News Corporation (NWSA) Earnings Call Transcript & Summary

All right. We might make a start. Robert, very privileged to have you at the conference this year, obviously, the CEO of News Corp. And excited to hear that, hopefully, we can continue doing this out to 2030.

So maybe as a starting point, if we think about that 2030 time line, what does News Corp look like as it evolves over that period? So what does success look like?

Yes. I think you can say quite safely that there's more stability at News Corp than there is in the French government, which has just collapsed, by the way, for those of you who have investments in France. And 5-year plans, look, if the Chinese can -- Chinese Communist Party can have a 5-year plan, we can have a 5-year plan. I guess whatever happens in the next 5 years is built on the foundation of what we have now and the most recent year that closed at the end of June. And I think what you saw there was the extension of really the core principle, which is we have 3 pillars that we've been focused on, which is Digital Real Estate, Dow Jones, HarperCollins, and they've all been doing well. So last year, we had on continuing operations, a record profitability up 14% to $1.4 billion. And we saw in each of those segments, what we hoped we would see, say, 5 years ago. So as we look forward 5 years, I think you see that those 3 areas are still sources of growth, of stability, of free cash flow, which has been doing rather well for us. compared to our early years as we were spun off and there's a paucity of cash. But what you will see over the next 5 years is not just a change in the segments, but a fundamental change in macro trading environment. And some of that's going to be political and regulatory. And clearly, a catalyst for profound change, which you have to factor in when you look ahead, the impact of Gen AI. And that is going to be across the businesses. It's not -- it cannot possibly be the preserve of techies. And if any company that leaves it sort of in an area that's walled off there, it's really going to miss out on the opportunity. It's going to affect every department and making every department understand that, and empowering each department to take advantage of the opportunities that arise from AI, both in share efficiency and functionality, but also in the way that you're dealing with customers, enhancing the customer experience because at heart, what you're dealing with now, and we talked about this a couple of years ago, but it's coming to fruition quite clearly, Gen AI allows you to scale personalization at reasonable cost. That's a fundamental difference in the way that you're dealing with your employees, but also in the way you're dealing with your customers, maintaining subscriptions, acquiring subscriptions right across the businesses. And so that will have a profound impact over the next 5 years. And where we have a comparative advantage is that, look, ultimately, the world of AI is dependent on the quality of content inputs. And garbage in garbage out remains the prevailing principle. At the moment, a lot of the focus of investment is on energy generation. It's on data centers, it's on chips. But all the AI companies are going to need quality and immediacy in content because by definition AI experiences are retrospective. They are based on previously input content. So how do you make sure that your content sets are contemporary? And that's where across a lot of our businesses, we have a comparative advantage, I think we'll see that play out over time, particularly as the debate moves on from the infrastructure to the essence of AI.

And so as you touched on, obviously, with AI, it's going to be one of the more transformational changes over that period. If we think about the 3 pillars of your business, the content that they have, the assets they have in an AI world, where do you think about the biggest financial upside, the biggest risk potentially to content in your assets? Just interesting to sort of talk through a little bit more on the segmental basis.

Yes, well, in terms of the new segment, there's a lot of debate around search at the moment and does the Google syntheses change the access to website. Yes, there's some evidence of that. But at the same time, we're in active discussions with Google about how do you ensure that what you're serving customers and the pressure on all of the AI providers is going to be greater, how do you ensure that you are serving them integrity and that there's not some recycled dross that is misleading and will ultimately lead to litigation because if I was a trial lawyer, I'd be looking at the unfolding world of AI with much relish because you can see that there's a huge amount of liability risk there that you can reduce if you -- if the quality inputs have integrity, which the high-quality journalism does. So on the journalism side, there are both multiple challenges and multiple opportunities. On digital real estate, the real ability for us to, again, to personalize in a way that is unimaginable compared to the experience that people have now. And we're in discussion with OpenAI about how -- for example, with realtor.com, what more can we do there to ensure that it's a unique experience, it's a comprehensive experience, but ultimately, that it's a compelling experience. And both Sam and I are deeply into property and from a personal reading perspective. And I think there's a certain empathy there that will play out among the 2 companies as we evolve the discussions with not a finished product yet, but early stage discussions, but I think on both sides, we have a real sense of opportunity there to create, one, to enable Realtor to become #1 in the U.S.; and two, and most importantly, and it's related, clearly, to ensure that users of our material have the most efficacious experience possible. And then cost here, sure. I mean -- but if you just look at AI from a reactive perspective, you're not going to be fully creative. And it's interesting if you think about it, reactive and creative are anagrams. There are going to be companies who are reactive and there are going to be companies that are creative, we have to be a company that's creative.

Yes, that makes sense. And then I suppose if we think about this environment we're operating in, I suppose some uncertainty around what AI does and how that evolves. How do you think about making investments across the group, whether that's Realtor trying to become #1, whether that's things like the California Post in the News Media division. Can you talk about how you frame those investment decisions in a world with a bit of uncertainty?

Yes. It's interesting. You could be top-down, bottom-up. Actually, you have to be both. You have to listen to the teams, you have to learn from them. And I can say that Lachlan is very much involved in all of our investment decisions. And he knows these areas intimately, whether it be Dow Jones, whether it be Realtor, obviously, and REA, his initial investment in REA has multiplied many times over and also the same with Books where his understanding of that business is intimate again. And so we're able to have discussions at a high level that are very sophisticated. And the Chairman Emeritus also has wisdom that we tap into. But at the same time, you're dependent on really 2 things: expertise of the teams in their area. But secondly, expertise and ability to consolidate coherently. And so you look at the investments at, say, HarperCollins, you look at the acquisition of OPIS and energy at Dow Jones, they've gone well. And the growth rates now, its energy overall, are greater than when we acquired the company. And I have no doubt that when HarperCollins acquired as they recently did take Crunchyroll, the manga companies' assets in Europe that one, they will incorporate the company in a way that makes sure that the cost efficiencies are there. But two, you're buying this company that's sort of catalyst for creativity and that you're ensuring that creativity is enhanced and ultimately, the profitability is enhanced. For that, we have a great team in Japan who in their way have an important role in being a custodian of the Crunchyroll relationship in Europe. And having seen that team in action, I have no doubt that they're going to do a good job. So as I say, it has to be a holistic approach where at the top and certainly not just myself, but you have, as I said, with Lachlan leading, you have a huge amount of expertise, understanding passion for the businesses. But you also trust your teams.

Yes. That makes sense. Obviously, there are the growth investments being made that we spoke about. But I suppose it's been 2 to 3 years since there's been any formal efficiency program being announced at News. So the question is, as we look across the portfolio in the current market environment that we're at, is there scope to improve efficiency, OpEx, CapEx? Is this something we should be thinking about in the years ahead?

Yes. Well I mean you would know last year, the margin for the company rose from 15% to 16.7% which was significant, but we're not happy with that. And you're seeing that, for example, obviously, you have higher margins on the B2B business at Dow Jones than you do in the consumer business. Last year, the B2B business was 39% of revenues and significantly more than half of profitability. So there are certain natural trends there that will increase the margins. Then the book business, which has frankly been a little slow in recent months. But there, the book balance you get from a hit is very different to the -- In the past, it was the hard cover, then you -- which you frankly milk for whatever you could in that first phase, and then it was the paperback. And well, now you obviously have the printed version, the e-version and the audio version and so your ability to profit from that and profit from the backlist, which is still expanding its fee and audio offerings and the margins on the back list are higher than margins on the front list. So you can -- that's another natural current towards increased profitability. So within the businesses, there's a focus on, okay, in terms of making the most of our assets, how to increase profitability. But at the same time, this is a cost focus. And again, sorry to be repetitive, but AI will be an important part of that in the way that we're asking each of the functions, as I say, not just some technocratic dictatorship, the digital dictatorship, but actually, the people who know how those businesses function, know how those segments actually work. Ultimately, the good idea is for implementing AI and some of them will be creative and some to them will be cost base, will come from those teams rather than from a digital dictator.

I think AI is going to be pretty repetitive over the next few days. .

Yes. Sorry about that.

You obviously authorized the new $1 billion buyback sort of and that brings the total amount outstanding to $1.3 billion at a meaningfully faster pace than previously. Can you just talk about how the buyback fits within the capital allocation framework, whether there are any implications from this quantum of buyback, if we think about News and wanting to continue to reshape the portfolio in the years ahead?

Yes. Well, clearly, we think there's a gap between the share price and net asset value of the company. And clearly, we all believe that on behalf of investors investing in News Corp is a good investment. Our -- as mentioned earlier, our free cash flow has really become a lot more robust in recent years. There's no reason that I can see at this stage for that to be other than a continuing improving trend. Don't forget, we sold Foxtel to DAZN for AUD 3.4 billion. So clearly, there was some cash back into the company from that. At the same time, we've retained a stake in DAZN because we believe in that company and its prospects and are partners with them. So in terms of available cash, both what we have now and what we foresee for the future, we're very confident that expanding that buyback comprehensively is the right course of action. And if you look closely at the disclosures, the rate of the buyback at the moment is 4x the rate prior to earnings. And so it is a meaningful increase in the amount and it's a meaningful acceleration in the buyback itself.

And with that increase in the rate and just the buyback in general, are there implications for your appetite to M&A moving forward? And are we looking at sort of bolt-on products assets or do we -- is there still the scope for sort of more transformational M&A that could be out there?

Yes. Bolt-on sound so mechanical, sounds olde worlde to bolt things on. But the -- we're doing the buyback at that enhanced rate, enhanced pace in the full knowledge that we also have the ammunition to acquire when the right assets come along. And I think -- I don't want this to be sort of [indiscernible] to be boastful. But the acquisitions we've made of late have clearly all worked. And as I said, that's because we have a comprehensive assessment process and a comprehensive consolidation process. So if something comes along, we're clearly poised with poise at the moment and in a position to take advantage of those opportunities. So we're not going to overpay, and we certainly didn't overpay for OPIS or CMA or for Houghton Mifflin for HarperCollins. But we're scaling the landscape and opportunities are going to arise. And particularly at a time of a little economic uncertainty, which we find ourselves in the midst of at the moment, opportunities do come up. And for the right asset at the right price, we'll strike.

If we think -- sort of switching back to the segment, the Dow Jones on the consumer side, I think the journal had a record quarterly growth for digital subs in the recent results. Talk about how the Wall Street Journal, Dow Jones consumer strategy has been evolving. And where have you been seeing this growth come from? Is it offshore? Is it sort of local new market segments? Just talk through some of those drivers, please.

Yes. Unfortunately, it's not offshore, not just yet, but it will be because international subs are only 17% of total digital subs at the moment. What we did, as you said, last year, digital subs were up at the Journal 9% to 4.13 million. And in the last 2 quarters of last year, we saw a healthy increase in revenue because it's not just about the headline number. It's about the ARPU. And so the ARPU was up 10% in Q4. Because in a way, it's easy to get a lot of trialists in, but it's also easy to lose a lot of trialists. And bringing down churn is an absolute imperative for Almar and -- Almar and the team because historically, churn on office has been a little too high. And there are 2 parts to that, making sure that we're targeting the right type of reader who is a paying reader. And then secondly, ensuring that in that onboarding process that people fully understand the complete range of reading in the Wall Street Journal. And then if you think about the suite of products at Dow Jones on the consumer side, well you have MarketWatch. Then you have the Wall Street Journal, then you have IBD, then you have Barron's, ,and they're all complementary. And clearly, we have a real focus on the journal. But at the same time, we also are looking to introduce people to upsell other products so that they're on a reader's journey that is relevant to their needs. And look, I presume most people here read Barron's, and if you don't, you should. IBD has been much enhanced since we acquired it a couple of years ago, and some of the market services in MarketWatch appeal us. But for certain types of readers, MarketWatch will be enough. But there's no doubt that our ability to upsell is enhanced by having a clear pathway and a clear premium. There's a distinctiveness in each of those products because people will pay a premium for a perceived premium experience. And you can't con somebody, you have to convince them that it's a premium experience. And part of that is just the look to feel. But you're dealing with knowing readers. And how do you get knowing readers to pay you more while you increase their range of knowledge.

And on the B2B side, as you said, significantly more than half of the earnings with the Dow Jones now. People sit back at 10% revenue growth in the quarter. Just talk about how the portfolio is working together even with the journal side, on the consumer side of the business and whether there's opportunities to continue driving subscribers, taking price, building products in the quarters and years ahead?

Yes. And you see recently, we made a couple of acquisitions, Dragonfly, which focused on risk Oxford Analytica, which provides very comprehensive holistic assessments of world affairs. In fact, I used to write for Oxford Analytica when I was a correspondent in Japan for the FT in the early '90s, so it was officially moonlighting, but the -- I confess to that. This -- when you look at that portfolio altogether, so in Q4, risk and compliance up 21%, right? So it's moved from growth in the teens to growth in the 20s. Dow Jones Energy, up 12%. These are very healthy businesses. And about 60% of the increase in revenue is new products, upsells, new customers and about 40% is the yield. So it's a healthy combination of essentially new business and making the most of the existing business. And again, there's no reason to believe that those sort of trends will dissipate in any way because the focus on regulatory compliance with a perception that maybe in a Trump administration that regulation that there is certainly some deregulation, but the cost in the U.S. and globally have not been compliant with the financial institution is escalating. The level of fines is going up. The sanctions list, the trade ban lists are getting more comprehensive, more complicated and for anybody involved in that type of business, they have to have Dow Jones Risk and Compliance. And I think you see that in the numbers. So -- and there's also no doubt that the energy business, which we're focusing, yes, on the traditional energy sources at OPIS, but also on renewables. And the demand for both actually is increasing. And certain people are focused on one rather than the other. We see a complementarity in the 2 sources.

I mean sort of thinking about those comments, 40% yield comfortable that will probably continue, no reason to think if it dissipates. But if I think about the price-to-value exchange on the B2B portfolio, versus, say, the journal and the consumer portfolio. How do you think -- where do you see the better value, and I suppose, where is there more opportunities to keep driving yield?

So which of my children do I love more? Now look, we love them all, each in their own way, but there's obviously investment going on in B2B. And the team has built a platform that will be a firm foundation for future expansion. So do we get the credit overall at News Corporation for the inherent value of the B2B business at Dow Jones? Absolutely not. I think if you were to deconstruct the numbers, and we do best. Our IR team does a great job in explaining as much as we can about how those numbers are evolving. But if you compare the valuation of News Corp, including the Dow Jones B2B business to certain other competitors in that sector, you'll see that we're grossly undervalued.

That makes sense. if we switch to digital real estate, obviously you heard from [indiscernible] earlier this morning, so I'll focus on the move. It's obviously been a very dynamic market over here. Damian has evolved the strategy somewhat and returned revenues to growth during the last year. Talk about how that strategy has evolved? And what you think we need to see to move to start being a meaningful contributor to earnings growth in News Corp?

Well, we need to see a lower interest rate. So if you look at last week, the 30-year fixed was around 6.3%, so lower than it has been, but existing home sales are tracking at around 4.01 million. When you get those both into 5s in a sense. So the 30-year fixed into the high 5s, you get existing home sales into the 5s, we'll be high-fiving at realtor.com. Because there's no doubt there's been a lot of suppressed demand because of the mortgage rate. And you already see what Damian Eales and the team have done during frankly, the shallow period for digital real estate, where we've retooled the business, we've sorted out some of the inconsistencies in the software experience for realtors. We've enhanced the news coverage of the site, and it's now the largest digital news site in the United States. And the impact of that is that you see that in June, I think we had 256 million visits. So that's 4x Homes.com, twice Redfin. And those are not home-brewed statistics. They're Comscore statistics, so third party. And then -- so we have more visits per visitor and we have more pages read per visit, superior to 4.2 at Realtor and 4 at Zillow and significantly less Homes.com and Redfin. So what we have is a site that is actually poised to profit from a change in the macro environment. And when is that happening? Well, it may happen sometime this month that interest rates start to fall here formally through a Fed cut. We'll leave that to the Fed. But once you -- once people start to feel confident about the interest rate trend, I think, and start to feel a little more confident about the economy, and there is some concerns now. But the underlying trend is actually 6 to 9 months. And I think what people should focus on from a political perspective are the midterms, right? 6 months before the midterms, this economy needs to be starting to fulfill its potential. And so if you take that as a target, then I think you'll see a change in mood because obviously, the President believes in disruption, and the disruption can be disruptive and how much disruption is too much disruption. I think you'll start to see some conclusions in Washington that it's great to have made some fundamental changes, but you need a foundation of stability. And that, too, will have an impact on the housing market, a profound one.

And if we do see those changes in the macro, we do see lower interest rates start to come through. Do you worry that the industry might reinvest a lot of that incremental revenue that comes through and the profitability overall doesn't improve too much? Or do you think the industry can be a bit more rational in a lower rate environment?

Yes. Well, we aspire to rationality. In terms of investment, we have the ability, particularly with marketing, and we have 2 forms of marketing. One, yes, it's traditional advertising and both in terms of yes, traditional media, contemporary media, social media, et cetera. But we also have the comparative advantage of content, which is in itself from a marketing tool, which is why we've invested so much and don't need to invest a lot more candidly, in realtor.com's news and analysis section, which links into for example, MarketWatch. And we're creating modules at the New York Post. And the New York Post depending on the month is a massive source of traffic, which is why we're expanding it to California. In California already, we have close to 7.5 million regular readers to the New York Post online. So your ability -- our ability compared to the competition to generate traffic and visits and stickiness is quite distinct and you'll see that when the market takes off because, yes, people will be looking for homes, but they'll be looking for advice about homes. They'll be looking for advice about which areas are hot and which areas are not. And there's no doubt we do that better than anyone.

Yes. If we switch to HarperCollins, you noted initially it's probably been a softer start to the quarter. How are you seeing the environment for books and sort of the mix of front list, back list through FY '26 and some of the growth drivers like Spotify, is there any trends or operations you can make around the digital side of [indiscernible]?

Yes. So digital overall is about 25% of the business, half e-books, half audio, the one where there's been most growth is audio in recent years. And [indiscernible] fell, has come up back a little bit. Audio is growing at 25%, 30% year-on-year and I think we're at an inflection point for audio in particular, where you're seeing our partners at Spotify, who have been important in expanding the range of audio offerings along with Audible, which has been phenomenally successful. The expansion of family and so on at Spotify will make a difference to that segment. But in the end, there's a rhythm to reading and there's a rhythm to people's book purchases. It will go through phases I suspect. And then the books pile up on the bedside table and become a significant source of guilt rather than the source of pleasure. And so -- the -- I think the bedside table pile is starting to shrink a little bit. At the same time, for example, with audio, the ability now to use AI to make the listing experience much more interesting is we're just really discovering what more we can do there. And obviously, if you improve that listing experience, you'll improve demand, the text to visual, visual to text and not just video to text and text to video. It is going to change the reading experience. And the most important thing, whether it be HarperCollins or Dow Jones or our papers in Australia or the U.K. advertising at the Times of London is significantly up. So I don't think that newspapers are in any way in a fatal downturn, quite the opposite there. But the ability of AI to change those reading experiences is profound, but it also means that we have to be back to creative rather than reactive. We have to be very creative in understanding what those offerings are and not be institutionally intransigent.

Yes. If we think about some of the moving parts within the cost base of HarperCollins, obviously, digital growth, some of these AI trends, even the tariff publishing headwinds that sort of we've been through. How do you think about the books margin evolving in the years ahead as the team continues to scale?

Yes. So HarperCollins has shown a history of increasing margin. And look, some of it does depend on the -- as said the ratio of front list to back list, back list being more profitable. But it absolutely depends on having hits. And so we're starting to see already with the most recent release by [indiscernible] she's a phenomenal writer. It has become a phenomenon. That will make a difference because to get across the formats, we have a book of previously unreleased short stories by [indiscernible] that will make a difference. So yes, you have to -- you certainly have to focus on cost and AI will take cost out. But you have to focus on a different type of acquisition, which is creative acquisition, artistic acquisition, and you have to be able to anticipate the reader trends because there is a reader rhythm. And -- there's no doubt that Brian Murray and Charlie Redmayne and the team at HarperCollins are expert in that. And they're also expert in understanding how the digital marketplace is changing because you want prominence, you want placement for your books. Selling a book is not a covert operation.

And Robert, sort of as we approach time just closing on News Media, we grew EBITDA every quarter through FY '25, which is a fantastic outcome. How do we see that business evolving in the years ahead? Obviously, a lot of the attention on the other 3 major segments. But is this something that we think has hit the inflection point? Or just broadly how you see News Media within?

Look, it varies country by country, publication by publication. We've seen at the New York Post a significant increase in advertising revenue. If you think back a few years, the New York Post year after year lost not millions of dollars, tens of millions of dollars. The New York Post, the last couple of years have been profitable, which no one would have predicted. And we do think that there weren't many years since it was launched by Alexander Hamilton that it was actually profitable. It is now, certainly in the times that Rupert has bought it twice and through those periods it was a loss maker. I mean it had a social purpose, but was a loss maker. It's now profitable and has a social purpose, which is why we're expanding into California, which is a desert for the sort of reading that the New York Post will bring in some intelligent puckish profanity and a political perspective that is relevant to California, but not much seen in media there. And then in London, Times of London, Rebecca and the team are doing a really excellent job in taking advantage of a premium cohort. And the integrity of The Times at a highly criticized moment in traditional global history, the quality of the journalism, the quality of the presentation. Tony Gallagher, the editor there, doing an excellent job. And you need to do that combination of a brilliant editor, for example, we have a Keith Poole at New York Post and a commercial team that understands the vision and drives for it. And if you have that, even though for many traditional media companies, these are difficult, if not desperate times. For us, it's an auspicious moment.

Amazing. Robert, thanks so much for your time today, and I look forward to catching up soon.

Thanks, Kane.