News Corporation

Good day, and welcome to the News Corp third quarter fiscal 2019 conference call. Today's conference is being recorded. Media will be on a listen-only basis. At this time, I would like to turn the conference over to Mike Florin. Please go ahead, sir.

Thank you very much, Todd. Hello, everyone, and welcome to News Corp's fiscal third quarter 2019 earnings call. We issued our earnings press release about an hour ago, and it's now posted on our website at newscorp.com. On the call today are Robert Thompson, Chief Executive, and Susan Panuccio, Chief Financial Officer. We'll open with some prepared remarks and we'll be happy to take questions from the investment community. This call may include certain forward-looking information with respect to News Corp's business and strategy. Actual results could differ materially from what is said. News Corp's Form 10-K and Form 10-Q filings identify risks and uncertainties that could cause actual results to differ and contain cautionary statements regarding forward-looking information. Additionally, this call will include certain non-GAAP financial measurements such as total segment EBITDA, adjusted segment EBITDA, and adjusted EPS. The definitions and gap to non-gap reconciliations of such measures can be found in our earnings release. With that, I'll pass it over to Robert Thompson for some opening comments.

Thanks, Mike. News Corp reaped rewards from our digital strategy this quarter, underscored by a robust rise in digital subscriptions across our media properties, a sharp increase in digital audio book sales, and continued expansion at our digital real estate businesses, despite volatile conditions in property markets. In the third quarter, the company saw 17% revenue growth to nearly 1%. $2.5 billion reported net income of $23 million versus a $1.1 billion net loss in the prior year, and there was a 36% increase in total segment EBITDA. These results reflect the consolidation of Foxtel and, among other things, another distinguished performance by HarperCollins. For the nine months to the end of March, our revenues were 20% higher and profitability was 29% higher. Turning first to the news and information services segment, where Dow Jones continues to expand its national and global digital reach. We have recently entered into a partnership with Apple, which is at an early stage, but the initial signs are encouraging, both in terms of reaching new audiences and the strength of engagement with the Wall Street Journal in the new app. The Journal is the most trusted masthead in America, and that value can be seen in its results this quarter. with paid digital-only subscribers of the journal growing to nearly 1.8 million, reflecting 19% growth. In total, 68% of subscribers are now digital-only. Equally as significant, in the last quarter, about 55% of circulation revenues at Dow Jones were digital, and we believe there is undoubted potential for future growth. In addition to the journal, Other noteworthy Dow Jones properties include Barron's and MarketWatch. At MarketWatch, audience expanded 13% in the first nine months to approximately 30 million average monthly unique users, and revenue rose 13%. Barron's subscribers grew over 20% in the quarter compared to the prior year, approaching 600,000. And its success continued in April, with Barron's breaking its all-time audience record by achieving, for the first time, a combined total audience of 10 million print and digital users. We are also expanding the successful Dow Jones professional information business, where risk and compliance reported 22% growth in revenues. This represents the ninth consecutive quarter of 20% or more year-over-year growth in that business. It is worth noting that at the time of the separation of Newscore in 2013, annual revenues of risk and compliance were at $31 million. We expect that number to more than quadruple by the end of fiscal 2019 to around $130 million. We believe that Dow Jones is uniquely able to provide risk and compliance services in an area of significant expected growth. In fact, a market research firm recently valued the global risk and compliance market last year at nearly $28 billion and forecast that it would expand to some $65 billion by 2025. Dow Jones' robust live events business continues to expand across sectors and around the world with the Wall Street Journal CEO Council set to meet in London and Tokyo this month and the acclaimed Future of Everything Festival launching here in New York City on May 20th. At News UK, we also saw continued gains in print circulation market share across all titles. And at The Sun, digital traffic improved sequentially, with 84 million global monthly users as of March, and digital advertising revenue accelerated. The Times and The Sunday Times saw another quarter of strong digital subscriber growth at 24% to 286,000, and now have in total 527,000 subscribers. In the wake of the recent favourable ruling by the UK government that will allow sharing of resources at the Times and the Sunday Times, we look forward to further efficiencies in their operations, even as their editorial independence remains sacrosanct. At News Corp Australia, digital subscription growth and heightened cost consciousness rounded out another solid quarter, despite a choppy advertising market. News Australia remains the largest print and digital publisher in Australia, with news.com.au still the number one news website, significantly ahead of its rivals, with an audience of over 10 million uniques in March. News Corp Australia is looking forward to achieving 500,000 digital subscribers in the coming weeks. In the subscription video services segment, Foxtel demonstrated its strength. Demand for the IQ4 set-top box increased launched earlier this fiscal year, has exceeded expectation and now serves 43% of our broadcast base. This is important, not only because the customer experience is materially better, but because IQ4 customers have, on average, a higher billed ARPU with lower churns. And while broadcast churn was elevated last quarter at 17.7%, Impacted by a recent price rise, we saw notable improvement in March and in April, when churn fell to 16%, then 15%, respectively. We are confident that the renewed focus on churn and loyalty should continue that trend. Obviously, we have been investing in streaming, with platform development and marketing costs, as well as leveraging existing sports rights. Our new sports streaming product, KO Sports... has already amassed more than 239,000 users since its launch late last year, with more than 209,000 of them paid subscribers as of May 8. This growth reflects the sophistication of the technology and the strength of the exclusive sporting rights we have acquired. It is clear that the KO subscriber base is engaged, consuming an average of over seven hours of content per week. And while it is early days, Cannibalisation of the core broadcast product appears to be de minimis. KO is reaching a new audience and maximising the value of our existing sports rights. We're excited about the upcoming Cricket World Cup, which KO has the right to, and look forward to maintaining the momentum at KO Sports. We keenly anticipate the integration of Netflix into Foxtel's next-generation set-top box. which will herald the start of Foxtel aggregating other services. Along with a new user interface later this calendar year, this will create a unified content search experience for our customers and strengthen our position in the market as providers of the broadest range of original and sports programming. Meanwhile, the success of the new season of Game of Thrones is attracting record audiences in Australia and demonstrates the power of our platform. As a result, We have seen the acceleration of Foxtel Now sales since quarter end, with more than 567,000 subscribers as of May 8, and more than 505,000 of those paying subscribers. The opening episode of the final season garnered 962,000 broadcast viewers overnight on Foxtel in Australia, up 17% on the season premiere in 2017. That's in addition to the total Premier Day audience of 333,000 who streamed it live or on demand across Foxtel Now and Foxtel Go. The investment in streaming is starting to pay off. In the aggregate, with KO and Foxtel Now, total OTT subscribers at Foxtel increased more than 80% since the beginning of this calendar year to more than 714,000 paying subscribers. Driven by the strong growth of OTT, our closing subscribers as of April 30 totaled approximately 3.1 million, as compared to almost 2.8 million the prior year. Turning to digital real estate services, REA Group continued to significantly outperform the competition, despite a soft listing environment and currency headwinds. That is a weak Australian dollar. The housing market was also challenging in the US, but at Move, home of realtor.com, real estate revenues, which account for 79% of total Move revenues, rose 14%. Overall, Move revenues grew 5% as we have consciously reduced our advertising inventory to improve the user experience, but are able to increase that ratio according to market conditions. Speaking of those conditions, there are clear signs that the US housing market is strengthening, with lower mortgage rates, strong economic growth and significant increases in personal disposable income. As Realtor.com's chief economist noted, positive indicators foreshadow a potential strengthening of home sales in the months to come. This has been reinforced by record traffic at Realtor.com in April, up 7% from the prior year to over 69 million uniques, leading to 209 million visits. Also, the impact of those improving conditions was seen in the most recent new home sales figures. In March, new home sales rose 4.5% from the prior year to 692,000, the highest level since November 2017. New contracts in March were up 4%. Based on March data from Comscore, Realtor.com has a greater number of visits per year visitor compared to the competition, with more pages viewed and more time spent on the site. So not only does realtor.com have the most complete and up-to-date for sale listings in the industry, it also has the best level of engagement with its audience. Likewise, we remain confident in the strategic importance of our recent acquisition of Op City, which leverages applied analytics and machine learning to quickly match consumers with the right real estate professional. The ability to generate high-quality consumer leads for realtors through Obsidi provides a new outlet to sustain revenue growth. This acquisition will involve some investment to increase capacity, but it is an investment in future growth. We recently expanded Obsidi to a number of test markets, offering an exclusive performance-based experience to consumers and the industry. We believe that providing higher quality leads to realtors is part of the changing US property market and will result in higher quality returns for realtor.com. There is still much potential for growth in the sector, which is at a relatively early stage of digital development, and we expect the sectoral and cyclical winds to be more favorable over the coming year. Turning to book publishing. HarperCollins once again delivered an impressive performance this quarter, with standout hits in our Christian division from best-selling author Rachel Hollis, whose previous title, Girl, Wash Your Face, has already sold over 3 million units, and her latest, Girl, Stop Apologizing, shipped another million. Total digital revenues for the quarter grew 5%, which included 32% growth in downloadable audiobooks. Digital, in the aggregate, represented 21% of consumer revenues this quarter. Meanwhile, the HarperCollins backlist contributed approximately 63% of consumer revenues in the quarter. HarperCollins has been strengthening its reach into the US book-buying heartland. It is peerless in commissioning new authors, in its savvy editing, and in its first-class marketing for best-in-class books. One recent example of the success of this strategy is the latest book from Joanna Gaines, We Are the Gardeners. And Ben Shapiro's book, The Right Side of History, is now a bestseller in print and e-book. These successes enhance the bottom line with a 12.6% segment EBITDA margin in the quarter compared to 10.3% in the prior year. Prospects for News Corp are certainly positive, given the performance thus far in this fiscal year, which is a direct result of the strategic and digital initiatives across our businesses. There is no doubt that the content landscape is changing and that we are seeing more people prepared to pay more for trusted news and innovative entertainment delivered efficiently, seamlessly to their mobile phone or home devices. For more details on this quarter's results, I now turn to Susan Panuccia.