News Corporation

Good day, everyone. Welcome to the News Corp Fourth Quarter 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 Mike Florin, Senior Vice President and Head of Investor Relations. Please go ahead.

Thank you very much, Nicole. Hello, everyone, and welcome to News Corp's Fiscal Fourth 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. Definitions and GAAP to non-GAAP 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.

Thank you, Mike. Let me say initially that I trust all on the call and your families are faring well. These are certainly complex times, and there are few who have not been touched in some manner. the coronavirus has irrevocably changed businesses and our businesses in expediting pre-existing digital trends, in challenging established practices, and in prompting necessary introspection about work habits and the workplace itself. There has been much agility and adaptation at News Corp. The vast majority of our employees across the world have been working at home, and the resilience of the company's culture has been a core component in continuity. Without doubt, digitisation has accelerated. And without doubt, all of our businesses have been affected and responded with customary ingenuity. I would like to express my sincere thanks to each of our employees and their families for having responded so promptly, so intelligently and so thoughtfully to these testing circumstances. Evidence of that response was seen in the fourth quarter, when virtually all of our businesses prudently reduced costs, sometimes painfully, to ensure that they were robust enough to cope with volatility and disruption. Preserving cash was a priority, and it is worth noting that our cash balance increased in the last quarter by $129 million to over $1.5 billion as of June 30th. Revenue comparisons are obviously made complex by the sale of News America Marketing and Unruly, plus the consequences of COVID. But our adjusted revenue for the quarter declined by 13%. Obviously, the net income and EPS were affected by non-cash impairments, primarily at our UK and Australian businesses. And Susan will be able to provide more details momentarily. However, our adjusted total segment EBITDA declined by a modest 10%. This is particularly significant, a somewhat historic earnings call. Regular listeners will recall that we had pledged to simplify the company and make the results more transparent. The sale of News America Marketing and Unruly certainly simplified the structure. And in the quest for transparency, beginning this quarter, we are presenting Dow Jones as a separate segment. This will highlight what we believe are two incontrovertible facts, the substantial and growing value of that company and its superior profit profile and prospects to those of the New York Times. In what has been a difficult year for many media companies, Dow Jones reported a 13% increase in segment EBITDA based on the strength of its professional information business and the preeminence of the Wall Street Journal. Our other global mastheads and digital information properties are gathered in the news media segment, which will include our Australian titles, many of which are now digital only. The Times, The Sun and The Sunday Times, as well as Talk Sport and Virgin Radio. It may be called news media, but obviously the segment is increasingly digital in personality and virtually all of our mastheads had record audiences during the year. Our journalists have performed admirably in providing crucial insights to readers during the COVID crisis, delivering accurate information and analysis and providing an antidote to conspiracy theories and noxious nonsense proliferating elsewhere on the web. We are continuing to focus on acquiring digital subscribers and audience while right-sizing our businesses to be digital first, which is necessarily resulting in significant cost reductions. The closure in Australia of many of our storied print editions and the emphasis on digital was further evidence of our willingness to be decisive at an epochal moment. We are very proud of our traditions and we will always invest in the very best journalism. But the format is less important than the function. And we firmly believe that the digital reincarnation of these titles will ensure a profitable future and a continuing role in their communities. We are also constantly, restlessly reviewing our portfolio with a view to ensuring that we have the optimum asset mix. All of our executives understand that these are testing times, and many of our executives around our businesses internationally have volunteered hefty cuts to their bonuses, which form a large part of their compensation. The Executive Chairman has forsaken 100% of his bonus, and Susan Panuccio and David Pitofsky, our General Counsel, who are with me on this call, have also voluntarily given up a meaningful chunk of their bonus. All understand the importance of a stringent cost strategy, so we have launched a genuinely meaningful shared service program that we believe will transform the company by centralizing many of our functions. The mission is being led by two of our most talented executives, Damian Eales from Australia and Jane Viner from the UK, in tandem with our CTO, the global head of HR and CFO, in other words, Susan. The early indications are that the shared service program should be able to appreciably reduce our costs and we expect it to have a materially positive impact on our bottom line. We will always emphasize integrity and creativity. but our ability to prioritise imperative projects will be enhanced by the program. We expect our technology platforms to be the best in class at the lowest available price, and the overall level of cooperation and coordination among our businesses will certainly be enhanced. This is not an ephemeral project, but one that we believe will have a fundamental impact on the way we do business and on our earnings. One other trend is already having an appreciable impact on our earnings, the change to terms of trade with the digital platforms. Those of you who watched the congressional testimony last week by the tech titans would have noticed overall that the political understanding of the issues has vastly improved. That is also true in Brussels, London, and Australia, where the ACCC has just introduced a draft mandatory code of conduct. I recommend that anyone seeking enlightenment Google the name Rod Sims and read a few of his recent interviews. Mr. Sims chairs the ACCC. It is fair to say, without revealing details, that we are deep in discussion with these companies and that the ecosystem has absolutely begun to evolve. For News Corp, which has been pursuing this issue for well over a decade, this favourable outcome would simply not have been possible without the leadership of Rupert and Lachlan Murdoch and the support of a board which backed advocacy, even when News Corp often stood alone in pursuit of the principle of a premium for premium content. Now for the numbers. At the new Dow Jones segment, revenues improved in fiscal year 2021. and profitability was up 13%, as I had mentioned. At $236 million, Dow Jones' full-year segment EBITDA was the highest since separation, as were margins. Digital revenues surpassed $1 billion in fiscal 2020 for the first time and represented 66% of total revenues, rising to 70% for the fourth quarter. We saw strong circulation volume growth, with digital-only subscriptions increasing 23% year-over-year for the Wall Street Journal in Q4 and 51% for the Barron's Group. MarketWatch, our finance website, reported the highest annual revenue numbers in the brand's history, making it the third year in a row of record-breaking results. Equally impressive, Unique users more than doubled to 62 million in the month of June. In contrast to most COVID-affected media sites, digital advertising was down only 7% in the quarter, and the general shift towards digital as a source of revenue continues, with that segment representing 54% of advertising revenues in the quarter. We expect that digital will continue to outpace print, given we are seeing robust digital advertising, despite the social and commercial volatility that has prompted many companies to be cautious in marketing spend. Even with the pandemic impact, digital advertising at Dow Jones was 4% higher for the year. Full year revenues for the professional information business rose 7% year over year, driven by risk and compliance, which surged 20%. We remain particularly excited by the prospects for our risk and compliance business, given the intensification of regulatory scrutiny around the world. As we have noted on this call in the past, who among you does not want to minimize risk and maximize compliance? We are expanding our risk-related product lines, enhancing our software, and ensuring that the increased flow of actionable intelligence is complemented by thoughtful analysis and compelling news feeds for our growing audience of clients. We contend that the all-digital risk and compliance business is a highly undervalued part of a highly undervalued company, given the revenue trajectory, the still expanding market, and the necessity for companies and individuals to have an audit trail of compliance. The creation of the Dow Jones segment allows us to make a direct comparison with the New York Times, and on most important measures, the Wall Street Journal and the board of Dow Jones performed far better. The Journal is both the most trusted general newspaper in the US, according to the Reuters Institute, and the world's leading business news provider. and that vast, well-heeled, well-informed audience provides an opportunity to upsell value-added lucrative business products to serve a specialist need. Here are a few metrics comparing the two companies for the quarter. Dow Jones segment EBITDA of $60 million was higher than the New York Times, having benefited from the stability of our vibrant professional information business. While Dow Jones segment EBITDA expanded by 13% year-over-year, New York Times declined by 6%. Dow Jones EBITDA margins were 15.7%, about three percentage points higher than the New York Times. In this time of COVID, Dow Jones revenue declined moderated at a higher rate than the New York Times at 4% versus down over 7% for the Times. Dow Jones COVID-affected advertising revenue declined at a much lower rate than The Times, thanks largely to significant outperformance in digital advertising, which was down just 7% at Dow Jones versus down 32% at The New York Times. In fact, Dow Jones generated more total ad dollars than The New York Times. We feel strongly that we should explain the virtues of Dow Jones to shareholders and to potential shareholders. So we will have an investor day in mid-September at which Dow Jones' chief executive, Elmar Latour, and other Dow Jones executives and myself will give you a more granular explanation of the company's extraordinary potential and an opportunity for you to interrogate them. The news media segment, of course, had a challenging year and we took prompt measures to confront those challenges. These included the aforementioned sales of NAM and Unruly, as well as immediate cost reductions and the launch of strategic shared service project. In Australia, apart from migrating publications to digital only, we also sold our investment in the Australian Associated Press Newswire and unfortunately implemented hundreds of redundancies. The end of the relationship with AAP was both necessary and historic. as the service was founded in 1935 by Sir Keith Murdoch. Digital subscriptions across News Corp Australia rose 25% to nearly 650,000 by the end of the fiscal year. Meanwhile, at News UK, the Times and the Sunday Times paid subscribers rose to 336,000, an increase of 11% year over year, and benefited from a focus on attracting premium subscribers with a concomitant improvement in retention rates. The Sun's online audience expanded markedly during the year, including with the launch of a U.S. edition. In total, the Sun reported 133 million unique users globally in June for one month, which also reflects our expansion in the U.S. Importantly, the Sun remains as the leading news brand in the U.K., according to PAMCA. The sheer scale of our collective reach should not be underestimated. In the US, the New York Post digital network reached 177 million monthly unique users during the fourth quarter. It has long been known that the Post has been loss-making, but those losses have fallen dramatically in the past 18 months as we increased cover prices and benefited from ad revenue for our expanding digital readership and reduced the cost base. We can now see a clear path to profitability for the Post. In book publishing, despite the viral vicissitudes, which included the near shutdown of US physical stores, profitability was up in Q4. This is a testament to the resourcefulness of the team at HarperCollins, which moved quickly to bolster supply chains and emphasize e-books and online sales. These actions allowed us to make the most of changes in reading behavior during the pandemic. As we had indicated on previous calls, the second half of the fiscal year at HarperCollins was more propitious than the first half, with segment EBITDA improvement in both Q3 and Q4. Among the titles that performed well were the latest instalment of Joanna Gaines' highly successful Magnolia Table series, Dutch House by Anne Patchett, The One and Only Bob by Catherine Applegate, and World's Worst Parent by David Walliams. Looking ahead to fiscal 21, we're already eagerly anticipating the release of Tiger Woods autobiography and expect strong results from the upcoming launch of Jenna Bush Hager's Everything Beautiful in Its Time. We're certainly pleased by the early performance of Daniel Silver's The Order and Ben Shapiro's How to Destroy America in Three Easy Steps, and we expect much from LeBron James' first children's book, I Promise, scheduled for release next Tuesday. In digital real estate services, REA's traffic and lead volume have rebounded in the wake of the shutdown in Australia, with record audiences in June and a dramatic increase in users potentially interested in a house move. There is simply no doubt that the COVID crisis has prompted many families to consider their housing circumstances and that ultra-low interest rates have made a move more possible. We noted similar trends in the US at Realtor.com, And we saw a significant improvement in profitability at Move, which runs the realtor.com site in the fourth quarter and for the year as a whole. The new leadership team at Move is working closely with the Dow Jones executive team as the combined audience and lucrative demographic of the two sites in the U.S. is a hefty 124 million based on Comscore statistics as of June. We are confident that the Dow Jones size will provide a flow of potential buyers for Realtor.com and that Realtor.com will provide a flow of potential subscriptions for the WSJ and Barron's. Also in Australia, at Foxtel, our emphasis on streaming has brought a leap in new customers for both KO, the sports streaming service, and Binge, our entertainment offering, which has just launched. As of August 4, KO, showing great resilience, had 590,000 subscribers, including 48,000 trialists, while Binge had 217,000 subscribers, which includes 185,000 paying, just a short time after its formal launch. Both services are making the most of our existing rights without incurring extra content expenses and are certainly expanding the reach of Foxtel. which has now approached a new record number of total subscribers following an acceleration in July. Just this week, we crossed the 1 million OTT paying subscriber mark, setting a new record thanks to our expanded streaming strategy. While there is certainly seasonality to KO given the scheduling of the popular winter sports, we are reassured that so many subscribers have returned to the service so promptly and particularly encouraged by the early rush of subscribers at Binge. Our past acquisition of cricket rights means that we are well positioned when the Indian cricket team arrives in Australia later this year. On our last call, you will recall that I insisted that there would be a reset of sports prices, and in the midst of this year's shortened season, that has absolutely come to pass. While negotiations with some sports continue, deals already completed will reduce the cost of sports rights at Foxtel by at least $180 million Australian dollars over the next three years as compared to the prior contracted value. This reset will have a positive long-term impact on Foxtel's profitability. No doubt the events of the first half of calendar year 2020 will remain resonant in our memories. I am particularly proud of the performance of all those who work at News Corp for showing professionalism, passion, and compassion throughout these most difficult of times. Our reporters and opinion writers around the world have provided a profoundly important service, and many of our employees have contributed to their communities through philanthropic service in recent months. And now, for more granular detail and customary insight, Susan.

Thank you, Robert. Before talking through our fiscal 20 results, I would like to recap on the actions we've taken this past year to better position News Corp for long-term success with a focus on increasing shareholder value and transparency. Firstly, the company has taken significant action on our cost base. Our publishing business in Australia has been significantly restructured with 112 of our regional and community mastheads transitioning to digital or closed. The cost base at Foxtel has been restructured with savings across programming and support functions. With increasing OTT scale and a lower cost base, Foxtel is better positioned to success. And I would like to reiterate that we have no plans to provide additional funding. Our digital real estate businesses have also been proactive in reducing headcount to confront the challenges of COVID-19. In addition, we took quick and decisive action to reduce OPEX and CAPEX in the fourth quarter, with CAPEX reducing by a third year-on-year and total cost decreasing 21% year-on-year, partially due to divestments and effects, but primarily due to active cost management. We are also close to finalising our savings opportunities for global shared services across the company as we look to leverage our global scale and reduce duplication. These collective actions resulted in a 7% reduction in headcount this year across the businesses, excluding the NAM and unruly sales. Secondly, Dow Jones results are now reported as a separate segment, which better highlights its performance and provides a more complete comparison with its peers. The business saw record subscriptions and achieved growth in both revenue and EBITDA for the year. Thirdly, we are taking tangible steps to stabilise our newly formed news media segment through digital subscriber growth, cover price increases, and aggressive cost targets, which will be further enhanced by our global shared service initiative. In relation to liquidity, the only debt exposures we have are at our non-100% owned subsidiaries, Foxtel and REA, and these are non-recourse to News Corp. Finally, as part of our simplification efforts, we continue to reshape News Corp's portfolio this year with the divestments of News America Marketing and Unruly. With that as a backdrop, I will now discuss our latest financial results. Fiscal 2020 fourth quarter total revenues were approximately $1.9 billion, down 22% versus the prior year, reflecting the impacts of COVID-19 and the divestment of News America Marketing in early May. Total segment EBITDA was $195 million, down 28% versus the prior year. Excluding the divestment of NAM, acquisitions, currency fluctuations, and the other items disclosed in our release, adjusted revenues fell 13%, and adjusted total segment EBITDA decreased 10% as growth in segment EBITDA at the Dow Jones book publishing and subscription video services segments were outweighed by the negative impact of COVID-19. Our best estimate for the revenue impact of COVID-19 for the quarter was negative $330 million or 13% together with a negative impact on total segment EBITDA estimated to be between 40 to 55 million or 15 to 20%. For the quarter, we reported a net loss per share of 67 cents as compared to a net loss per share of nine cents in the prior year. The loss includes 292 million of non-cash impairment charges primarily related to fixed assets in the UK and Australia. Adjusted earnings per share were negative three cents in the quarter compared to positive seven cents in the prior year. Moving on to the quarterly results for the individual reporting segments, starting with Dow Jones. Revenues for the quarter were $381 million, down 4% compared to the prior year, with digital revenues accounting for a record 71% of total revenues this quarter. Circulation revenues rose 2% due to robust growth in digital circulation revenues, partially offset by lower print circulation revenues, which were impacted by the declining newsstand sales and fewer amenity copies primarily related to COVID-19. As Robert mentioned, Dow Jones again achieved record subscriptions in the quarter and saw an acceleration in year-over-year growth compared to the prior quarter. Dow Jones' average subscriptions for the quarter were almost 3.8 million, up 15% from the prior year, and of that, digital-only subscriptions were 2.8 million, up 28% year-over-year. For the Wall Street Journal, there were approximately 3 million total subscriptions for the quarter, up 15% from the prior year. with digital-only subscriptions growing 23% to more than 2.2 million, improving from the 15% year-over-year growth rate in the prior quarter. To frame the improvement, we added 203,000 Wall Street Journal digital-only subscriptions this quarter compared to 112,000 in the third quarter and 43,000 in the prior year. Revenues from Dow Jones professional information business rose 6% year over year, slightly higher than the third quarter rate, driven by 14% revenue growth at risk and compliance. Consistent with our expectations, risk and compliance revenues reached approximately $160 million for the fiscal 2020. As we mentioned last quarter, advertising revenues, which accounted for only 19% of revenues this quarter, were impacted by COVID-19 and declined 28% to $71 million. For the first time, digital advertising revenue was greater than print, accounting for 54% of total advertising revenues for the quarter. Digital advertising revenues fell 7%, helped by strong growth in programmatic, while print advertising was down 43%, which included the impact from the cancellation of live events. Total unique visitors across Dow Jones digital platforms more than doubled in the quarter versus the prior year. Dow Jones segment EBITDA for the quarter rose 13% to $60 million, Turning to our other news segment, news media, which primarily includes News Australia, News UK, and the New York Post, and the News America marketing and unruly companies prior to their disposal. Revenues for the quarter were $490 million, down 41% versus the prior year, of which the impact from the divestment of News America marketing accounted for over half of the total revenue decline. On an adjusted basis, which excludes NAM, Unruly and the other items mentioned in our release, revenues declined 22%. Advertising revenue fell 58% on a reported basis, of which $179 million or 36% of the decline was from the sale of News American Marketing and the rest of the decline was driven by the negative impact from COVID-19. Weaknesses in the print advertising markets and a $20 million or 4% negative impact related to the suspension of certain community titles in Australia. Advertising revenues at News UK fell 46% on a reported basis and 45% in local currency, relatively consistent with our April commentary, with lower print trends partially offset by strong digital advertising growth at the sum. Performance was similar in Australia, with advertising down 46% on a reported basis and 42% in local currency, which includes the negative impact related to the suspension of certain community titles. Circulation and subscription revenues declined 9%, impacted by lower newsstand sales related to COVID-19, partially offset by strong digital paid subscriber growth and cover price increases in Australia. Segment EBITDA for the quarter was a loss of $44 million, down $95 million from the prior year. The divestment of News America marketing accounted for $43 million of the year-over-year decline, Also included in the results are approximately $8 million of additional costs related to the decommissioning of print operations in Australia. It is important to note that we do not expect this to be the new normal and we are taking significant and decisive steps to improve the trajectory of the segment, including better monetising our growing and global audience and further cost reductions. These include leveraging existing content to source incremental licensing revenues, We believe that we are very well positioned to benefit from incremental licensing revenues as early as this fiscal year, which should have a meaningful impact on EBITDA. Our biggest source of revenues in the news media segment is now circulation and subscription. We expect continued growth in our digital subscriptions and we will be looking at cover and subscription prices to help offset print advertising declines. Our global shared service initiative, which we expect to centralise many of our back office functions and remove duplication, We will also continue to work on newsroom transformation and the ongoing review of our printing sites and office space. We have reduced our total headcount within the segment by 12% in fiscal 2020, which will lower our cost base going forward and we expect additional reductions in fiscal 2021. The impact of COVID-19 remains uncertain and we do expect continued advertising challenges. However, we will continue to focus on the digital transformation of this segment new ways to monetise our content and continue to take aggressive cost measures as we look to provide a more stable outlook. At the digital real estate services segment, revenues decreased 16% to $238 million, primarily due to a declining listing in Australia and the US related to COVID-19 and associated customer support measures. On an adjusted basis, revenues declined 13%. Segment EBITDA fell 10% to $71 million or 5% on an adjusted basis. REA group revenues fell 21% primarily reflecting FX, lower developer revenues and a 14% decline in residential listing volumes for the quarter. REA saw improvements in listings as the quarter progressed with 11% listing volume growth in June combined with record traffic. The volume growth was partly related to easier year-on-year comparisons, which included the impact from the federal election in the prior year. Please refer to REA's earnings release and their conference call immediately following this call for more details. Move revenues declined 10% to $111 million, with real estate revenues down 5%. However, the decline in real estate revenues was almost entirely due to an estimated $13 million impact related to the customer billing relief initiative. Move is also still being impacted by the transition to the referral model, given the longer time period by which revenues are recognised. Despite the transition, we remain very confident in the long-term growth potential of the referral model, including upside through incremental ancillary services. Similar to REA, we are also seeing record traffic at Realtor, with June achieving 86 million monthly unique users, up 18% year-over-year, combined with a greater than 50% year-on-year increase in core real estate lead volumes in June. Despite the revenue impacts from COVID-19 for both the quarter and the full year, MOVE increased its contribution to segment EBITDA year-on-year, benefiting from the restructuring of the organisation, including the integration of the teams at Realtor and Op City. Turning to the subscription video services segment, revenues for the quarter were $407 million, down 24%, versus $536 million in the prior year, which included a negative 5% impact from FX. The revenue decline was driven by fewer residential subscribers, a reduction in commercial subscribers related to the suspension of billing due to the closing of licensed venues and a declining advertising revenues. Approximately half of the year over year revenue decline in the quarter was due to commercial and advertising revenues, which we believe was mostly a function of the impact from COVID-19. Foxtel's closing paid subscriber base was approximately 2.8 million as of June 30th, down 12%, which reflects the decline in commercial subscribers, which fell to 86,000 from 264,000 in the prior year, primarily associated with COVID-19 restrictions. We expect improvements as licensed commercial venues begin to reopen, although timing is still uncertain given the recent spikes in infections in Victoria. Foxtel Now subscribers were also impacted by a difficult year-ago comparison as the prior year benefited from the final season of Game of Thrones, but the number was stable sequentially. Pleasingly, we saw a significant decline in broadcast churn, down to 13.2% compared to 14.7% in the prior year, which was the lowest in seven quarters. The improvement was supported by the implementation of several COVID-19 mitigation measures, including opening up content tiers and offer extensions. and favourable impacts from a slowdown in Telstra's NBN migration activity. Broadcast ARPU was relatively stable at AU$78. Segment EBITDA in the quarter was $104 million, up 24% from the prior year, driven by lower costs. Overall expenses declined about $145 million, which includes approximately $70 million of lower sports rights costs, primarily related to the suspension of live sports. Results include one month of expense related to the NRL and AFL and the majority of the deferred sports costs will be recognised in fiscal 2021. I will discuss this further in the outlook commentary. Foxtel also benefited from lower entertainment costs from renegotiated affiliate and output deals, lower transmission costs and lower overheads due to staff reductions. As Robert mentioned, we are pleased with the resilience of CAO and the early progress and level of engagement for Binge, Foxtel's new entertainment streaming service. We look forward to building on Foxtel's expanding OTT subscriber base in the year ahead. During the quarter, Foxtel also accelerated its cost transformation plans for the business, reducing its headcount by approximately 17%. This action, together with other operational efficiencies and content renegotiations, will help put Foxtel in a better position longer term. At Book Publishing, HarperCollins had a strong quarter with revenues down only 3% to $407 million and segment EBITDA up 9% to $47 million despite significant bricks and mortar store closures, which was a far better performance than we had anticipated. We saw the strongest digital growth in recent years with total digital sales up 26% to represent 29% of consumer revenues. With the shelter-in-place orders related to COVID-19, e-book sales returned to robust growth, increasing 31% year-over-year, with downloadable audiobooks also growing at a healthy 17%, despite an initial dip due to the falling individuals commuting to work. As Robert noted, HarperCollins benefited from a strong release slate, which included Joanna Gaines' Magnolia Table, Volume 2, and a great performance from our children's division. I would now like to talk about some themes in the upcoming quarter. Forecasting remains challenging, so I will discuss the trends we have seen in July. At Digital Real Estate Services, as noted in their release, July new-buy listings at REA were up 16%. However, residential revenue growth is expected to be offset by reduction in development projects, listing declines in commercial and Asia businesses, and the recent government restrictions in Victoria. Please refer to REA's press release for more details. Realtor is facing lower industry-wide real estate transactions, but encouragingly lead volume and unique users remain strong, similar to June. In subscription video services, advertising in July improved modestly with the return of live sports. We expect gradual recovery of commercial subscribers, but timing will largely be dictated by government restrictions and the broader impact from COVID-19. Broadcast churn is modestly higher versus the prior year and the fourth quarter. On sports costs, assuming no further disruption of play, we will recognise approximately $55 million or $78 million of additional sports programming rights costs, the majority of which is related to the NRL and AFL rights costs that were deferred from fiscal 2020 to fiscal 2021 due to the temporary sports suspension. However, we expect at least $100 million or Australian $160 million of overall savings net of the increase in sports costs for the full year in fiscal 2021 as a result of the cost-out initiatives taken during fiscal 2020. At Dow Jones, subscription trends in July continued to be strong with over 25% growth in digital-only subscriptions at the Wall Street Journal. Advertising trends improved modestly in July but with digital up very strongly. In book publishing, similar to the fourth quarter, HarperCollins continued to see strong growth in online sales in July. Retail stores are slowly reopening, albeit likely at a reduced foot traffic and continued risk from any recurrence of COVID. At news media, we continue to expect advertising and single copy sales revenues to be adversely affected due to COVID-19. Advertising revenues in July at the newspaper mastheads in the segment declined 25 to 30% in total compared to the prior year. As a reminder, advertising revenues in the prior year included the results from News America marketing. Overall decline in circulation volumes for July improved from the lows experienced early in the fourth quarter, particularly for the weekend papers. Pleasingly, we have continued to see strong digital subscriber growth at the Australian mastheads and at the Times and the Sunday Times, and we will continue to focus on cost transformation to mitigate the revenue headwinds. CapEx for the year is expected to be approximately $400 million compared to $434 million in fiscal 2020, subject to foreign currency fluctuations. We will be monitoring this number very closely throughout the year and will take necessary actions to reduce this amount as needed. And as a reminder, we have a strong balance sheet with over $1.5 billion of cash and access to a $750 million revolving credit facility. The COVID-19 crisis has presented challenges across all of our businesses, and we are very pleased with the action that our businesses have taken to ensure they are well positioned to withstand the ongoing volatility as we move through the next 12 months. With that, let me hand it over to the operator for Q&A.

Thank you. Ladies and gentlemen, if you'd like to ask a question at this time, please press star and then one on your touchtone phone. If you are using a speakerphone, it might be necessary to pick up your handset or depress your mute function so the signal can reach our equipment. Again, that is star and then one. We'll take our first question from Kane Hannon with Goldman Sachs.

Morning, Robert. Susan, just two for me on the cost program for Foxtel. So just around those $100 million in savings you're talking to next year, does that have all of the sports rights savings that you think you can get across the various codes in that number? And are they all confirmed? And then how should we be thinking about the costs of Binge and the launch of some of your OTT platforms into 2021? And then secondly, just around the simplification agenda, Should we be thinking that's roughly on hold through this crisis or how do we think about the next steps from here and things like the Foxtel IPO that you've spoken about previously? Cheers.

Hi, look, it's Robert here. I'll take the simplification question first. Simplification is a continuing process and it must be. As you can see, we've appointed a global head of digital real estate, Tracy Fellows. formerly the head of REA, and that's given us a much more focused international approach and intensified the dialogue and sharing between Realtor and REA. And as you can see, we are constantly reviewing our portfolio. We sold Amplify, the digital education business. We sold our local papers in the U.S. well ahead of the present downturn. We sorted out and simplified the ownership of Foxtel. We sold News America Marketing. We sold unruly, we've closed the print editions of most regional community papers in Australia and these will actually not be the last changes that we make.

And Cain, just in relation to the cost program, so the $100 million net number, yes it does include, it's net of the sports cost increase, so that's approximately $55 million and so we have factored the savings into that number. And when we think about the OTT costs in relation to binge and KO, again, that number is net of any investment that we would expect to see within those products. Largely, clearly, would be marketing because we scale given we've got the content.

But just to complement Susan's comment, we are indeed pleased with, one, how quickly the subscription growth has picked up at KO after the COVID interruption, and secondly, the early numbers for Binge, the entertainment streaming service, are particularly encouraging.

Thank you, Cain. And Nicole, we'll take our next question, please.

We'll take our next question from Encho Rakowski with Credit Suisse.

Hi, Robert Clarkson.

I've got a couple as well. The first one is just around the $14 to $15 million negative COVID impact which you flagged for the quarter. I just wanted to clarify, does this take into account some of the positive benefits of lower sports rights costs that you've seen over the course of the quarter? So it's basically a net number, or is it perhaps a gross number? We'll need to take those benefits separately into account. I'm just interested in to what extent you can recoup in future years. And then just secondly, Advertising trends over the course of the quarter seem to get slightly worse at Dow Jones. I mean, obviously, very strong performance in the segment as a whole. But if I look at advertising, I think it was tracking at 20% down in April and then down 28% of the quarter, whereas the market improved. So just interested in whether there was anything specific which might be driving that.

So just in relation to the first question, so the impact in relation to COVID is net of all the potential costs and revenue impacts that we could see across the business. So yes, it does include the impact from Foxtel. In relation to going forward, clearly we'll have a double up of costs for a period of two months in the next financial year in relation to Foxtel for those sports charts as I've outlined. But the overarching and underlying cost base will decrease notwithstanding that. And we expect to see that within sports rights as well as right across the organisation. That's in relation to the first question. And maybe if you could just repeat the second question. It's quite lengthy.

Yeah, sorry. So the second question, my recollection was that in April, At the last set of results, you mentioned that revenue was down, or ad revenue was down 20% in AFL for Dow Jones. Seems to have gotten a little bit worse, down 28% for the quarter. So it looks like the trends have deteriorated. And if I look at the underlying market, that seems to have actually gotten better. So just wondering whether there is anything specific within Dow Jones which might be driving that.

What you saw in particular was the... onset of the COVID crisis in May. So May was a tough month. June was better and July better again. And so we are in particular seeing strong digital advertising, clearly as in many countries around the world, print is affected. But generally speaking, the trend has been positive since May.

Thank you. Thank you, Encho. Thanks, Encho. And Nicole, we'll take our next question, please.

Our next question comes from Alexia Quadrani with JP Morgan.

Thank you. My question actually is following up on your comments on digital advertising trends at Dow Jones. It has notably outperformed some of your peers. And I'm curious, is it the vertical skew or is there any color you've given why you think you're relatively doing quite well on the digital advertising front? And then just sort of staying on Dow Jones, I would love to hear if Mark, you can tell us about the strong digital subscriber growth we're seeing at the Wall Street Journal, how much of it you think is driven by the elevated news cycle and sort of promotional strategies you might have in place.

Alicia, I think it's fair to say that Dow Jones is a unique media property. clearly got both a consumer business and a professional business, and the two complement each other. And that helps us certainly with subscriptions, but also in terms of contacts with potential advertisers. And in terms of a subscription funnel, we certainly have continuing faith in the growth potential for subscriptions to Wall Street Journal. And as Susan mentioned, the trend in July has again been positive. And also the Barron's Group, where subs rose 49% in Q4 compared to a year earlier. And what we have in Dow Jones is a continuing funnel of potential clients coming in through MarketWatch, which, as you know, is the free financial news site. At MarketWatch in Q4, traffic rose 143%. So a market watch user can easily graduate to be a Wall Street Journal subscriber, who can become a Barron subscriber, who can become a subscriber to our high-end financial information intelligence in the professional information division. And it's really a unique opportunity in that we have a digital daisy chain, and each product in the chain is higher yielding.

And just in relation to the actual advertising question and what was driving the digital growth, so we actually did see much stronger than expected performance in programmatic, largely as a consequence of increased volume, and we had higher display CPMs. And just in relation to, I guess, our competitors, we're less exposed to luxury entertainment, so we have more dependency on tech, finance, B2C, B2B, and that's been driving the performance.

Thank you. Thank you, Alexia. Nicole, we'll take our next question, please.

Our next question comes from Craig Huber with Huber Research Partners.

Yes, hi. My first question, you mentioned, Susan, that you guys took 112-year mask heads at the smaller papers down in Australia to shut them down or transition them to digital. I was just wondering what percent of revenues did that represent down there in the Australian newspapers? First question. Like 5% to 10%?

So in relation to Q4, it was about $20 million impact in Q4, given we closed them down sort of midway through the quarter. We don't disclose, obviously, the full number of revenue for that, but $20 million should give you a guide.

You close them in mid-4Q, okay. And my other question, or maybe request, I was very happy to see You guys are breaking out the Dow Jones numbers, the revenues, and obviously the EBITDA here, the detail. Obviously, for the fourth quarter and this year, the fourth quarter for the full year as well. I was wondering, would it be possible, would you seriously consider doing it for all three quarters so we would have it for all eight quarters? I mean, I can certainly estimate it, but it would be very helpful if you're going this far to take one more step here. The last 5% just put together for the other three quarters and they put it out in 8K or something. Is that fair to ask you?

Craig, I think we're going to have an Investor Day in September, which Robert mentioned, and so we'll certainly be able to do that at the Investor Day for you.

Thank you very much. Eight cores would be great. Thank you.

Thanks, Craig. Nicole, we'll take our next question, please.

Fraser McLeish from MST Markey has our next question.

Great, thanks. Just a very basic one for me, just for Susan, if that's okay. Just on the binge subscriber numbers, Susan, I would imagine that Telstra is quite important for driving those. I'm just able to confirm whether anything with Telstra is going into paid subscriber or as a non-paid subscriber in those August 4th numbers you've disclosed. Thanks.

If Telstra are providing the sales channel, yes, we do include those numbers within the binge numbers, yes. So, yes, I can confirm that.

that comes up paying, that's what you're calling a paying subscriber.

Correct. Correct.

Thank you.

Thank you, Frazier. Nicole, we'll take our next question, please.

Our next question comes from Alan Gould from Loop Capital.

Thank you, and I want to second the thanks on bringing out the Dow Jones data. Robert, I noticed that New York Times dropped Apple News. I was wondering if you can help us frame of how how we should think about how big the opportunity could be of getting paid premium payments for premium content.

Yeah, it's a really good question. For us, it's been a beneficial experience in that if you look at the Wall Street Journal, it's really two papers in one, both a general news service and a business-specific news service. In that sense, there are a lot of potential readers and potential subscribers out there who don't understand the quality of the general news coverage, the politics, the economics, the arts, the lifestyle, the weekend section, the magazine. I'm sure you're a regular reader. You understand what I'm talking about. And so that... Apple News Partnership allows us to focus on that tier of content and bring in a significantly new audience that we would hope to graduate to a paid WSJ subscription over time. And it is a genuinely different audience. It's actually, of late, more women than men. For the Wall Street Journal itself, it's more men than women. It's a younger demographic, and it is obviously a source of potential subscribers for us.

Thank you, Alan. Go ahead, Alan.

Yeah, if I can just follow up. When we think of just broader than just Apple, we look at the whole – the whole digital universe and getting paid for your premium content? How should we frame that? How should we be thinking about what the potential is there?

Well, one way of framing it would be to think of it as the contemporary equivalent of carriage fees or retrans for broadcasters. because there's no doubt that these deals will add up. What's public is the deal we have with Facebook, the deal we have with Apple, and of course this is payment for content and much of that money drops to the bottom line. And it's also fair to say that negotiations are going on with other companies and other regions. I can't go into detail at the moment because we're in the midst of them. But when you combine these deals, they are having a significant impact on our revenue and on our profitability. And it's frankly true for all media companies. So if any executives of other media companies would like to send you a commission check, we'd be happy to receive it. That too may be a source of revenue.

Thank you, Alan. Nicole, we'll take our next question, please. Our next question comes from Brian Hahn from Morningstar.

Good morning. Just a quick question. The newspapers in the news media division, did they fall into lockdown this June quarter because of the virus, or were they lock-making even before then?

No, it was because of the COVID impact for the quarter. Clearly a very disruptive quarter for that segment.

And also, Brian, don't forget you've got the NAM numbers taken out, so it's not a like-for-like comparison. What I would say is that essentially the breaking out of Dow Jones is doing two things. It is providing more scrutiny generally for each of those segments, Dow Jones and news media, and scrutiny has to be a good thing because we are very confident that our news media executives – to digital which they are certainly on the pathway to doing and and the sorts of deals that we've been discussing today are of themselves helpful and then Dow Jones Dow Jones is a uniquely undervalued property in what I would argue is a uniquely undervalued news call I think maybe just to add just some further context so if you looked even at the year-on-year decline in

which we're talking about the sort of the 95 million movement, probably 75% of that comes from NAM and the closure of the regional communities or the suspension of the mastheads down there. So actually a really big bulk of that number does come from that. And then clearly you've got the impact of advertising and print circulation on that, which we will expect to pick up as we move through the coming year.

Thank you, Brian. And Nicole, we'll take our next question, please.

Okay, our final question will come from Andrew Levy from Macquarie.

Thanks for the question. If I could sneak in three. The first one, Robert, I'd just be interested in your thoughts on the Digital Platforms Review in Australia, and particularly on the structure of the News Media Bargaining Code, if that's a structure that News is supportive of and works for you guys in its current form. The second one is also you made a reference to licensing news media content globally. Is that a discussion around extracting dollars from the digital platforms or is there a broader sort of mandate or avenues that you think you can license from the in-use media content and any thoughts that would be helpful on that line? And the third one, Susan, just sorry to come back to it, but just on the COVID impacts of the quarter, if I wrote it down correctly, you're saying $330 million in revenues and $40 to $50 in EBITDA. And obviously a large chunk of the cost impacts of COVID are the sporting rights. So I was wondering if you could give us some colour on what else is in the cost offsets for the period and how we should think about outside of sports, which you've obviously discussed, what's sustainable or what sort of bounces back into the cost base in 21? Thanks.

Well, I'll talk about the Australian... regulations or the draft mandatory code of conduct, which is particularly important. It's important in two ways. One, for what it defines in terms of remedies and in particular for what it defines in terms as an industry. But it's also part of a global discussion, whether it be the consideration in Brussels, the hearings here last week in Congress, with the big four digital heads giving testimony, and in London. And so what you're seeing, and this is crucial, is an increase in content consciousness among regulators around the world. These are no longer mystifying issues. The issues have been clearly defined, and you saw that in Congress last week. And you see that in the ACCC report, the original digital report and now the draft mandatory code of conduct, which I think is quite a moment of itself, a real internet inflection point. And this... Essentially, we are talking about carriage fees or retrans payments for premium journalism. And there are obviously more deals to come. Now, some of those... deals will be outside Australia, but I suspect in some ways influenced by Australian regulatory thinking. I can assure you that not only regulators but media companies around the world and the digital platforms are watching Australia closely. Now, we've obviously been fighting this fight for well over a decade. And the New School Board supported the quest because it was absolutely crucial to the future of journalism. Newspapers delivered in whatever format are vital to a well-informed society. And what's obvious is that the collective understanding of the issues is past the point of no return, the point of no action, shall we say. There are obviously regulatory changes to come in Australia and the commercial landscape is not yet fully formed, but it will be a landscape far more hospitable to journalism and to news media and to news core. Now, as for your... a question about the licensing of content. Well, clearly, we're always looking for opportunities to monetize our content. But in a digital context, we have a unique comparative advantage with global properties, which often write about similar subjects. So not only in licensing in a traditional subscription sense, but think a little bit about the segmentation of digital products, products around sport, products around lifestyle, around food, around puzzles even. So it's a real opportunity for us to divide up our content in a different way, monetize that content and provide compelling digital opportunities for potential subscribers at different price points for different content sets.

I'll just jump in on the cost side. So if I have a look at the expenses for the quarter on an adjusted basis, they were down $273 million or 14%. So the bulk of that reduction between reported and adjusted was due to NAN and FX. The COVID impact we're predicting is about $270 odd, $280 odd million in order to get you to that EBITDA impact. We were expecting costs to increase slightly for the quarter because we did have increased revenue at Dow Jones and at HarperCollins and some of our businesses. And what I would say in relation to the COVID impact costs is clearly there's a lot that are related to volume, so particularly on our mastheads around the globe. And we would expect to see those scale, obviously, as those businesses scale back up. But we have also reduced headcount by 7% across the business, excluding NAM and Unruly, and that's savings that we would certainly expect to continue into the next year. We've made significant cuts on marketing. We clearly will have a look at what we think is an appropriate level for marketing going forward, and it may never be back to the level that we had pre-COVID. Likewise, with most companies, we've got a lot of tough cuts coming through on T&E and other discretionary spend. which again, when we think forward, we will review exactly what we think we need as a business in order to continue spending within that area. We've clearly got compensation cost reductions as well as a result of lower bonuses. And outside of the OPEX impacts, we've got the cuts that came through in CAPEX. I think I mentioned that we cut that by a third year on year. So clearly as we move forward into next year, it's difficult to predict exactly what that cost base is going to look like because it will depend on the revenue trends But we are confident that there's a significant amount of reoccurring costs that we'll go into next year from a cost reduction perspective. And we do actually believe that we can continue to take costs out, as we've mentioned.

Thank you, Andrew. Thank you, Nicole. Thank you, Nicole. Thank you all for participating.

We look forward to speaking with you soon. Have a great day. Take care.

And once again, ladies and gentlemen, that concludes today's conference. We appreciate your participation today.