News Corporation

Good day and welcome to the News Corp fourth quarter and full fiscal year 2019 conference call. Today's conference is being recorded. Media is invited 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, Karina. Hello, everyone, and welcome to News Corp's fiscal fourth 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 then 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 GAAP to non-GAAP reconciliations of such measures can be found in our earnings release. With that, I will pass it over to Robert Thompson for some opening comments.

Thanks, Mike. Newscore completed fiscal year 2019 in a strong position. with revenues increasing 12% and profitability rising 16% against the prior year, reflecting not only the consolidation of Foxtel, but also the continued strength and development of core segments of the company, including book publishing and digital real estate services, and substantial progress in the digital transformation of our news and information services businesses. The concerted focus on our primary revenue drivers, including the creation and distribution of premium content, was reflected in audience growth across News Corp's mastheads and digital properties. We are also acutely focused on simplifying the structure of the company and making clear the full value of the sum of our parts. To that end, we recently announced a strategic review of News America Marketing. including a potential sale of the business. We have received material interest and the process is progressing rather well. There is clearly a fundamental shift underway in the content landscape. And one consequence, other than intensifying regulatory scrutiny of big digital, is a gradual transference of value to content creators who, over the past decade, have lost influence and revenue to the digital distributors. With Rupert and Lachlan Murdoch's encouragement, News Corp has been advocating vigorously on behalf of journalists, journalism, and the protection of intellectual property, and that intense, sometimes solitary, advocacy has begun to pay dividends for journalism and, importantly, for our shareholders. We are still at a relatively early stage of this tectonic transformation. but there will surely be an ongoing transfer of value to creators in coming years, which should be of great benefit to News Corp and its investors. We have begun partnering with companies such as Apple and Twitter, which recognize the value of our content, and discussions are underway with other digital companies, though I am not at liberty at this moment to provide more detail. What I can say, is that the terms of trade and the tenor of our talks are now vastly different to even a year ago. In fiscal 2019, the news and information services segment posted higher profitability, which was spurred by the rapid rise of digital paid subscribers. The Wall Street Journal, the Times and Sunday Times, and the Australian all grew subscriber volumes at a healthy rate, with digital now accounting for the majority of their subscribers. There is an emerging subscription sensibility among consumers, which is obviously to our benefit, but we are also conscious of the need to provide ever better service to those subscribers who rightly have high expectations for their digital experience. Dow Jones is a media business that we believe has a distinctive ability to prosper in the digital age. The Wall Street Journal recorded 14% growth in digital-only paid subscribers, who now account for over 69% of the total subscriber base of 2.6 million. Circulation revenue trends at Dow Jones remained robust, rising 7% for the year, well above the rate of the New York Times and others in the industry. Since separation in 2013, Dow Jones consumer circulation revenues have grown more than 40%. And within that category, digital revenues at the Wall Street Journal have expanded by almost 150%. Advertising trends improved in Q4 for the Wall Street Journal. And in July, both print and digital advertising revenue were higher than a year earlier. As we look to the future... we believe that Dow Jones can attract a significantly larger subscription base via direct subscriptions and through content partnerships. We have particular optimism about the international potential of Dow Jones, given the relatively low non-US share, 12% of subscribers today. We are also seeing the increasing ability of the Dow Jones team deploying customized artificial intelligence to sell specialist financial news and data products to professional and wealthy individual subscribers. The Dow Jones professional information business posted revenue growth for the second consecutive year after a period of transition, overcoming currency headwinds. An important driver of that growth has been the risk and compliance business, which grew 24% for the full fiscal year to exceed $130 million of revenues at attractive margins. Impressively, That business has more than quadrupled in size since the separation six years ago. Obviously, companies around the world are focused on maximizing compliance and minimizing risk. So we are confident that there will be continuing growth in that sector. In addition, Dow Jones' world-class news coverage and analysis is now aggregated on the Bloomberg Terminal. significantly extending the reach and impact of Dow Jones' trusted, high-quality journalism and analysis, and enabling us to inform a larger total audience. Over the past fiscal year, along with other new partnership arrangements, Dow Jones NewsWire is now available on more than 300,000 additional terminals. These partnerships make our NewsWires the most widely available professional NewsWire service in the world. In the UK, in constant currency, the Times of London grew print advertising revenues for the second consecutive year. Digital paid subscriptions of the Times and Sunday Times grew 19% to 304,000, while regulatory approval was received this month for the sharing of resources by the Times and Sunday Times. Clearly, the change should result in operation efficiencies, while we will be assiduous in protecting the unique identity of each of those iconic mastheads. Wireless Group posted its highest ratings ever in the April to June period. Chris Evans, the legendary radio broadcaster who joined Wireless Group's Virgin Radio last year, reached 1.1 million listeners a week across the UK during that period. In fact, Virgin Radio continues to be the fastest growing station in the UK, both in reach and listening hours. Meanwhile, TalkSport saw record audience figures with 3.3 million weekly listeners across the network in a quarter. Under Rebecca Brooks' expert leadership, we are ensuring that the peerless broadcast skills at Wireless are being deployed to improve the quality of the audio products elsewhere at News UK to take advantage of rapidly increasing podcast demand. In Australia, a focus on growth paid off with improvement in profitability for the year, driven in part by an increase in digital subscriptions, which now exceed 517,000, up 24% year on year, with the Australian a notably strong performer. At the same time, news.com.au has remained the number one website for 20 consecutive months, well ahead of its rivals. with its monthly unique visitor number topping 10 million and total visitors at over 91 million in June. News Australia is also benefiting from the acceleration of digital advertising, including the expansion of News Extend, the small to medium business solution, and from its cost reduction efforts. We are confident that Michael Miller and his talented team are well positioned to extend that operational success into fiscal 2020. At the New York Post, the cover price was doubled to $2 in metropolitan markets, the first increase in seven years, and one reason for improved financial results at the Post. And the Post's digital network continues to be strong, with audience numbers averaging more than 101 million unique users per month in the quarter, according to Google Analytics. In the subscription video services segment, the combination of Foxtel and Fox Sports was completed in April 2018. And throughout fiscal 2019, the new business has been focused on delivering premium content and experiences to customers and rapidly expanding our streaming services, which have grown markedly over the past year. Foxtel is underpinned by a large and loyal broadcast subscriber base and unique content across sports, entertainment, documentaries, and news. As of the end of the fiscal year, Foxtel's total paid subscribers grew to over 3.1 million, led by the success of our new sports streaming product, Kayo, and continued expansion of Foxtel Now, where the number of its subscribers increased by 36% from the prior year to 446,000 at year end. Kayo, which was launched in November 2018, showed a material acceleration in subscriber additions into year end. with over 330,000 paying subscribers as of June 30, a doubling since last quarter. Worth noting is Kayo's high levels of audience engagement, with 90% of subscribers using it each week, watching an average of 8.5 hours of sports content across an average of six different sports. In total, Our streaming base in Australia has nearly doubled since calendar year end to approximately 777,000. It is notable that the growth in KO subscribers between the third and fourth quarter has actually been accompanied by decline in average churn among sports tier subscribers to Foxtel Broadcast over the same period. We announced in July the integration of Netflix into Foxtel's IQ3 and IQ4 set-top boxes, which, along with a new user interface, creates a unified content discovery experience for our customers and strengthens our position in the market as the preeminent creator and aggregator of the broadest range of programming. At the same time, the consolidation of Foxtel and Fox Sports has obviously provided an opportunity to review our cost base without undermining the quality of service or programming. At Digital Real Estate Services, despite housing market headwinds, both REA and Realtor.com strengthened their competitive position by continuing to innovate and expand audit. Signs of improvement in the U.S. housing market are emerging, with realtor.com traffic at record levels, interest rates declining, buy lead volumes on the rise, and pending home sales rising 2.8% in June. Last November, Tracy Fellows was promoted to president of Global Digital Real Estate, underscoring our company's increasing commitment to the sector, which has been an engine of growth since we separated in 2013. In fact, over that period, segment revenues have tripled through a combination of rapid growth at REA in Australia and acquisitions in the US and Asia. We are in the process of a major transformation at realtor.com, underscored by the recent acquisition of OpCity and guided by our goal of providing consumers with a superior home buying and selling experience. While that acquisition and the migration towards a performance-based model naturally had an impact on revenues and investment last year, it represents a commitment to future growth by increasing the quality of connections between consumers and real estate professionals and heightening our potential to maximize the value of those interactions. We believe a focus on quality connections also increases our ability to generate additional revenue across the home buying and selling experience. from mortgage origination to the inevitable spending done by every family during the profoundly important process of moving home. REA Group continued to significantly outperform the competition, despite the self-listing environment in the second half of the year. For the year, REA extended its lead over domain, generating at least three times as many total visits. The company is continuing to create products that provide genuine value for ambitious agents. A federal election in May in Australia obviously contributed to economic uncertainty, but the political situation has clearly stabilised and the government is taking measures that should stimulate the housing market. We also made good progress in Asia through iProperty, with healthy revenue growth despite fluctuating economic and political conditions. In book publishing, HarperCollins thrived this year with new releases and a strong backlist, fueling a 6% increase in EBITDA, despite a tough comparison with 2018, which had benefited from a one-time lucrative licensing contract for J.R.R. Tolkien's Lord of the Rings. As Tolkien himself wrote, all's well that ends better. That is certainly true of downloadable audio books for which revenues rose 40% for the year. There is patently a fundamental shift in listening habits underway and we expect double digit growth to continue in the current year. Brian Murray and the HarperCollins team are finding new ways to make the most of our content and enhance the profile of our authors. We have just announced a partnership with Sony Pictures Entertainment in Hollywood, and Elizabeth Gabler and her former Fox 2000 team to develop programming and films from the remarkable HarperCollins catalogue. We have also announced an agreement through our Harlequin imprint with Bell Media in Canada to produce movies from Harlequin's extensive library of more than 30,000 titles. The most successful book of the year was a standout hit from our Christian division by best-selling author Rachel Hollis. whose debut and follow-up books, Girl, Wash Your Face and Girls, Stop Apologizing, together shipped more than five million units during the year. We also saw great success with David Walliams, including Ice Monster and World's Worst Teachers, and Mark Manson had continuing success with his sequel to The Subtle Art of Not Giving an Expletive with Everything is Expletive. With that valorized book title, I will hand the call over to Susan for an unvarnished account of our fourth quarter and full year performance.