Everybody for joining. Welcome to the Fox Fireside Chat at the Goldman Sachs Communacopia and Technology Conference. I have the privilege of introducing Lachlan Murdoch, who's the Executive Chairman and CEO at the Fox Corporation. In addition to serving as the CEO of Fox, Lachlan is also the chair of News Corp. My name is Mike Ng, and I cover Fox and media here at Goldman. We have about 35 minutes for today's presentation. So, first, I want to extend a big thank you to Lachlan for being here today.
Thank you, Mike, for having me, and thanks all of you for joining us, so.
Wonderful. So I guess to start out with a big picture question, Fox has a streamlined portfolio of the broadcast network, TV stations, sports and news, and it's turned out to be a great strategy, with Fox's stock outperforming most peers over the last several years. Would you just talk a little bit about the strategy behind the structure of Fox's businesses and your vision over the next few years?
Sure. I'd be very happy to. When you say we've outperformed most peers, if you go back to, like, 2019 , when new Fox came out, I think if you look at the traditional peers, I think we've outperformed all of them. And that's really by dint of you know, not losing our heads and investing you know, good money after bad in streaming businesses, right?
Yeah.
So, you know, we've really been able to stand outside of that and focus on live news and live sport. And then when you expand the peer group to include Netflix and others, I think there's one other, you're probably right, a couple have outperformed us, but overall, I think we've done incredibly well compared to our traditional media peers. So with the sale of our entertainment assets to Disney, that really allowed us to be incredibly focused. And we're not only focused just because we like live news and we like live sport, and that's where our audiences are, but clearly, that's made our brands much more valuable in the cable ecosystem.
So this year, and if I look at the past year, we did about $14 billion in revenue. Our EBITDA was just below $3 billion, and this is a tremendous result in an off year for us. We didn't have the Super Bowl last year. It wasn't a political year. So the growth that we were able to see was incredibly good to see, and I think, and I think you know, really shows off the value of our unique strategy as opposed to when it's in a year when you have a Super Bowl or something like that. So it was a very, very good year for us, and I think going forward, we'll continue to focus on live news and live sport.
Yeah. Suffice to say, all of the networks in Fox's portfolio is really a must-have network at this point.
Yeah, I think that's right, and we... It's funny, and we haven't had a chance to talk about this before, but you know, one of the, if I probably look at the extreme example, like, obviously, cable entertainment channels today are really struggling, right, and that's natural. I'm sure all of you and all your families are, you know, watching more and more entertainment streaming, and that's hurt, you know, first and foremost, it's hurt cable entertainment, right, and so we divest ourselves of our entertainment channels, our cable entertainment channels, but we also divest ourselves of our regional sports networks, when we sold those to Disney, and they on sold them.
You know, for the number of times after 2019, where very smart bankers came to us and said, "You have a great opportunity. You can buy back the regional sports networks at half of what you sold them for." And we stayed far away from that as possible because we knew that our core brands, you know, Fox Sports, Fox News, and don't forget the power of our broadcast network and our local TV channels, which really drives tremendous amount of retransmission revenue for us. We knew the power of those brands. We could drive a best-in-industry rate increases over the cable operators, and we didn't want to leverage that power on carrying along with us channels that people didn't want anymore, like entertainment channels or the regional sports networks.
Right. And one thing that's been particularly fascinating to me is that, you know, there is a history of bringing on along these other entertainment channels-
Mm-hmm.
and you don't have that anymore, right?
Mm-hmm.
And it obviously takes multiple years for all those carriage negotiations to reset. So there's-
Yeah
... still a lot of leverage there. Let's talk a little bit more about sports. You know, Fox has several sports media rights: the NFL, College Football and Basketball, NASCAR, MLB, MLS, FIFA World Cup. What is Fox's sports rights strategy? You know, what's Fox's appetite for adding more sports rights or even rationalizing some which the company-
Yeah
- has done in the past?
So we look at our sports rights, you know, very diligently and very, very carefully, and we see it as it is a portfolio, and you look at it through two different lenses. The first lens is for on broadcast television. We're big believers in the reach of broadcast. And so if you look at, you know, our NFL contract, for instance, you know, what will rate the best, which packages will rate the best? How do we drive the most amount of advertising revenue through those packages? But also, and this goes to the second lens, what's most valuable when we come up for our renewals with our distributors?
So, you know, the America's Game of the Week on Sunday afternoons is the number one rated sports broadcast in this country. That's important to have, and it's incredibly important for our distributors to be able to broadcast that, whether it's on DIRECTV or Comcast or others. So there's a filter of reach and advertising and value to our audiences, but then also, you know, what can distributors, you know, what do they need as well? And what are they gonna be willing to pay us, when those renewals come up? Our renewals come up about a third, roughly a third, every year. So-
Right. Okay. You know, it's hard to talk about the TV-
Oh, sorry, I should just-
Yeah, please.
I should say, because you mentioned rationalization. So when we look at that, you know, we had WWE-
Right
... right, that didn't work as well as we'd hoped, because we'd planned on broadcast, where we, you know, we moved on from the WWE. Thursday Night Football as well, we didn't need, after having the best marquee event on a Sunday, we didn't need the Thursday night as well, so we were willing to move on from that. And then you replace that with other sports. So this summer, it's not, you know, huge, but it's very successful. We had the Fox Summer of Soccer, where we had the Copa América and the UEFA, or Euros-
Yep
... Cup, and that worked incredibly well and was fit nicely before the Olympics. So we do, we're constantly adjusting and working, but we think we're pretty diligent and careful how we do it.
Yeah, and I'm of the view that things like rationalizing the rights cost for the WWE might actually end up being accretive for the company-
Right
... because it hadn't worked out as well as you thought.
No, that's right. Yeah.
You know, it's hard to talk about the TV ecosystem without talking about what's happening with pay TV subscriber trends, cord cutting. You know, do we reach a point in time where everybody who's cut the cord has done it, and the subscribers who are left are more durable, more sustainable, and we might see cord cutting decelerate? I guess, what's your, you know, view of what's happening with pay TV subscribers and, you know, should we see any change in cord cutting?
Sure. Look, I think there is a floor. There is a point where your core channels that people watch is most efficient and most affordable for people within a bouquet or a bundle through a cable or traditional, whether it's cable or a YouTube TV or Hulu Live. And so I think there is a floor. And the reason for that is that if you go back, you know, you don't have to think back many years, the traditional big cable bundle was fantastic for consumers. You got everything, right? And, you know, a few years ago, for not a tremendous price.
It was incredibly convenient, very good for consumers, and unfortunately, that's obviously changed now. So, you know, when we look at it as one of the reasons, again, why we're just focused on those core brands, because the brands that we have, whether it's the local TV stations and, you know, held together by the network, Fox Sports and Fox News, those are, you know, two of those are in the top five rated channels on cable. So they're must-haves for any sort of skinny or any sort of essential bundle.
Yeah. And maybe you can talk a little bit more about, you know, your outlook on skinny bundles. Obviously, a lot of attention paid to skinny bundles in the market right now. Lots of moving pieces-
Yeah
... to say the least, but, we'd just love your view on that.
So I think what's happened is people are, you know, you're moving more and more on the entertainment side, obviously, to streaming. And therefore, how will they get the rest of their sort of content? Because entertainment is incredibly important. Incredibly, there's a huge amount of time spent watching dramas and comedies and entertainment, but news and sport, right, is still predominantly within the bundle. And we, as a company, I think have been probably the most robust in our support of that bundle. We haven't taken, for instance, sports rights out of the traditional bundle and traditional distribution and into streaming.
The reason for that is that we don't need to support kind of an anemic entertainment streaming service, right? So if you look at how sports has moved into streaming, whether it's on Peacock last week or on ESPN+ or on Warner Bros., we haven't needed to support a streaming service by adding sport to it. So we're completely committed to the bundle, and we think that makes us the most valuable partner of our distribution partners.
Okay, and you know, I can appreciate there might not be much to say here.
Mm
... but I was just wondering if you could talk about how investors should think about Venu?
Mm-hmm.
Right.
There's a lot to say about Venu. So, we can talk about Venu all day.
Great. Great.
So, how do I start this? So, you know, Venu was designed and the... We were ready to launch Venu a few weeks ago until we were enjoined and not allowed to. It's a tremendous service. It's designed entirely to, you know, for the core cord cutters and cord nevers, right? It doesn't look like, and this is, I think, a misunderstanding of people who haven't seen it and haven't been able to actually use it and touch it. It doesn't look like a cable service, right? It doesn't look like a bundle of channels. And in fact, in the marketing of Venu, you wouldn't even use the channel brands to market it.
So you're not gonna say it's Fox Sports one or two and ESPN, and you much rather you'd say, "This is the, you know, your home of NFL or NBA or..." And the consumer actually inside the service can search or it's organized by sport and by what the consumer wants, not by trying to manage what channel is my game on tonight. So it's a very innovative a very good service, and look, we're excited to launch it. We've been granted a expedited hearing appeal on the injunction, so we're very excited to launch it.
But again, the important thing is we think it's pro-consumer, it's pro-sports fan, it's at an affordable cost, and it really cleans up a lot of what's sort of, I think what's become complicated or broken in the sports rights environment in the United States. There's an interesting aside. When we had Thursday Night Football, so this was like three years ago, right? When we had Thursday Night Football, only three years ago, you could get all of the national games, right, national football games, NFL we're talking about, national NFL games, and the in-market local games, right? So your San Francisco 49ers games, if you're in San Francisco. You could get all of that within the cable bundle, and I think that Hulu Live was $64, right?
So on Hulu Live, $64, you got everything you really cared about, all the big national games and your local team. Fast-forward to today, three years, right? You have to have a cable, your basic cable, or Hulu Live, and you have to have four streaming services: Peacock, ESPN+,
Amazon.
Netflix and Amazon, right? You have to have four of them. The price you're gonna pay for the same, the same games you paid $64 for three years ago, you have to pay $114, and you have to have effectively five different devices or five different subscriptions, and that's nuts. And so what we like to do with Venu, what we like to do as a company, and frankly, is try to solve problems for the consumer, and Venu is a way of solving that. It's by at least, to a large extent, solving that by having as many rights for the sports fan in one package.
Yeah. No, that, that makes a lot of sense, and it's really about delivering content and how consumers wanna consume it, not really thinking about networks-
Yep
... but thinking about sports.
Yep.
You know, I think we saw a little bit about that in the Olympics with Peacock. With... You know, I think-
Mm-hmm
... they did a great job-
Yep
... with Gold Zone. Is Venu the answer for Fox in terms of, like, how to deliver a more consumer-oriented experience around sports through-
I think, look, Fox, we wanna have our content in front of as many people-
Mm-hmm
... and in as many places as possible, and that goes for all of our channels. But primarily, look, we are committed to the cable bundle, and that is that's where we have the greatest reach. You know, I think this past weekend, our Cowboys-Cleveland game did 23.9 million average viewers, which was 70% higher than the Peacock game on Friday.
Yeah.
70%, and so that reach is incredibly important, both for advertisers, but also, and frankly, for the leagues. And so we're committed to the bundle. What Venu did for us, though, was put our content in front of people that aren't watching it now, right? That are not in the cable ecosystem. And it's important that we targeted them, 'cause if we lose a cable subscriber to Venu, we lose money in that transaction, right?
Right.
Because we lose the subscriber to Fox News, you know, if primarily. That's the local station retransmission is built within Venu
Right
... but we lose the Fox News subscriber. So we don't wanna have a like-for-like swap of cable to Venu. We want to target Venu very much just at, you know, the cord cutters, who've already cut the cord or never in the system to begin with.
Great, and maybe just to round out the discussion on sports, I was curious if you would talk to us about whether Fox was ever interested in the NBA. You know, did that ever make sense for the sports rights portfolio, or, you know, was it just not gonna be additive and-
Yeah, this time around, we... Who knows in the future? But we decided it wouldn't be additive, so we weren't in the negotiations at all.
Okay, great. Let's pivot over to Fox News.
Mm-hmm.
You know, Fox News has undergone some very meaningful personnel and programming changes over the last couple of years. The viewership at the network certainly saw a little bit of a normalization, but the viewership in the last couple of months has been fantastic, to say the least. You know, could you talk about the performance of Fox News, your outlook for the network? You know, how has ratings performance, advertiser demand kind of played out relative to your expectations when these programming and personnel changes were initially made?
Sure.
Yeah.
Fox News has had another incredibly successful year. I think it's like eight years in a row, we've been number one in cable news, you know, the cable news channel, like, period. So, that's done. You know, after every election cycle, we try to keep our programming and our hosts and you know consistent through election cycles, and you know, which are very high viewing times. After every election cycle, that's when we tend to make adjustments.
Yeah.
But the benefit we have at Fox News. We have a very deep... It's a huge business, and we have a very deep bench of talent that we're able to develop and grow and be ready for, you know, literally for prime time. But beneath that, though, and I think this year this is really important, you can't forget the value of news, right? 'Cause there's one thing saying your hosts-... and how you present it, but the value of news and news reporting. Now, Fox News this year has done a tremendous job reporting on the conflicts in the Middle East, and particularly in Israel and in Gaza, and also in the Ukraine.
The reporting from these war zones has been, you know, heroic and excellent. You know, I was lucky enough to visit Jerusalem. I think we were in Jerusalem in January this year, and late last year I went to Kyiv and visited some of our team, brought some of our team into Kyiv, and just to see that the work that these journalists do, you know, on the ground, bring those stories and that footage back into our living rooms.
So, when we talk about the host and adjustment and programming, there's a ton of hard work that goes along with that, but then there's the day-to-day news, news gathering and news broadcasting, which is hard, but you know, it's important as well, and it pays, you know, great dividends to the business. So what that means, though, is you know, we've had a tremendous year. I think in August, it was a sort of soft month. We were up, I think in the demo, 22%, overall, 22%, in the demo, 32%, and 25-54 demo, which is the most important demo we sell our advertising by. You know, what you don't know, right?
People, I keep telling people, but you know, people is that we are the number one in the demo, right? Again, the important demo is 25-54 . We're the number one channel for Democrats, and we're the number one channel for independents. Also in the demo, we're the number one channel for Hispanics. And so the breadth of that brand and the engagement that we drive through Fox News is tremendous and growing very well. From an advertising point of view, the only dark cloud last year was the softness in direct response.
Right.
That was really because of a competitor who had sort of had a lot of supply- direct response supply in the market, and so direct response pricing was down. And news, direct response is a much bigger percentage of advertising revenue than in other categories of television. And direct response is now back up to it's about 20% in pricing increases. So the dark... If there were any dark clouds, direct response was, what was it? Was one in the news industry, and that's now lifted, which is very positive.
Great. That's great to hear. Let's talk a little bit about political ad spending on the local TV stations.
Mm-hmm.
You know, we're hearing a lot about political advertising strength, not only for the presidential-
Mm-hmm
... election, but certainly down ballot. Are you expecting to see record political advertising spend this year? I think you guys have said record, excluding the Georgia runoffs.
Yeah.
But, you know, maybe you can talk about how Fox's TV stations, the O&Os-
Yep
... are positioned to-
Yep
... to benefit from this.
We are expecting, excluding the Georgia runoffs.
Right
... which is a huge amount of revenue. We have a television station in Atlanta, and so excluding the Georgia runoff, we are expecting a record political revenues this year, and for a presidential cycle. Four years ago, we did overall, in all of our channels, national, local, we did about, including Georgia, about $350 million in political advertising. The local TV stations were $230 million of that, and so we think we'll certainly exceed that for the TV stations. Then we're seeing more and more political advertising on a national level as well.
Wow. And a lot of that national is probably accruing to Fox News, I guess.
Fox News, Tubi-
Yep
... Tubi gets political advertising now. If Fox News... There's some in sports. It's the political advertising has become. It's still primarily local, right? Absolutely. But certainly, they're spending more nationally as well. And but you have to look at our local footprint, right? So like, you know, Phoenix and Arizona. And these are also, don't forget, it's presidential money, but it's the local issue money. It's Senate. It's so there's a lot of tight Senate races, so it's you know Arizona, Michigan, Wisconsin, Atlanta, Georgia, Pennsylvania, and our DC station gets a lot of Maryland money because the signal overlaps with Maryland. So you know, we're well positioned.
We're in very close, all close races around the country, and we think that bodes well to, I suggest we'll break certainly the local record, so.
Right. And that's a great point around Tubi. I mean, you know, I think we all understand politics tends to be highly local, and, you know, Tubi does not only have the benefit of very targeted on a geography basis, but from a demo basis, I'm assuming you can get more sophisticated customer profile or
Yeah
... viewer profiles, right? Yeah.
Now, it's a, you know, fully digital business, so you're very data-driven. You can be very specific on who you're targeting. But I think importantly with Tubi is the reach it gives you. These people are. It's very highly skilled cord cutters or cord nevers, right?
Right.
It's obviously much younger. It's people who are not watching traditional television. So that the added reach, if we look at how we sell political or how they, when they come to us, obviously the local TV stations is critically important. But if they can add that reach in those local markets with Tubi, it works tremendously well.
Great.
That's true, by the way, not just for political, but for all advertising. The reach that Tubi gives you is-
Right
... is huge.
It was encouraging to hear that the DR market has certainly gotten better relative to a year ago. How would you just characterize the overall advertising market, you know, linear, national?
Yep.
Yeah.
... It's much stronger than we expected, right?
Okay.
Going into this year, I think it was like a couple of quarters ago, I said the market was nuanced 'cause there was positive areas and less positive areas. It's now. For us, it's pretty strong across the board, and so if I look at our four key verticals, if I start with sports, sports is incredibly strong, and we have the Super Bowl this year, right?
Right.
So that, I think that, that obviously helps. If you have the Super Bowl and you're selling the Super Bowl, we're practically sold out. We have a few units left. It's incredible. It gives you a lot of strength in your sports revenue. But not just the NFL, you know, also Major League Baseball is strong, so we feel very, very strong in sports. News, we've talked about, the ratings helped tremendously. The direct response increase in rates by 20%, and yield by 20% helped. So news is also very strong.
In news, you do have, when you have these high news cycles, you have you take some spots out and for live news, right? And
Preemption.
Yeah, and so we've... But that's, that's minor compared with the, the strength of the revenue coming in and the strength of the ratings. The TV stations we've talked about are going to do very well, very well with political and are doing very well. And Tubi has gone from strength to strength. In fact, in this quarter we're in, I think, I think July was up in the mid-teens, revenue, and August was up in the high teens. So, revenue growth is re-accelerating at Tubi, which is, you know, very pleasing to see. The categories - so those are the four key categories. The category I left out was the TV network, right?
So entertainment, if you look purely at the entertainment side of the TV network, that money as an industry is moving to places like Tubi.
Yeah.
TV entertainment, broadcast entertainment, is an area that's softer, but those other four categories are incredibly strong.
Great. Let's talk a little bit more about Tubi. Could you just talk about the state of the, I'll call it the connected TV advertising market? Obviously, there's been some concern around increased supply coming from.
Mm-hmm, mm-hmm
... Amazon Prime and things like that. Is that much of a concern as it relates to Tubi pricing, or, you know, has Tubi been able to navigate through those, that competitive supply well?
Sure. So, so what happened, what Mike sort of alluding to or talking about is that, last year, when Amazon came in to the market and, and, and went with the advertising supported programming, they, there was a huge amount of inventory came into the market. And what they did was that depressed. There was an oversupply of inventory, and so everyone in the ad-supported streaming business felt downward pressure in pricing. The good news or the bad news, depending on how you look at it, is that Tubi's pricing is already incredibly efficient, right? It was already sort of low compared to the Disneys, the Netflixes, you know, who had priced themselves very high.
And so we were insulated from this effect. We certainly had a slowdown in growth, right? You could see, because while the market absorbed this oversupply, but from a yield and from what we're charging from a CPM point of view, it didn't affect us like it affected everyone else. Now, the market seems to have absorbed that, and that's as we're seeing now why we believe we're back at sort of a, you know, very kind of solid growth in revenue back at Tubi. I think the important thing with Tubi to realize is, the breadth of the business. Now, I think marketers have now come to understand this.
We had a very successful upfront for Tubi because marketers now see it in the same category as they see, you know, the Disneys. You know, we're actually rating as well as Disney. We had on the Nielsen Gauge, we had 2.1% of the television-
It's incredible to see.
- market. It's incredible. That's because we have 260 hours of content, TV and movies on Tubi. But importantly, 90% of it is not FAST channels. So people think of Pluto, which was the CBS streaming, free streaming service. That was FAST channels, right? That's what people... Tubi has FAST channels, but 90% of our viewing is on demand. So it, it's video on demand.
Wow.
It's a highly engaged audience, where the viewer is choosing to watch that content, and it's sitting in front of their television and watching that content. It's not something that's on in the background. And so what we've been successfully able to do this year is shift the impressions of Tubi as being a FAST channel or something that's free and out there, sort of that's in a crowded FASF channel market. But actually, no, it's a premium service that really sits alongside Netflix and Disney and Amazon.
Great. And, you know, we started this conversation talking about, you know, Fox's, you know, portfolio of must-have channels, and maybe you can talk about, you know, what that means when you go into carriage negotiations, right? Affiliate fees for Fox increased 4% year- over- year. Last fiscal year, 9% growth in TV, flat in cable. You know, is there a capacity for fee rate growth to potentially outpace cord-cutting at some point?
... Yes, but with cord cutting and declining around 8% a year, it's hard. You're like a gerbil running on one of those spinning wheels. And so but we're running very fast. We're very fast gerbils. And so you have to so to make up that 8%, is hard. And what you're gonna see, though, is that we'll. There's cyclicality in it, right? So you know we believe with the value of our channels, the value of our content, we are not taking content outside of the bundle. We're leaving it in the bundle that we'll be able to achieve over the long term, sort of make up for the sub declines at this level.
But it might be cyclical depending on the quarter, right? So depending on which renewals come in, you know, how they when they take effect. So, but, you know, we're, you know, very confident that we know we have the premium brands, and we're able to drive premium pricing at sort of industry-leading sort of level.
Yeah. I wanted to ask about sports betting. You know, Fox has a 18.6% option to acquire-
Mm-hmm.
Sorry, an option to acquire 18.6% of FanDuel, and obviously, there's been a history with Fox Bet and-
Yep
... things like that, and you know, it feels like a feature that could be really additive to-
Yep
... a video product. Could you just talk about how you're evaluating and assessing the opportunity in sports betting?
Yep. We're still a tremendous believers in sports betting. We think it's growing into a great business. It also drives engagement with sports, right? Engagement with whether it's football or Major League Baseball or any of the sports that we proudly broadcast. We like it both from a television point of view and also as obviously as an opportunity to further engage with our viewers. I think Goldman Sachs has valued FanDuel as a sort of standalone business at $35 billion, which imputes a value of our option at about $2.2 billion. But this is an option that expires in 2030.
So we have six years to exercise that option, but we will exercise it. We're not gonna leave $2 billion on the table. We think that, by the way, that option grows with value-
Right
... over the next six years. And so, we've begun the process with state regulators around licensing. To fully monetize the option, we need to be licensed as a gaming operator, even with only 18.6%. And so we've started that process with state regulators to begin the gaming licensing approvals.
In the last minute we have, I was wondering if you could just talk about key priorities, strategic goals. You know, what does Fox look like in three to four years from now?
Yep, so we like our strategy. We like being very focused, so we'll continue to do that. We'll continue to engage with our audiences, be it in news and sports around live content. You won't see us pivoting to entertainment, for example, but we do have, you know, the best, if not one of the best, I'd say the best, balance sheet in the business, so while we'll invest organically in things like Tubi, the Tubi investment's coming down every year. It's a modest investment compared to what others have spent in streaming, but we'll continue to invest organically in businesses like that, which we think have tremendous future.
But we'll also use our balance sheet increasingly, I think, for M&A as we go forward. I should also say that, you know, this year, one of the tools that we like to utilize out of the balance sheet is share buybacks. It's a great way to return capital to our investors. We bought back about $1 billion worth of shares this past year, and we'd expect to do the same this coming year, to be at the same pace. So, yeah, so, it's continue to drive Tubi, continue to be in live news, live sport. This year, we have the Super Bowl, which will be tremendous. This year, we obviously have the presidential elections-
Exactly.
-which will be great for the station. So it should be a great year.
Excellent. That's an excellent way to cap it off.
Great.
Lachlan, thank you so much for being here.
Mike, thank you.
It's been a privilege.
Thanks, everyone. Thank you.