News Corporation

Good day and welcome to the News Corp Q1 fiscal 2020 conference call. Today's conference is being recorded. Media will be on a listen-only basis. And at this time, I would like to turn the conference over to Michael Florin. Please go ahead.

Thank you very much, Eduardo. Hello, everyone, and welcome to News Corp's fiscal first quarter 2020 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 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.

In the first quarter of fiscal 2020, News Corp showed strong growth at Dow Jones and higher revenues at Move, operator of Realtor.com. Though the company also faced challenges from pronounced currency headwinds, a sluggish Australian economy, in particular a struggling Australian property market, as well as difficult comparisons with a prior year one-time revenue item and a non-cash impairment charge in this quarter. For the quarter, the company reported total revenues of $2.34 billion, with total segment EBITDA of $221 million. This represents a decline of 7% in revenues and 38% in profitability versus the prior year. Of the revenue decline, 3% was directly attributable to currency and 2% to a one-time cash payment last year by Tabcor in the UK. Before getting into the finer details of the quarter by segment, I want to address a significant development that bodes well for our future prospects. there has been a fundamental change in the content landscape. For over a decade, News Corp has led the international debate in seeking fair returns for our high-quality content from the digital platforms. Clearly, the dominant digital platforms are under intense and continuing regulatory scrutiny on issues such as privacy and an opaque advertising market. There has, however, been a substantial development with Facebook's decision to pay a significant premium for our premium journalism at the WSJ and beyond. This decision begins to change the content equation, and we expect a positive impact on financials at our news and information services segment over the long term, beginning this fiscal year. The Facebook deal complements the agreement we reached with Apple in March when the Wall Street Journal became a launch partner for Apple News+, which expanded the reach of the journal and its journalism to new audiences. Our brands and our content obviously benefit from the marketing reach and prowess of a partner which has nearly 189 million phones in the US and 1.4 billion devices globally. We expect this sectoral shift in the value of digital content to have significant implications for our investors and our bottom line. And let us be clear, these unprecedented changes in the publishing industry would not have been achieved without the determination of Rupert and Lachlan Murdoch and the unwavering support of the Newscore board, which has taken a long-term principled stand on the need to change the digital ecosystems. other publishers around the world should feel free to send us a commission for services rendered. Another development worth highlighting is the ongoing simplification of News Call. As you are aware, we have put our News America marketing business under strategic review and are in discussions regarding a possible sale of that business. We expect to update you in due course. Consistent with that theme of simplification, we have our Unruly ad tech business under strategic view and are also in discussions about a potential sale. We have learned much from the very talented team at Unruly and those lessons will inform our ad business for many, many years to come. With simplification being an ongoing process, the company will continue to review its structure with the aim of bringing extra focus to our key assets, allowing investors to have a far clearer view of their prospects. Let me turn to the news and information services segment in which Dow Jones had a strong quarter with increased revenues and greater profitability year over year. Wall Street Journal subscriptions grew 8%, and we have crossed the 70% threshold for the number of digital-only subscribers. Important to note, we currently do not include readers of Apple News Plus in that number, so it certainly does not fully capture the number of readers who are now paying for access to the journal. Advertising revenue at Dow Jones grew 3% in the quarter, led notably by strong digital ad performance at WSJ.com, which grew 13%. as compared to a decline at the New York Times. We also saw stronger circulation revenue growth and increasing profitability, as compared to the New York Times. Dow Jones' professional information business continued to thrive, with the burgeoning risk and compliance sector in particular growing 25% year over year. With many companies under intensifying regulatory scrutiny, the imperative to minimize risk and to maximize compliance remains a burgeoning source of business. Overall, our professional information business represents a pronounced distinguishing advantage over media competitors and provides multiple opportunities for us to upsell specialist content to companies, professional investors, and individual investors who actively manage their portfolio. Barron's group continued to report strong traffic growth in Q1, with total unique users up 27% year-over-year, driven by MarketWatch and Barron's Online. Barron's subscribers grew 7% to 587,000, while MarketWatch Q1 revenue was its strongest quarterly revenue performance ever. In the UK, digital subscribers at The Times and Sunday Times grew 19% to 312,000, Advertising in local currency was up for the first time since Q3 of financial year 18, as digital growth more than offset modest print declines. Digital advertising growth at the sun accelerated from the prior quarter rate and benefited from a growing audience and higher yield, with approximately 129 global monthly unique users in September 2019. Meanwhile, at wireless... The October radio results show that the reach of wireless stations grew 21% year over year, with a 26% increase in listening hours. And propelled by Chris Evans joining the network, Virgin Radio experienced a 300% increase in reach and a 500% jump in listening hours. Meanwhile, Talk Sport had a 20% increase in digital listening, thanks in part to the new Premier League rights, which drove Saturday listening up 120% year over year. In Australia, there were harsh economic conditions that affected all of our businesses, including HarperCollins. In media, we continue to execute on our digital strategy, with the mastheads reaching more than 542,000 digital subscribers, representing 23% year-over-year growth. At The Australian, 65% of subscribers were digital subscribers. showing that subscription sensibility is indeed evolving and more people expect to pay more for digital products. Circulation revenue was also lifted by cover price increases at our metropolitan mastheads. We took the bold step of sharply increasing the cover price of the New York Post in June, and there has been a 12% year-over-year increase in circulation revenue. Advertising also rose at a similar rate. It is worth noting that more than 70% of the post's advertising revenues in the quarter were digital. Turning to subscription video services, total subscribers at Foxtel grew 6% year over year, despite the difficult conditions in Australia. The latest number of paying KO subscribers as of November 5 reached 402,000, with total subscribers at 443,000. And this is less than a year after its launch. With the Rugby World Cup ending last week, Kayo is now preparing for the seasonal shift to cricket and other summer sports in Australia. And Kayo customers continue to be highly engaged with over 75% of subscribers using the product each and every week. Kayo is a premium streaming service and shows that a far larger number of Australians are prepared to pay for content than had previously been presumed. Given that we have already acquired the sports rights, it's another important opportunity to monetise those rights without undermining the core. Operator of Realtor.com had a robust quarter and we have reason to be optimistic over its prospects thanks to signs of improving health in the US housing market. Existing home sales are on the rise and there has been rapid audience growth at Realtor.com where there was an 18% year-over-year increase in traffic in the quarter. Based on the most recent Comscore data, Realtor.com's traffic is clearly going significantly faster than that of our nearest competitor. In addition, we are pleased with the ongoing integration of Op City, a business that is helping realtor.com become even more connected to consumers and to realtors who are provided with higher quality refined leads that we expect to monetize in adjacencies such as mortgages. We are not entering the house flipping distress sale business, but we want to offer vendors as many potential purchases as possible. The more competition for a house, the higher the price for the seller. While we have been in a period of reinvestment at Moo due to the Op City acquisition, we are seeing the benefits of that commitment with improving financials, and that will accelerate in the second half. For News Corp, as the year unfolds, the simplification of our structure will continue, and we expect to see further benefits from the shift in the balance of power between creators of content and the digital distributors. investors in News Corp should be the beneficiaries of that fundamental transformation. And now, for further insight, we will turn to Sue.