, right? And why would we be better off served on its own. So you hear that question from folks like me who are flooring your earners are prepping, was how do you answer a question really, how is real estate sit with everything that's "more publishing or content related?"

Well, if you go back to the original REA deal, which was actually a genius deal by Lachlan when you look at the value of REA now, it was to use the media platforms as the base project, and it worked. And so there's a complementarity there. And we've seen it in the rebuild, the very successful rebuild of REALTOR, Dow Jones TruMark was through the Wall Street Journal sharing content, sharing audience. And now there's an important link between the New York Post and REALTOR said I've got the most recent figures that I can give you, for example, The Sun Online is now 171 million monthly unit. You've got the Dow Jones generally 153 million monthly unit March, real was 100 million monthly unit. You've got the new post of 155 million monthly unit. And so these are huge properties. And where does REALTOR fit in? For example, in this country, in that network? One, you're clearly driving traffic and improving your ranking, which ran -- and for SEO ranking is all. Two, we're able to tell from what people are reading. If they read real estate at New York Post and they're focused on a particular area or in the management section of the Wall Street Journal, you can tell it's starting to tell the difference between somebody who's a discursive reader and somebody who's a focused reader and somebody who's focused as a reader because they're interested in buying or selling. And you start to link that intelligence with that same person's behavior on REALTOR. That's incredibly valuable to REALTOR because that's the front end of their lead. And the whole REALTOR business is based on leads. At the moment, it's a lead that we're providing during the transaction. What about the value of the lead ahead of the transaction? And so both in obvious ways, historical ways in driving traffic from platform to platform, which is valuable there's a connection. And secondly, as we -- and it's on us, as we start to define digitally more of these meaningful trends or those valuable.

Okay. I think about Glenn Garik, Glenn Ross, have you ever seen that play?

I haven't actually.

Okay. Well, these are the good leads.

Yes, exactly. There's a lot of bad leads as well.

Exactly. That's -- so can you talk a bit -- you touched on it before about streaming and turns out people realize how to churn. Do you think -- which is do you think the smartest strategy. Is it a mistake to chase global scale versus a more niche strategy? I know you guys are very much focused on a region. It's like I'm sure you've evaluated how far can we take this business, but you haven't, right? So what are the trade-offs you see in limiting your streaming ambitions to a subset of the world?

Yes. Well, certainly for us, the streaming numbers were very strong in Q3, we're up 62%. So the Australian market is quite different and quite unique. And there's this assets that the portfolio, the suite of program we have is quite distinct. More globally, there's obviously Imperial over stage. Everybody wants to be everywhere, which many of these U.S.-based companies. just they don't understand the subtleties of distinctions, these idiosyncrasies of markets. Australian seem to speak a version of English mostly. But it's different. And if you go into the Australian market and think, well, it's just the same as California or with slightly cheaper real estate or in some cases, not, then you're making a fundamental mistake. And so -- and if you make that mistake in Australia, you're going to make that mistake in Italy or wherever.

Or India.

Or India. So how -- so there are forms of reckoning going on now. There's the reckoning going on in households about how much I can afford to buy in terms of entertainment. And why am I buying this for a year when I can buy it for 2 months, right, and then come back and Binge watch. So there's a reckoning going on in households domestically and globally. And there's a reckoning going on among content companies about what really is the best way of utilizing, monetizing content. And I have a sneaking suspicion we're going to be the beneficiary of that in Australia.

Well, can say, I have no the old News Corp and the old Fox for many, many years. And I'd say that the old -- the style of running their companies are very much localized, right? You believed in letting the people in India decide what they want to do in Australia and the U.K. And do you think the mistake here is that they all trying to -- American has started a program in the world from Southern California.

Well, there's a little bit of that. But I think it's probably more the difficulty of building a brand, how much do you want to spend building that brand in a competitive market, maintaining that brand, knowing that you're maintaining a brand in an era of increasing churn. Take you -- what's that really worth you is that the best use of scarce resource.

Right. Okay. Let me ask you this, what's taking so long to determine the future of Foxtel? I mean you balance Foxtel has been the target, a talking point for a while. So what's -- what are you trading off in thinking about the future of Foxtel?

We're in a very different situation. I mean, you'll recall a couple of years ago, I think you may have asked me how much more money do you have to put into Foxtel, well, we're past that stage. And so we have the option of optionality and we're going to be opportunistic about it in a way that we're bearing all investors in mind. But we're -- at the moment, the team is absolutely focused on continuing to drive the business, which Patrick and Siobhan and all have done with real plan over the last couple of years because we had issues there. It's fair to say. We had buggy equipment. We had some reputational problem. They're gone. If you look at Kayo, it is cutting-edge, world-class a very user-friendly interface, and it's doing very, very well. The same with Binge. And so -- and yet at the same time, there's been a 7-point drop in churn for broadcast, around 20 to around 13. And so the fear was that as the streaming services grew that you would see even more and the opposite is has happened because it's clearly value in the broadcast and for a broader segment of an Australian audience there's value in streaming. And the question in Australia always was what percent of the Australian population will be prepared to pay for content given the traditional power of terrestrial, where we now know it's a very big number.

Yes, like it is here. Okay. Last question for you, and thanks for doing this. As I mentioned, your company is as always, is my company, 9 years. Now he's got a crystal ball. But when we think about the next couple of years, where do you see the biggest opportunities? And what could be the biggest surprises? Do you think maybe folks like us are just not prepared to see or don't see coming. So if you think about like something you're really excited about internally that maybe we on the outside of not fully embraced yet?

Just to pick one, because we're a mix of wonderful assets and each has its own growth trajectory, and they are, indeed, growth trajectories have all been growing revenue significantly, even the New York Post, which was from the days of Alexander Hamilton as far as we can tell, unprofitable, which is going to be distinctly profitable this year, and that will continue and more so. But Dow Jones, we -- I would focus on because people think of it in terms of the Wall Street Journal, Risk & Compliance, which quarter after quarter is double-digit growth. The acquisition of Opus, of Base Chemicals and Investor's Business Daily will absolutely transform that company. Because when you think about that funnel of hundreds of millions of Dow Jones readers are coming in every month. And we've always had a vision for Market Watch, Wall Street Journal, Barron's, Risk & Compliance, Opus, which is chemical energy, renewables, Base Chemicals is what it says on the box that you're able to create very powerful product verticals, which are high margin, completely digital, nearly 100% digital Opus and base chemicals, renewal rates around 95%, 96%. So it's -- you can see we're going to have this funnel, what we call the funnel of love, where the audience is easily upsold into premium products that have a value to a professional user. And so I would run some numbers on what that means. When you have already. It's a very discrete but enormous 100 million-or-so readers monthly. How much can you monetize that audience as it travels on the journey with us towards more premium and frankly, more profit.

Okay. Well, Robert, thank you for being here. We really appreciate it. Safe travels since you are on the road today. So thank you so much.

Cheers. Thank you.