Fox Corporation

ladies and gentlemen thank you for standing by welcome to the fox corporation fourth quarter 2020 earnings conference call at this time all participants are in a listen-only mode later we will conduct a question and answer session i would like to emphasize the functionality for the question and answer queue has recently changed instructions will be given at that time if you should require assistance during the call please press star then zero and as a reminder this conference is being recorded i'll now turn the conference over to chief investor relations officer and Executive Vice President of Corporate Initiatives, Mr. Joe DiRego. Please go ahead, sir.

Thank you, Noah. Hello, and welcome to our fiscal 2020 year-end earnings call. Joining me on the call today are Lachlan Murdoch, Executive Chairman and Chief Executive Officer, John Nowen, Chief Operating Officer, and Steve Tomczyk, our Chief Financial Officer. First, Lachlan and Steve will give some prepared remarks on the fiscal year and most recent quarter, And then we'll take a couple of questions from the investment community. Please note that this call may include forward-looking statements regarding FOX's financial performance and operating results. These statements are based on management's current expectations, and actual results could differ from what is stated as a result of certain factors identified on today's call and in the company's SEC filings. Additionally, this call will include certain non-GAAP financial measures, including adjusted EBITDA, or EBITDA, as we refer to it on this call. Reconciliations of non-GAAP financial measures are included in our earnings release and our SEC filings, which are both available in the investor relations section of the website. And with that, I'm pleased to turn the call over to Lachlan.

Lachlan Williams Thanks, Joe. Good afternoon, and thanks, everyone, for joining us today to discuss our fourth quarter results and to reflect on our first full fiscal year as New Fox. I know a lot of you on the phone have had a long day and have just come from another earnings call, so we will try to keep this as tight and as brief as possible. I doubt any of us consider 2020 a great calendar year. It's been extraordinarily difficult on our businesses, on our health, and on our families. I'm sure it's a year we would all like to be through and done with, and we will be soon. But looking back on Fox's 2020 fiscal year is another story. Our fiscal year has been extraordinary, not because of COVID-19, but in spite of it. Our 2020 fiscal year has shown off the strengths of Fox, the logic of our strategy, and the resilience of our business model and of our teams. To that last point, I would like to acknowledge the outstanding work and dedication of my Fox colleagues across the country. They too are extraordinary. Without them, there would be no sport, no news, and no entertainment on our platforms and stations. What together we achieved last year was remarkable. I'd like to first give Fox Sports a shout-out for an incredible year which saw the brilliant broadcast of both a historic seven-game World Series and an exciting Super Bowl 54 watched by over 100 million people. Of course, not long after the Super Bowl in Miami, sports were shut down. But the team at Fox Sports never stopped working to bring NASCAR, baseball, and eventually football back into America's living rooms. On our last earnings call, I said, like the rest of America, we can't wait for the first pitch thrown, the first ball hiked, and the sound of engines starting again. Thankfully, the wait was not long. Our Fox Sports production team lost no time preparing to produce America's biggest events in ways we didn't think possible just a few months before. The sports team has invented new technologies to not only produce but enhance the games being played today. NASCAR was the first major American sport to return from its pandemic hiatus, and America's pent-up demand for sport was palpable. Working closely with NASCAR, Fox Sports designed a production that involved minimum cruise, minimum travel, and maximum health protocols to ensure a safe and enduring race season. We brought NASCAR back using only one-third of the people we would normally have trackside. Our director and camera operators and audio were on site while graphics, replays, producers, and talent were spread out between Charlotte and Los Angeles. With very few or no fans of the track, it allowed us to break new ground with miniature drones flying overhead to get never-before-seen aerial footage. As the season progressed, even our in-car audio production and feature editing were produced live in technicians' homes. We then turned our attention to baseball when, on July 23rd, the Fox baseball season opened with a triple header highlighted by 2.8 million viewers for the Yankees-Nationals game. The opening was up almost 20% over Fox's primetime Major League Baseball average last year and was sold out due to heavy advertising demand. We produced four baseball games on our first weekend and none of the seven talent were in the same place as we connected 10 different facilities in real time with our producers and directors in Los Angeles. In addition to our enhanced crowd audio, we have now introduced computer generated virtual fans to the stadium. This innovation was created by mixing our first downline technology and real-time theatrical visual effects. And now, we can't wait till the start of football. We love sport for the adrenaline it provides us, for the passions it inspires in us, and for the narrative and drama of watching the classic underdog win from behind. Team USA beating the Soviet ice hockey team at the 1980 Winter Olympics. or Buster Douglas knocking out Tyson, or the Fox Entertainment Network finishing the broadcast season in first place from fourth the year prior. The network staged a dramatic comeback this past year and leapfrogged our competitors to regain the number one broadcast network title for the first time in eight years. Fox was the only network to deliver year-over-year ratings gains among adults 18 to 49 and total viewers. We outperformed the number two network by 31% in the demo, driven by the Masked Singer, Lego Masters, and 911 Lone Star, the season's number one new scripted show. And the network will also have a robust and stable entertainment lineup in the fall. We will debut two new series, that were shot and ready to air before the pandemic. The psychological thriller, Next, and the southern soap opera, Filthy Rich. We remain hopeful that The Masked Singer's fourth season will also be on air for the fall. Of course, animation has always been a strength of Fox, and earlier in the fiscal year, Fox Entertainment brought the bento box animation studio into the Fox family. BentoBox was a natural addition to enhance the capabilities of Fox Entertainment and has already proven to be an impactful investment. It's important to note that animation production has not been significantly impacted by the coronavirus pandemic. Not only did we renew BentoBox's Emmy-winning show, Bob's Burgers, for an 11th season on Fox, BentoBox is also producing 11 new animated shows, including for third-party customers such as Netflix and HBO Max. These new shows follow the May launch of Central Park, BenderBox's Apple TV Plus comedy series. More recently, in April, we completed our acquisition of the advertising video-on-demand platform Tubi. Tubi has seen phenomenal growth since it joined Fox. In June, it surpassed 200 million hours streamed per month, representing more than 100% growth year over year. During the fourth quarter, several Fox hit shows were added to Tubi, with the Masked Singer quickly becoming Tubi's number one streamed series. Tubi's young and diverse audience gives it a unique appeal with advertisers seeking to connect with consumers that are traditionally more challenging to reach. Tubi complements Fox's portfolio and underscores our long-term strategic initiative to broaden and enhance direct-to-consumer digital reach and engagement, while providing advertising partners with more opportunities to engage audiences at scale. During this year's upfront season, we have begun selling Tubi advertising alongside broadcast, significantly expanding our clients' reach. According to one research company, 87% of the Tubi audience cannot be reached by cable television. They are young and diverse with a median age of only 34. It's a great business and a great fit with Fox. Another business that's had an extraordinary year is Fox News, which ended fiscal year 2020 with record-breaking viewership. In June 2020, Fox News was the leading prime time network in all of television among total viewers, making it the first cable network to ever lead all broadcast networks in ratings for an entire month. For the fiscal year, we were again the number one channel in all of cable for total viewers across prime and total day. Now, I could say that's another extraordinary achievement But the etymologist in me won't allow it. That's because Fox News has been the number one channel in all cable for four years running and the number one channel in cable news for 18 years. We have a long track record of succeeding through multiple economic and political cycles and during administrations of both political parties. We are pacing calendar 2020 to have our highest rated primetime year in network history, with total viewers up 39% over 2019. Our primetime programs are now routinely notching around 4 million viewers a night. Though not a head-to-head comparison, the Fox News Channel is eclipsing broadcast news stalwarts like Today, Good Morning America, CBS This Morning, and Meet the Press in viewership. And viewers are coming to us not just for news and opinion, but increasingly for documentary and lifestyle programming on platforms such as Fox Nation and FoxNews.com. In fact, Fox Nation more than doubled its subscriber base this fiscal year, sustaining a trial-to-pay conversion rate of over 80% and a monthly turn rate of under 10%. Momentum built as the year progressed, with content starts up over 120%, and hours watched up over 170% in the second half of the fiscal year compared to the first half. Within Fox News, we have also organically cultivated one of the most impactful digital platforms in the country. Fox News Media charted its highest digital traffic in fiscal year 2020 with record total digital page views and a record time spent. Users viewed over 40 billion pages and spent 98 billion minutes on our Fox News digital platforms. We expect this trend to accelerate as we head into the election season in November. The fall will be busy for our news organizations at Fox News and at our stations. Later this month, Fox News will bring viewers coverage of the Democratic and Republican National Conventions in whatever form they take. And as we close in on November, we expect to continue to achieve a record amount political revenue across both our national channels and local stations. It's important to note that according to a study by Nielsen MRI Fusion, Fox News has more than double the number of independent viewers than CNN, 119% more to be exact. And we have 62% more independent viewers than MSNBC. This points clearly to our highly trusted, balanced news reporting. and is a key differentiator between us and our competitors for political advertising. In the political cycle today, inclusive of the impact of COVID-19, our political advertising revenue is pacing more than 50% ahead of the equivalent period four years ago. We are encouraged by recent trends in our local markets and expect healthy political demand up and down the ballot in the coming quarters. Nine of our 18 stations are in presidential battleground states. These are led by Arizona, Florida, Pennsylvania, and Wisconsin, but also include Georgia, Michigan, and Minnesota. We have Senate races in 10 markets and lower house races in all, a number of which are expected to be close and hotly contested. Record political revenue has already offset some of the impact from COVID-19 in local markets. While our top seven markets, where businesses have not yet fully reopened, we are now pacing overall down 29% at the start of Q1. Our next 11 markets are together pacing down just 4%. That's a tremendous recovery from what we were seeing just a couple of months ago. And three of our markets are now pacing well ahead of last year. These are Atlanta, Tampa, and Phoenix. Not coincidentally, these are all strong political markets. The fourth quarter saw affiliate revenues grow by 8%, where healthy rate increases were offset by a decline in subscriber volumes of around 6.5%. For the full fiscal year, our total company affiliate revenues increased 7%, an important illustration of our brand's prominence and strength with audiences and distribution partners alike. This past year, we have completed significant distribution agreements, including an early renewal with Comcast, as well as new deals with Verizon, Cox, Charter, and YouTube, TV, among others, each with rate increases that underscore the importance of our channels. As we articulated more than a year ago during our investor day, and as we've demonstrated with our disciplined and intentional acquisitions to date, we are taking a deliberate and selective approach to M&A, ensuring businesses fit within our vision, are well executed, and properly integrated with the rest of the company. We continually assess opportunities to deepen our strengths by expanding lines of business and the types of operations at which we excel. Our goal remains to expand the ways our audiences interact with and connect to our brands while simultaneously diversifying each brand's sources of revenue. But before turning things over to Steve, Let me reinforce one key point as we mark the end of our first fiscal year. The assets and businesses of Fox were deliberately composed for efficient growth and success in the current media environment. The stability and trajectory of the company are underscored by the revenue structure and unrivaled viewer engagement. Fox has demonstrated consistent clarity of vision by assembling the portfolio we have and by evolving to embrace opportunities in order to meet the challenges of our time. We entered the COVID-19 crisis on firm footing financially, strategically, and operationally. Our innovative thinking, in combination with the tailwinds of the upcoming fall sports and entertainment seasons, and ongoing need for live news, analysis, and opinion, will see thoughts emerge from this pandemic-paused year more competitive more focused, and even more strongly positioned to deliver for our viewers, our partners, and our shareholders. And now Steve will take us through the detail. Thank you.