News Corporation

Welcome to News Corp's third quarter fiscal 2023 earnings conference call. Today's conference is being recorded. Media will be allowed on a listen-only basis. At this time, I would like to turn the conference over to Michael Florin, Senior Vice President and Head of Investor Relations. Please go ahead.

Thank you very much, Operator. Hello, everyone, and welcome to News Corp's fiscal third quarter 2023 earnings call. We issued our earnings press release about 30 minutes 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 the earnings release for the applicable periods posted on our website. With that, I'll pass it over to Robert Thompson for some opening comments.

Thank you, Mike. Before discussing our results for the third quarter of fiscal year 2023, it is particularly important to begin by noting that today marks the 44th day in captivity for Wall Street Journal reporter Evan Gershkovich, who was wrongfully, willfully detained in Russia. I would like to express our thanks in that of Elmar Latour, Emma Tucker and all at Dow Jones for the unstinting support shown for Evan and his family by the US and many other governments, media companies, journalism organisations and concerned, principled people around the world. We trust that justice and common sense will prevail and that Evan will soon be released. Turning now to the third quarter results. We began to see meaningful improvements compared to the prior quarter, with certain macro and sectoral trends more positive, and our cost-cutting program beginning to gain traction. For context, these earnings follow record revenues and profitability in fiscal 2022, and we have been confronting the challenges of foreign exchange volatility, a surge in interest rates, persistent inflation and ongoing supply chain disruptions. Our results demonstrate the fundamental differences in the character of News Corp compared with other media companies. In a period in which advertising activity was clearly insipid in certain parts of the world, our core non-advertising revenue was particularly robust, highlighted by a 38% increase in revenues at the Dow Jones Professional Information business. For the quarter, total revenues were over $2.4 billion, down only 2% year over year, as compared to the 7% decline in Q2. Adjusted revenues, excluding our acquisitions and distinctly unfavourable forex movements, equalled those of last year. Meanwhile, profitability was $320 million, down 11% despite a tough prior year comparison and the just articulated external pressures. As for the company-wide cost reduction drive, we are well advanced in taking the difficult but necessary step of reducing headcount by 5%, which is now expected to yield more than $160 million in annualised savings by the end of this calendar year. In addition, we are strictly scrutinising spending across all categories and expect further savings as we strive for efficiency and efficacy. There has been much discussion, some of it enlightened, some not so, about the potential impact of generative AI, and there is no doubt that it will profoundly affect the media business. Candidly, generative AI may pose a challenge to our intellectual property and to the future of journalism. As those who have experimented with ChatGPT will be aware, the answers are only as insightful and factual as the source material and are more retrospective than contemporary. Given those precepts, we see three areas in which our content will be used by generative AI creators whose products will be enhanced by our IP for which we should be compensated. Firstly, our content will inevitably be used, as has already been exploited, to train AI engines. Secondly, Specific examples of our content will be surfaced in response to users' AI queries. And thirdly, and crucially, our content will certainly be aggregated and synthesized, and those answers monetized by other parties. We expect our fair share of that monetization. Generative AI cannot be degenerative AI. The digital debate over content and journalism has evolved significantly in the past few years, and we appreciate the social and commercial commitment of our partners at Google, Apple, Microsoft and Meta. The A in AI cannot be ambiguity, nor can the I represent ignorance. Integrity would be more apt. Which brings us to Dow Jones, among the world's foremost and most trusted purveyors of business news, data, and analysis. The third quarter reflected its robust revenue generation, even in testing economic times. And as I mentioned, was highlighted by the burgeoning of our professional information business, which reported a 38% surge in revenues, including a 16% rise at our risk and compliance business. And that number was negatively affected by Forex fluctuations. Dow Jones has certainly benefited from the acquisitions of Opus and CMA, which continued their high-margin growth in recent months. We will be expanding their product offerings over the next year, with particular emphasis on renewables and carbon metrics, and we are confident of many years of strong growth ahead. Digital revenues accounted for 79% of all revenues at Dow Jones, a significant increase from the 60% level during fiscal 2018. Aside from the professional information business, digital subscriptions continued to grow, up 9% to 3.3 million at the Wall Street Journal and up 10% to 4.3 million at Dow Jones as a whole, with total subscriptions now at 5.1 million, despite print subscriptions obviously being under some pressure. The strong performance overall came despite an insipid ad market in the US, with continued weakness in tech advertising, though we did see an improvement in demand in April, so the auguries have improved. Dare I say, the failure of Silicon Valley Bank has been a catalyst for other US financial institutions to try to reassure customers and highlight their own solidity, and the Wall Street Journal, Barron's, and Market Watch are vital platforms for any financial firm aspiring to bolster its credentials. In Australia, Foxtel Group continues to build on its streaming success. Streaming now accounts for two-thirds of the total Foxtel subscription base, and that revenue growth is more than offsetting the decline in broadcast. Fears that our world-class streaming products would be a catalyst for cannibalisation have been unfounded. Broadcast churn is at near record low levels, with Foxtel retail churn in March under 10%. That success is also a tribute to our marketing and customer service teams at Foxtel and to the leadership of Patrick Delaney and Siobhan McKenna. As at the end of March, Binge, our entertainment streaming product, launched advertising on its basic service, adding a new lucrative revenue stream. Interest from advertisers has been ardent as the initial phase of packages were sold out. We have demand and seemingly some flexibility on pricing in the months and years ahead. After a couple of tough quarters, fortunes have certainly improved at HarperCollins, with a bevy of bestsellers and some moderation of supply chain snafus. Margins were higher in the third quarter compared to the first half. We also have an attractive roster of books in this and upcoming quarters, so we believe we are on a journey to the sunlit uplands. Amazon's orders improved in a quarter and our titles prospered. In particular, Ron DeSantis' The Courage to be Free, Barbara Kingsolver's Demon Copperhead, as well as Colin Hoover and Taryn Fisher's Never Never and Ben Hall's Saved. In the fourth quarter, Kat Timpf is already topping bestseller lists with You Can't Joke About That. If I could make a self-interested recommendation, it is worth a read or a listen. Last week, we also published the latest incarnation of the Magnolia Table cookbook. We are justifiably optimistic about the prospects for the Bridgerton prequel, Queen Charlotte, by Julia Quinn and Shonda Rhimes, which went on sale this week, coinciding with the launch of the new Netflix series. The news media segment reported a substantial improvement over the second quarter, with advertising in constant currency increasing 2%, though down 5% in US dollars. This increase was a vastly different outcome to that of most media companies in most countries. We are confident that our teams are more skilled in sharing advertising insights across borders and platforms, and that innate intelligence is reflected in our revenue numbers. One success story is the sun.com, where total page views in the quarter surged 94% year over year, reaching close to a billion views. The site, which has benefited from the partnership with the New York Post and our other US properties, has triumphed in tough times. And notably, the sun's US digital advertising revenues now exceed those of the British platform. In the UK, connected listing hours at wireless hit an all-time high, reaching an average of 8.4 million per week in the quarter, a 10% increase from the prior year, and reflective of our superb coverage of the Premier League, which reaches its seasonal crescendo in coming days, hopefully with an against-the-odds triumph by Arsenal. And as for the New York Post, the previously perennial lossmaker continued to be profitable in the third quarter and to build on its important influence on the national debate. Engagement at the Post's digital properties rose 4% over the prior year to 690 million page views in March, providing a powerful platform for its compelling content. At Digital Real Estate Services, obviously enough, the interest rate surge and accompanying uncertainty in the housing market have had an impact in the US and Australia, but these are not permanent conditions and the digitisation of the property market is far from complete. There were signs of improvement in the market this quarter, but we understand that the increase in rates has had an impact on affordability and created uncertainty for potential house sellers and buyers. When that uncertainty evaporates, we will be primed to take full advantage of the opportunity. In the midst of the challenges, Realtor is focusing on adjacencies, particularly on the sell side and rental segments. And we are continuing to see benefits from the use of our media platforms, among others the WSJ.com, New York Post and the US edition of The Sun to drive brand recognition and generate traffic. The results of that campaign were seen in the past quarter and we expect they will continue to be seen in coming quarters. Since the campaign began in February, the project has generated more than half a billion impressions and shown the unique power we have to bolster brands and turbocharge traffic. Realtor.com also further integrated Upnest into its seller experiences in Q3 and is seeing significantly higher conversion rates. At REA, revenues were softer in Q3 compared to the prior year due to the lower listing volume, though we are seeing encouraging signs with realestate.com.au reaching almost 132 million visits in March, the highest total in 16 months and the fifth highest on record. With indications that prices and demand are again strengthening in Australia, we believe we are poised to prosper. And that is also true in India, where Housing.com is the leading digital property platform and saw 21% year-over-year growth in average site visits in the quarter. It is worth noting this metric, as India has just passed China as the most populous country and continues to have relative political stability and enormous economic potential. As I said at the outset, there has been much tangible progress in the third quarter and the auguries are certainly positive for coming quarters. We will absolutely focus on our core engines of growth and prioritise simplification, cost reductions and thoughtful capital stewardship. We remain committed to constantly reviewing our structure and to creating enduring value for our shareholders. And now, to provide more insight into third quarter developments, I turn to Susan Panuccio.