Good morning, everybody. Welcome to the next session at Morgan Stanley's TMT conference. Apologies for taking a few minutes to get underway, to get mic'd up, and get ready for business, but we're now, we're now well and truly ready for business. So my name's Andrew McLeod. I'm from Morgan Stanley's research team in Sydney, Australia, where I head up TMT research there.
I've been fortunate enough to be covering News Corp, or News Corp family of companies for approximately 20 years now, so it's my great pleasure this morning to be hosting the CEO of News Corp, Robert Thomson, up here on stage. Because News Corp is a unique company, sprawling several geographies and industry groups, I'm also really fortunate to have Sean Daly, my colleague, from specialist sales TMT at Morgan Stanley in New York, in New York as well.
T he pair of us will be asking Robert some interesting questions this morning. So, and the reason I've got my glasses on here as well is just to make the important disclosure announcement. Everybody, have a look at the morganstanley.com research disclosures site or reach out to your Morgan Stanley representative if you've got any additional questions. So let's get underway.
Robert, welcome. Thank you for joining us. I think every time I have the opportunity to speak with you, I like to start off with a big picture question and to get your thoughts on the priorities for the year ahead. And I was looking this morning, in doing preparation for today's chat and thinking, "You've achieved a lot in the last 12 months." As an outsider looking in, earnings momentum's turned around. The share price has done quite well.
You continue to look for ways to sort of simplify or find efficiencies across the portfolio of businesses. At the start of 2024, where are you most focused? What are your priorities at the start of this year, Robert?
Well, thank you, Andrew. Sean, all. The reason I'm here is because I checked on Friday the share price, and it was up 62 60.2% from exactly a year ago. I've come here fully expecting you guys to work your magic again over the next 12 months, one way or the other.
When you look at the underlying performance, and a lot of credit needs to go to all of our teams and frankly also to Lachlan and Rupert and the News Corp board for having over many years made the necessary structural changes and fashioning a strategy which, in volatile times in some of our markets and certainly in some of our segments, we have been quarter after quarter in the last 3 years recording record profits. The last quarter was another example of that.
In part, that's because we have what you might call a triptych strategy where there are three core areas that we identified many years ago, as you well know, Andrew, which is digital real estate, book publishing, and Dow Jones, particularly the professional information business of Dow Jones. In the most recent quarter, EBITDA of those three together rose 24%.
T hat's... you look ahead and the sort of trajectory that was in place last quarter and, you know, without giving any guidance, there's continuing momentum. You can see in digital real estate, in Australia and our team from REA here, look at the listings, right? They're public. They give you every indication that you need to know that that business prospered last quarter, and thus far, this quarter is prospering again.
In book publishing, we obviously had difficulty. Well, we had what you might call long COVID in book publishing because there were a lot of logistical changes. Amazon changed some of its warehousing policies. I do think there were a large number of people, probably including me, who bought books during the pandemic that they didn't necessarily finish.
Y ou have that stack of unread books by your bedside, which is a little tower of guilt. So the tower of guilt has come down. So the actual purchasing of books has increased again. And then there's a fundamental change in the book market, over the past six months, which has certainly been efficacious. And that's that Spotify has come into audiobooks. Frankly, Daniel Ek and I had been talking about this over quite a few years.
Daniel is passionate about books and passionate about competition. We're very proud to partner with him. The impact has been immediate. We've seen significant increase in a relative percentage of digital books versus e-books in overall, audiobooks versus e-books in overall digital sales to the point where in December, for the first time, audiobook sales exceeded e-book sales.
T hat's another trend that's continuing. I noticed today that Spotify made an announcement about a book offering for its free subscribers simply because they are seeing a massive amount of interest in audiobook streaming. Then at Dow Jones, there's no doubt that the professional information business is on a very positive track.
You look at the two companies that we acquired are now collectively called Dow Jones Energy, which is OPIS and CMA. The recording 15%-16% growth, you know, quarter after quarter, year-on-year. The Risk and Compliance business, quarter after quarter, year after year, mid-teens or more growth. And there's no reason we can see why those trends shouldn't continue.
Y ou add those three sectors together, and of course, you that growth is despite the complexity in digital real estate here in the U.S. where you have mortgage rates hovering around 7%. And inevitably, that has brought down the amount of transactions. But our experience in Australia tells us that when the market turns, it turns in a very prosperous manner for us.
W hat Damian Eales, the new CEO at Realtor, is doing is preparing the company, doing the improving the backend technology, frankly, improving the culture, at Realtor so that when you do have that moment of change, that Realtor is in a prime position to benefit from it. And there'll be, there are other changes at Realtor that you'll see in coming days that show that the company is really being reconfigured in a manner that, when we look at digital real estate longer term, we're going to see great growth at REA, and we're going to see growth at Realtor.
That's a great introduction. I know we've got Sean and I have got a couple of extra questions to dig into each of those three divisions, the digital real estate, books, and Dow Jones. Before we get into those, though, one thing I always find useful is because you do have a business that spans a couple of different continents, it's always really useful, I think, to get your latest thoughts, Robert, on what you're seeing in terms of economies in the U.S., Australia, U.K., and the advertising market in those economies as well. What's your perspective on those at the moment?
Yeah. I just got on advertising before I go macro. One thing that and it really relates to your previous question, that people don't recognize about News Corp because they have a preconception about the composition of the company is that advertising at news media is now only 9% of our total revenue in the most recent quarter. 9%. So single-digit, digital advertising is half of that, and obviously on the increase, print advertising's somewhat declining.
N ow, advertising obviously responds to economic conditions, as you imply in the question. What about the U.K., they're technically in recession, a very shallow recession. We'll see on Wednesday with the U.K. budget statement whether there will be significant tax cuts and whether that has a stimulative effect. Certainly, that's the intent of Prime Minister Sunak.
T hat economy, well, contracting a little bit, isn't in deep recession by any means. In Australia, Treasurer Chalmers has been indicating that the GDP numbers, to be released, I think, on Wednesday, are likely to be relatively soft. So you're looking at perhaps 1.4% annual GDP growth in Australia. So you and there a bit like here, you're seeing different circumstances in different segments. And so some print advertising for us has come off in certain sectors.
A lso, advertising responds to shallow downturn or softness in different ways, in different places. So for example, it's an opportunity for some businesses to build themselves up. And so to a certain extent, we're seeing that pattern in Australia. But overall, you know, growth in Australia is fairly stable, relatively modest, shall we say.
H ere, we have growth that's unexpectedly robust. And that has created an interesting contradiction because the expectation for interest rate reductions, you know, has been stretched further along. We are, I think we all felt that the decline in inflation would lead to earlier rather than later cuts. And I know it's not for us to decide, but the impact of that, however, is, on the one hand, great that there's growth. On the other hand, there are clearly pockets of pressure in the U.S. economy, you know, commercial real estate. And while interest rates remain high, that pressure will be intense.
A s I mentioned, with digital real estate here, you know, if you're on a mortgage at 2.8%, 30-year fixed, and you're trying to buy a new house, and your mortgage's going to be 7%, you're not only buying a house. You're also buying a mortgage. And you're buying that, punishing increment. And so until you get mortgage rates down to around you know, I'm making a who knows exactly.
Is there a precise formula? But when you start to see a decline, which we did actually in December in last quarter, and we started to see an increase in listings. But since then, mortgage rates have popped up a little bit. When you start to see a consistent decline, when there is certainty, you'll see a lot of activity in the US market simply because we've now had close to 18 months of repressed activity.
As I said in Australia, once you see the change, that activity is emancipated in a way that's very good for the business and, frankly, would be good for the U.S. economy.
Great. So I wanted to ask about Dow Jones a little bit. You obviously integrated two very successful deals, OPIS and Base. Maybe talk about you know, obviously, most people know Wall Street Journal and Barron's. Maybe you could talk a bit more about risk and compliance and professional information and how the integrations have gone so far.
Yeah. Well, it's, I guess every company wants to maximize compliance and minimize risk. And there's no board anywhere in the world, particularly where you have a lot of regulatory intervention. And you're certainly seeing that in the U.S. at the moment. So what you might call the core demand for the products is strong. And with CMA and OPIS, the Almar and the teams have done a very good job of integrating the acquisitions. It's actually happened a little more rapidly than we'd envisaged. The culture has changed in a very positive way. And you are seeing it in the results because a lot of companies make acquisitions, and the outcome is disappointing. This is actually far from disappointing.
To be honest, when we were contemplating those acquisitions, I'd always there were a couple of areas that I've always been fascinated by because they're linked into the, the core journalism of The Wall Street Journal. And you want there's a hierarchy of content, and you, you want something that fits on the base of, of reporting and, and both Risk and Compliance.
If there's a new watch list in Risk and Compliance, then, then clearly, you upsell premium products. You know, if you look at that core structure, you have, you know, MarketWatch, which is, you know, mostly free, somewhat free, somewhat subscription. Then you have the Journal. You have Investor's Business Daily. You, you have Barron's. And then you have the PIB products.
Unless there's a content continuity, then you're not taking full advantage of that structure because in the end, that is a funnel for custom. So I won't tell you the other areas that I'm fascinated about because that would be too indicative of intent. But what we were very conscious of when those two opportunities arose and we were fortunate because they were required regulatory disposal. So we got them at a reasonable price. It's very easy to overpay in the PIB business for assets.
We were, one, we were not going to overpay. And two, I was absolutely focused on the complementarity of the content sets, and the ability of the teams to work together. And they all deserve a lot of credit for the journey thus far. I must emphasize, we're far from complacent.
T he opportunities in both of those areas are becoming more obvious to us today. OPIS, traditional energy company, the effort that's now going in and you'll see it over time in creating new renewable-related products, new indices that again, those indices benefit from the Dow Jones and Wall Street Journal names. They benefit from the association and the affiliation and the ability to project brand and, in the end, the ability to project a quality of product for a premium product for which people pay a premium.
Great. And two hot topics that are relevant to the news business are the election and artificial intelligence. You obviously are passionate about AI. You spent a lot of time on the call. Maybe talk to us how you think News Corp's positioned relative to AI and then maybe just hit on, you know, election. You know, how has that impacted the business historically? Do you think that will drive engagement to Wall Street Journal and other things? Or have we kind of moved past kind of the ups and downs around this?
Yeah. I'm not going to make a prediction about the election, other than there are two interesting candidates. Apparently, the importance of AI is fun. I mean, obviously, AI itself has been around for decades. And the discussion now is more focused on Gen AI. And we've been in an era where creators have been less rewarded than behemoth distributors. And so you see Google, Facebook, obviously enough. And the danger to media is that Gen AI is another form of distribution, and it on amphetamines. And so if you're not very conscious of the risk, then the risk may outweigh the opportunity. As you know, for really the last 17 years or so, we've been leading the global debate on digital compensation.
I n fact, we have a very good relationship with Google, which continues in multifaceted. There's some argy-bargy with Facebook in Australia at the moment. We'll see what that digital denouement is. But I think we're early in that particular conflict is the right way to describe it. But we're also well advanced in our discussions with Gen AI companies, without being too specific.
I have to say that leaders like Sam Altman clearly understand the value of content integrity. They clearly see the social purpose of journalism. And when you start with a partner that has that orientation, the discussions are inevitably productive. So he deserves a lot of credit, really, for his philosophical approach to what is, in the end, a commercial discussion. But I can't really say any more than that at this moment.
T here are four or five discussions going on. We'll see how they evolve over time. But these are discussions taking place at a time when reaching relatively swift agreements is imperative. And for us, getting genuine recognition of the value of our content, it's important for us as a company, and will have a beneficial effect on our results. But I think it's important, as a community, that we focus on facts, provide information.
There's the swirl, the maelstrom of muck out there that is disfiguring communities. It's having a profoundly negative impact on a lot of young people. And unless you have, you know, what is the most contemporary form of factual information? Well, it's journalism. It captures the first frame of history.
To be honest, that's why the Facebook decision in Australia is so disappointing. It's a company that talks about community. When you look at not just us, and I'm, we have a certain amount of self-interest, but it's more about the Australian community. When you look at the damage that's been done to communities, it's disappointing. When you look at the Facebook suggesting, for example, that, you know, 3% of usage relates to news, well, that's obviously a preposterous figure. I mean, how much discussion is there around news? You have the core news. And then I can tell you, 100% of the contemporary factual information on Facebook is news.
Mm-hmm.
Those are the numbers that really Facebook should be focused on, as well as being focused on its responsibility to all Australians.
I guess what are the next steps in terms of that Meta-Facebook decision?
Well, clearly, the government has a view, which it's perfectly entitled to. Clearly, we have a view, which we're perfectly entitled to. We'll see what happens over the next couple of weeks. But I suspect that we haven't seen the final frame of that movie.
Got it. And I wanted to ask about where you think the market is missing in terms of the Dow Jones valuation. You've talked about, you know, ways to highlight and underscore the value at Dow Jones. How, how do you think about that?
Well, I would look both at the Dow Jones margin and the overall margin at News Corp. So the Dow Jones margin, it last quarter was 27.9%. It was up from 24.7%. And that tells you that the character of the company is changing and the importance, actually, to News Corp overall as a source of ongoing, growing, sustainable EBITDA. And what people forget about those professional information products is it's premium products, premium prices.
They have to be; these are very discerning customers. So the onus is on us to produce content that is meaningful to these companies. But we have, in each of those businesses, whether it be OPIS, CMA, or Risk and Compliance, renewal rates well north of 90%. And it's 100% digital.
So it's, I think, that part of the personality both of Dow Jones and News Corp is underappreciated.
Great. I wanted to turn to book publishing and HarperCollins. It appears we're well underway in an earnings turnaround. You'd referenced audiobooks, a source of strength with the Spotify deal. Maybe you could elaborate on that a bit. How much of the kind of sharp, you know, fall and then come back was cyclical? How much of that was, you know, COVID or one-off? And then how should we think about the contribution of digital going forward and the Spotify deals, you know, specifically?
Yeah. I look at impossible for me to be a soothsayer, but all one can say from the trends that we see at the moment that the well, audio is on the rise. There's competition in the market, really, for the first time. And because of competition, there's growing awareness of the existence of audio. And if you think of how actually, overall, Spotify has changed streaming habits globally, not audio streaming habits, and combined with, you know, contemporary mobile phones, the more and more people are realizing that there are more content sets they hadn't really thought to access that you can access through both the confluence of streaming and phones. And I think we're in a new phase of discovery with audiobooks.
And it's audiobooks themselves, where the Brian Murray and the HarperCollins team are doing wonderful work in reimagining who should be delivering the book, right? And is it more interesting to listen to a made-up voice or a bland voice delivering a Virginia Woolf book To the Lighthouse, Mrs. Dalloway, or to have Virginia Woolf reading that book to you? I mean, it's just and the ability to create an experience like that is with us already. And there's some early versions, which are, you know, somewhat rudimentary. But you know that in 12 months' time, the ability to have a fascinating audiobook experience is going to be real.
So us coming up with products combined with Spotify doing their marketing magic and their tech magic, combined with extra competition in that market will certainly provide opportunities for us that two or three years. I mean, frankly, I've always been personally interested in audiobooks. But I don't think the market appreciated two or three years ago. And it took a visionary like Daniel Ek to be the catalyst for fundamental positive change.
Got it. And it sounds like it's a TAM expander. People are buying hard copies and listening to the audiobook together. Maybe you could talk about the economics a little bit. How does HarperCollins get paid? And, you know, it seems like it's a variable deal based on listens. Maybe you could just elaborate on that a bit. And then what percentage of books' revenues right now are digital? What percentage of those are audiobooks? And where do you think you could see that going over time?
M ost recent quarter, digital's 21%. It's about, for the quarter, it was audio was 49%, 51%. But the trajectory is obvious. The line's crossing there, and did cross in December. But there'll be months there'll be some variation in the months. But over time, you would imagine that audio will be the largest and a growing segment of digital books. And then I can't give you any details of the deal itself. That would be inappropriate. But all I can say is that Spotify's a great partner.
I might switch tech to REA. REA, you know, we think is one of the best digital businesses that I've come across, not just in Australia. It's an excellent digital business and a bit of cross-promotion. We've got the REA team at the conference here as well. So, anyone who's interested should come along to that session this afternoon. But one thing I've a question I've been dying to ask you, Robert, is that when I talk to investors for the first time about News Corp, one of the common questions I get is, "Well, what is REA doing within News Corp? And would it make sense just to sell this?" And it almost comes up as one of the first questions I always get.
Y et I sit here as someone who's followed REA for a long time and thinks it's such a wonderful investment, and we think the outlook from here is continuing to be very, very strong, that I don't see, that it would you should be in a hurry to sell that asset. But I'm curious to know how you feel about the outlook for REA over the long term and how it continues to sit within News Corp.
Well, first of all, there's a great complementarity between REA and our news media products in Australia. And they early on in the life of REA, they played a crucial role in generating that early momentum which was crucial to, you know, the ultimate success of the company. And there's still an important productive relationship between Owen, who runs REA very adeptly, and Michael Miller, who runs News Corp Australia. And the ability to move traffic around sites is precious, and particularly so, with the imminent demise of the cookie, which is going to happen over the next 12 months. It's already started to happen.
T he ability that we have—and it's a unique ability in Australia—to make sure that users on one side are directed to another side is something that's important and is made much easier because of our majority stake in REA. And you go back, as you say, 10 when I became CEO over 10 years ago now, people would say, you know, "Where's the fit? How does it work?" And they forget that in over the past 10 years, the value of our holding of REA has risen 500%, I think, from memory, about AUD 3 billion to AUD 15 billion and roundabout. And so it just shows that the value that has been created for News Corp investors and is real, and the success of REA is real.
The ability I've always been impressed when I go to Melbourne and see Owen and Nell and the team and how far from complacent they are, you know, and the energy, the creativity, and that of itself has a positive impact on other parts of News Corp and the connection between REA and Realtor.com both ways, actually, because the two markets are changing in character and composition.
That's important. And the extensions into mortgage financing and data that REA have embarked on—smart, savvy moves, successful moves. And the one fascinating part of REA that's I don't think fully understood is our India business, Housing.com, which frankly we'd had a minority stake in. And I don't like minority stakes, whether it be at Foxtel or any other company. We should control our destiny.
Frankly, we made the decision that News Corp in its entirety and REA specifically should take control of the India business. We're now, thanks to the wonderful work of the team in India, the largest digital property company in India, which is the largest country, which is probably, if the election goes as expected this year, we'll have another five years guaranteed of relative political stability.
You're seeing also the decoupling from China, the investment going into India. So the fact that we're in that prime position in India, at this moment in Indian history, partly because of the strategic decisions that we made three and four and five years ago, is another extraordinary asset within REA and within News Corp that is not fully appreciated yet.
Great. So I wanted to ask a bit more about Realtor.com Move and what you think is next for the U.S. digital real estate business. You know, there's been some media talk about the competitive landscape with Homes.com overtaking Realtor.com and kind of pushing over, you know, to take Zillow over at number one. Any comments on that? Do you think that's an accurate representation of these businesses? And then maybe you want to hit on you'd referenced earlier, U.S. housing, maybe some green shoots, and then obviously the NAR and commission situation. You know, any thoughts or comments on how that progresses?
Yeah. Well, we're totally focused on Realtor.com and making Realtor.com the best possible experience for users. And that's people buying a home, people selling a home for realtors, per se. That's our task. And that's certainly the mission that Damian and the team at Realtor.com are focused on. And you've seen the new marketing campaign, which has been very, very effective.
I t's important when during a period of downturn that you do prepare for the inevitable change in the marketplace. And exactly when that inevitable change will be, no one can say because it's dependent on macro circumstances. But it is obvious that the U.S. housing market is going to turn upward and sharply upward at a certain point in time. Day after day, that's what the team is focused on at the moment.
W hether it be the tech, whether it be the UI, whether it be the relationships with realtors, and as for whether the commission structure is changing, you know, clearly, there's some litigation at the moment in the U.S. When we acquired Realtor, we did a fair amount of research into the U.S. market. And obviously, the commission structure is very, very different to that of, for example, the Australian market or the U.K. market.
I t's going to take more time than people envisage for that to change fundamentally. There'll be the incremental change. There'll be more competition. There probably will be more litigation. But at the same time, the core relationship between a Realtor and a vendor and a purchaser is unlikely to change anytime soon.
Great. And on the topic of simplification, which you guys have made some progress, you know, what should investors be focused on from here? Obviously, you've announced you're exploring some different strategic permutations. You know, could there be other things to think about for Move? How should investors be thinking about the progress in terms of, you know, simplification of News Corp?
Yeah. We always have to be institutionally introspective. And we are. As I indicated on the most recent earnings call, you know, serious thought is going into the structure of the company. Serious thought is going into maximizing value for all shareholders. You know, what is the best way of doing that? And that thought is intense, and continuing.
I can't really say anything more than that at this stage. I mean, what we are grateful for is that probably because of Morgan Stanley and others, there is a much greater appreciation of the inherent value in News Corp. You know, as of Friday, a 60.2% increase in the share price over 12 months tells you that our story is very different from the average media story.
I n a sense, what people had perceived to be a problem, which was the complexity of the company, you know, thanks to the great work of our IR team, among others, that there's much more visibility and much more understanding of the assets that we have and the potential that they have. But you know, we're certainly not resting on the laurels of share price increases, which can be capricious over time. But we are fundamentally focused on strategy and what is the appropriate structure.
Great. Maybe a final one from me. And I think Sean's got a related question. It's on Foxtel. The last quarter was a little softer in terms of Foxtel for subscribers and growth, but how that business is positioned now versus a few years ago, you must be pleased with how it is situated today. Having said that, there's a lot of change going on in the media landscape. How do you balance those two things up, Robert? What's the outlook for the Foxtel team now in Australia?
Yeah. That's a good question because many years ago and in fact, not that many years ago, I was constantly asked, you know, "How much more do you need to put into Foxtel?" I mean, the question now more appropriately asked is, "How much cash can you take out of Foxtel?" So the situation there, thanks to Patrick and Siobhan and the team, has changed markedly.
It has become a world leader. When you look at Kayo, which is the sports streaming offering there, which was, I understand, the inspiration for the aggregation offering imminent here, it not just in the range of sports that it offers, but also in the way that the user interface is so compelling there. So in that sense, Foxtel is a world leader.
W hat we're seeing as those streaming services proliferate is real strength in the broadcast offering, which is obviously a higher-priced premium offering where churn is down in the 12% range and has been consistently over quarters. I think, and it shows you that people understand the segmented offerings in a way that we had hoped would be the case.
T here's also an awareness in Australia that in terms of particularly sports offerings, there's nothing that can really compete with the quality of the offering. There's competition from free-to-air, but at the same time, we've if people given the choice and they should have a choice, and they should have a real choice, like the offering at Foxtel and at Kayo.
We're as for sales, for those of you who understand Australian sports, we are now coming into the crucial selling season. The big winter sports are almost upon us. In fact, Rugby League started its season in Las Vegas at the weekend. Hugely successful enterprise, broadening the reach and range of the game but also having a big marketing impact back in Australia, which is obviously what we like. And you have Australian rules about to launch as well. So this couple of months will be a crucial indicator of the health of Foxtel and the health of Kayo. The early signs are certainly positive.
Great. I think that brings us to time. Thank you so much, Robert. Thank you, Andrew.
Thank you.