Good afternoon, everyone, welcome to the next session at the TMT conference today. My name's Andrew MacLeod. I work for Morgan Stanley's equity research team based in Sydney, Australia. I'm joined up here on stage by my colleague Sean Diffley from Morgan Stanley's specialist sales team in New York. News Corp being such an interesting company, Robert, it's taken two of us up here to host you and make sure we cover all the topics the investors are interested in.
Who's the good cop and who's the bad cop?
Oh, well...
Who has the harsh light and telephone book?
Yeah, that'll work. It's that'll become obvious as we work our way through the discussion, I think. It's our great pleasure to have Robert Thomson, CEO of News Corp, with us today. As I said, at a very, very interesting point in time for the industry, a very interesting time for News Corp as well. We're really looking forward to this discussion. We've got 30 minutes of Robert's time. Before we do get underway, let me just read out the requisite disclosure. Anybody here who needs detail, please go to the Morgan Stanley website for disclosures, www.morganstanley.com/researchdisclosures, or reach out to your Morgan Stanley sales representative for more detail. With that out of the way, Robert, thank you for your time.
As I said, very interesting point for News Corp and for the industry at the moment. I thought a good place to start would be to ask you, what are the main strategic priorities you're working on for the year ahead?
Uh-
That could almost take us 30 minutes.
Yeah, it could. How long do you have? Well, look, first of all, when you look at the picture of News Corp as the strategy is unfolding, it's what you'd call a triptych. In that, first of all, we're focused on the engines of growth, which is digital real estate, Dow Jones, and books. Books have been a little soft covered of late, but they will return to their natural place as an engine over time. Secondly, we're focused on the network effect of the News Corp digital properties and the value that each property brings to the other, more than the sum of the parts.
I did a little checking, before coming here, and in the month of February, in the U.S. only, and not all of our websites, not including HarperCollins or related companies, we had 2.2 billion page views, which is 10, slightly over 10 page views for every adult American.
Mm.
It gives you a sense of that scale that we have to leverage each property for itself and each property for the other. We're definitely focused on that because whether it's creating demographic cohorts, whether in advertising, it's creating what we call super segments, whether it's finding leads for Realtor off The Wall Street Journal or subscriptions for The Wall Street Journal off Realtor, that's an absolute priority for us. The third bit of the triptych is being hard and realistic about the economic conditions that we're in, and we are cutting costs. So we've already announced that there'll be a global 5% reduction in the workforce. That's about 1,250 employees by the end of this calendar, most this fiscal.
We expect the annualized savings to be at the least $130 million a year. Now, it's not something you want to do, but it's something you have to do in these circumstances to build on what is a robust platform that's very different. Andrew's covered the company for a very long time. Very, very different to a few years ago. One interesting metric was that in fiscal 2017, we had EBITDA of $885 million and free cash flow of $243 million. Last fiscal, we had EBITDA of $1.67 billion and free cash flow of $855 million. It's a very different News Corporation. We no longer have Amplify, which-
Mm-hmm.
I remember you had views on. We probably didn't disagree with your views. It's very different in its ability to generate both profits and cash and give us the flexibility, even during times that are not necessarily economically auspicious to do well.
Yeah.
Great. That's an excellent introduction. Thank you, Robert. I wanted to follow up on the strategic exploration. Now that we've finished the Fox News Corp talks, what's next for News Corp in terms of the strategic simplification? Maybe you can talk a bit about the Move process, where CoStar was looking and has backed away. What do you think investors should understand about those two processes?
Well, the obviously, the merger, the proposed merger. Look, scale is important. I thought it was a very good idea. Not only would it give you scale in terms of sheer size, it gives you scale in terms of financial resources, it gives you scale in terms of extended expertise and specific expertise like video, where Fox is so strong, whether it be through broadcast or Tubi. There's no doubt that it would have been holistically beneficial. For the time being, it's something that's in abeyance. The reason we had to put the talks on hold was indeed the what you might call flux in our real estate segment, i.e. in particular, the approach from CoStar to buy Realtor.
Look, I have to say, to be very clear, we had no intention of selling Realtor. We were courted, we were wooed. With a significant sum. What it did do, one thing for certain is that we have no intention of being the Miss Havisham of housing. There is naturally been a lot of other interest. Several other parties have expressed fascination, shall we say, financial fascination, with Realtor. What we can't, given that there is so much flux in that sector, the most important thing for us now is to focus on driving Realtor. Which is why personally, I've made it a priority. Why we've put at the disposal, shall we say, of the Realtor team inventory across News Corporation.
If you look at wsj.com or the New York Post website or The Sun U.S. website, which is a remarkable success story, will soon be generating more revenue digitally than the original The Sun website. There's no doubt that we have a lot of potency in those platforms, and we are very much taking advantage of that. We're testing a lot of what they call interstitials modules. We're not only A/B testing, we're A/Z testing, driving a lot of traffic to Realtor. In the last few weeks, well, not three, four weeks, actually, they've been of the order of 120 million incremental impressions generated for Realtor via that inventory.
It just shows you back to the power of scale and complementarity of platforms. It also just shows how much we believe in the future of Realtor. There's a particularly interesting opportunity now because the U.S. market is very different to the Australian market, and we have a couple of our Australian colleagues up front in the second row, who you should come and question if you want to understand the Australian market or even Australian culture, which I have to say is unfathomable. The, in Australia, most of the digital real estate business, what you call sell-side business. In the U.S., it's a buy-side business. It's hard to generate a sell-side business when properties are selling very, very quickly, right? There's no delay.
Why do you need extra help? Why does a realtor, why does a vendor need help? In this market where you have a big buildup of inventory, where you have rates, mortgage rates again on the rise, after the intervention, at least by word of The Fed, in recent days. It's a great opportunity for us to develop what is potentially a very lucrative business. That's the other thing that we're very much focused on. Yes, we were indeed courted, we were indeed wooed, but we're getting on with it.
Maybe you could just talk to the simplification strategy that you've outlined. What does that look like now?
Well, I should say, by the way, we have a lot of respect for CoStar, and personally, I like Andy Florance very much. But I love Realtor. As for simplification, it's, you know, it's a slightly misleading word. I think when people talk about simplification, I know they don't mean reductio ad absurdum. I mean, it's not simplifying down to telos. It's in part being more transparent. I think back to Andrew, when you were covering a company, when we first released Lead Off almost 10 years ago, we did have Amplify. We had News America Marketing. Quite frankly, it wasn't clear to investors precisely how valuable Dow Jones was, for example. That opacity was a disadvantage for us.
It was a disadvantage for investors. Part of simplification is transparency. So for example, by breaking out Dow Jones in the last couple of years, not only does that highlight Dow Jones, and The Wall Street Journal, but it also highlights the rest of the news media segment, and frankly, puts pressure on it. More broadly, when we talk about simplification, it's obviously remaining an open mind about opportunity, being opportunistic when the moment arises, as it almost did recently. But it's also looking at what... For investors, for the company, what is the best course of action to generate transparency? Look, clearly, there is a big difference between the current share price and the net asset value of News Corporation.
We're not unaware of that. Making the most of the assets we have, which might involve simplification, is imperative, not just important, but also helping people understand what is the trajectory of the company.
I guess somewhat related, investors always ask, is it possible to spin off REA or Realtor Move? How do you think about that from here?
Well, look, we have a lot of optionality. REA is itself a great company. It's sort of technically spun off anyway. The most important thing for REA is to take advantage of opportunities. We now have via REA, the largest digital property site in India. What's that gonna be worth in five years' time, 10 years' time? You wouldn't want REA to be distracted by bureaucratic shenanigans. At the same time, as you can tell, we remain open and opportunistic.
Perfect. I might switch the discussion to talk a little bit about advertising, Robert. just got two parts to this question. Firstly, if you could share your insights because your assets are broad, as you say, different geographies and different segments in the U.S. as well, about what you've been seeing in the advertising market. Secondly, I think it's important to spend a moment on the evolution of advertising being a smaller part of the business now as well. Not only has the business grown over the last decade and broadened out your revenues and EBITDA, but more subscription, less advertising.
Right.
Investors still need to be mindful of advertising trends.
Yeah. No, absolutely. Also, a lot more digital, and a lot less print, clearly. Advertising varies really product by product, country by country. Advertising at Dow Jones last quarter was down around 7%. At our Australian news media, generally, it was down 13%. In local currency, i.e., in pounds and dollars, and the exception there being the New York Post, which is U.S. dollars, was down only 3%. So it's. What we're generally seeing is that yields are coming down somewhat. We're certainly taking advantage of any free inventory we have in this country, to boost Realtor.
Where you're exceeding the decline in yield with increase in traffic, and that's two sites in particular, the New York Post and The Sun, you're actually seeing advertising revenue still rising.
Mm.
Quite dramatically so at The Sun. I think that puts us in good stead for longer term advertising trends. Because let's face it, the trends we're facing just now, these are transient trends. These are, as I said on a recent earnings call, more ephemeral than eternal. When a CEO is asked to cut costs, the first thing they do is hit marketing because it's easy. It seems easy. It doesn't involve the empathetic difficulty of making people redundant, right? It's hard. Nobody wants to do that. In the end, what is marketing? I mean, marketing is communicating with your customers and your clients.
That initial phase of cutting marketing, if people are cutting themselves off from their customers, they're doing themselves longer term damage. I think we're just about through the worst of that downturn, I suspect. We are, you know, it is said that this is the Waiting for Godot recession, but unfortunately it was a wonderful piece in The Wall Street Journal today. By the way, we have the new editor of The Wall Street Journal, Emma Tucker, in the second row as well. If there's anything you've seen in the Journal that you'd find offensive, come and tell Emma. It's her fault. Is it the Waiting for Godot recession? I think that the recession is going to arrive before Godot, personally.
We want to go back to book publishing, as interesting as The Wall Street Journal is. You had mentioned we've seen a bit of a slowdown recently. How much of that do you think is purely cyclical? How much of that is structural? Simon & Schuster back on the block. Is that something you might have some interest in strategically?
Even if I had some interest strategically, I couldn't tell you about it. It's the book business, because the book business was what you would call a steady earner over many, many years. Came the pandemic, probably unsurprisingly, if people are forced to stay at home, if they're cloistered at home, they read more. TikTok alone is not interesting enough. The book sales went up. What we were a little uncertain about was how much the pandemic trend would be a post-pandemic trend. It's fair to say it has come off a bit.
As you will all be aware, Amazon has been making fundamental changes to its logistical system, the warehousing, the whatnot, so that the number of books that they were buying and storing came down. That had an impact. The book business is a physical. It's the most physical business we have. It's 75% physical, 25% digital. Digital made up of e-books and audio. Audio's still growing relatively. E-books, you know, fairly flat. Because of that, you have paper costs, printing costs, trucking costs, warehousing costs, which are significant. The combination of those three factors affected the business to the point where EBITDA was down around 57% in Q2.
We're starting to see more positive trends now, first of all. Secondly, to be honest, our frontlist was a little insipid. The frontlist has picked up quite significantly over the past two weeks in particular. We have Ron DeSantis and Colin Cowherd, not two names that you normally hear. No, they haven't jointly written anything. Both of them are rising fast on the bestseller list. You'll see a smattering of HarperCollins books under the different imprints turning up. That will make a difference. I suspect that the both the Amazon reset and the reader reset are over. The rest is up to us.
I know you're an avid reader. What's the most interesting book you've read recently?
You'd laugh if I told you, but W. Somerset Maugham's short stories. If you want to read great writing, that's great writing.
Okay. I wanted to change tack and talk about the Australian pay TV business, Foxtel, that some people in the room would have heard of, but not necessarily everyone. It's an asset that I actually thought was pretty structurally challenged a few years ago, but some credit to the management team, and they've had some wins recently, locked up some very important programming rights, sports rights, and entertainment rights in Australia. How do you feel that business is positioned now, Robert, for growth? Is it potentially part of the simplification story as well? It's something you've spoken about in the past.
Well, what's interesting, look, Andrew, you know better than anyone, the Foxtel wasn't held in high regard, I think, to put it euphemistically, a few years ago. Siobhan and Patrick and their trusty team have done an extraordinary job building up content sets, which are unique, both in sport and entertainment. Doing an excellent job of transitioning from broadcast to streaming. Streaming now is 62% of the business. That's been done while bringing down broadcast churn rates.
Mm.
which was clearly the cannibalization threat that people understandably talked about three, four years ago, which hasn't materialized. Last quarter in Australian dollars, so adjusted, their EBITDA was up 63%, their revenue up 3%. As you would know better than most of us, the Australian economy has been a little dodgy. Those are excellent returns, and it gives us real optionality in the future. Long-term sports rights, we don't have to worry about 3-year windows or 2-year windows.
No.
We've got-
Length in there.
up to 2031 on a couple of the biggest boards. Look, the other thing that Foxtel has done is proved it's a great partner in that we use our other media platforms to promote emerging sports like women's rugby league, women's Australian rules, which are taking off, and increasing the value of those rights. Overall, a company who frankly, Susan Panuccio, our CFO, and I would go to investment conferences, and the question was always, "How much more are you gonna have to put into Foxtel?
Mm-hmm.
That's not the question we're asked these days.
No. Good outcome.
Right. We want to turn back to Dow Jones, and you had two recent acquisitions, OPIS and Base Chemicals. Maybe for the uninitiated, you know, what are those businesses? Why did you acquire them, and how is the integration going?
Yeah. I'll aggregate a description of the two. They're related. OPIS focuses on energy prices and building out into renewables. CMA is Chemical. It used to be called Base Chemical. It's now Chemical Market Analytics. They are doing very high margin businesses. They're 100% digital subscription businesses. As you were saying earlier, Andrew, less reliance on advertising. They are. You saw the early impact because our professional information business revenues rose 45% in Q2. Along with those two, you had a 20% increase at risk and compliance. Overall, those businesses, they're high margin.
The margin's, you know, in the 30%. They are businesses on which we will build. Particularly, when you look at the potential for renewables, creating carbon indices, there... Creating products that at a time when both companies and regulators are looking for authentication, OPIS will be very important. You go back to risk and compliance, the fascinating impact of increasing government intervention on that business. It's grown quarter after quarter, double digits, and there's no reason why that should begin to wilt given the inherent demand.
Great. I wanted to ask about how investors can better recognize the value of Dow Jones and The Wall Street Journal versus The New York Times. Mr. Florin in the front row always does a good job of trying to articulate that. How do you think investors can better understand some of the differences and, you know, seemingly Dow Jones is very undervalued within News Corp versus some of its publicly traded peers?
It's a very different. We have a. Both from subscription and from a holistic perspective, it's a very different strategy. The New York Times is what you would call a horizontal sell. You have The New York Times, you have Wordle, you have sport, and you have recipes. There's not a natural upsell there. Whereas we have MarketWatch, we have The Wall Street Journal, we have Barron's, we have Investor's Business Daily, we have specialist products. That's why Almar and the team are focusing on more bundling and the benefits of that you'll see in successive quarters. But it also means we can take advantage of the very high-end professional information. Premium content for a premium is the strategy we have.
It's just, it's the upsell is a lot easier and more logical for readers and particularly professional readers than a cross-sell. That's the fundamental distinction between the two. Longer term, we're confident in our strategy.
Robert, can I ask for your thoughts on the big tech relationships you have? Because, you know, having watched the industry for a long time, I think you are very much the architect of those relationships that were transformational in many ways. Just interested a few years down the track to hear how you think how that relationship has evolved. Also, you know, there have been some comments in the press from those couple of those parties about a bit of a pivot in their news strategies. Is that a good thing or a bad thing? You know, what does the future hold for your big tech relationships now, you think?
Well, I think it's fair to say that News Corp, thanks to Rupert Murdoch and the News Corp board, we were a very solitary voice arguing for proper recompense for professional journalism because journalism was under existential threat. We have made advances. We have very good partnerships now in some countries with Facebook, Australia in particular. Globally with Google. We have a great partnership with Apple. Microsoft are very good partners. At that level, the situation is for content, it's changed fundamentally. There's a lot happening in AdTech, 'cause in my mind, if you go back, I always thought there were two pillars. There was the proper value for content and a less dysfunctional digital ad market. That's playing out.
I was in Italy two weeks ago. The Italian publishers are now negotiating with the big platforms. They accept that it was a precedent that News Corp created that allowed them to engage with a certain amount of leverage. The fascinating emerging issue is Generative AI. I mean, for us, it can't be degenerative AI. It can't destroy value in the way that early phase aggregation did. We're spending a lot of time examining it. We've started discussions with a certain party who shall remain nameless. There are three components to it. As these AI engines are being trained, they're using professional content to be more professional themselves, certain people talk about open source.
Well, clearly, they are using proprietary content. There should be some compensation for that, particularly. The more specialist the engine gets, for example, in business, they're obviously using Dow Jones content. Then you have the actual servicing of articles through AI, there should be compensation for that. The most fascinating one, that a lot of these engines are focused on synthesizing aggregated content, that's often our content.
Mm.
They would argue that by synthesizing it, and extracting the essence of the content, they're providing a transformational service. We would argue that they wouldn't be able to provide any service.
Their content.
... without our content. There are three tiers where we're entering into discussions, shall we say, with different companies.
Oh, that's fascinating.
Great. We want to close out with thoughts on capital allocation priorities. M&A, you've been acquisitive over the last few years. How do you think about M&A going forward? Valuations have come down. You know, where do you think the most interesting opportunities could be? Maybe you wanna hit on how you think about buybacks.
On buybacks, first of all, if you look closely at an Australian registry disclosure demands that we disclose, you will see that we are indeed in the market. We have a billion-dollar buyback provision. For a period, we weren't for reasons that are probably obvious to close watchers of the company, but we are certainly back in the market at the moment. We're always institutionally introspective about capital allocation. We obviously have a dividend. We clearly believe in buybacks. We are always wondering what the right structure for the company is. You know, frankly, that's another reason why the potential merger was so fascinating.
We are in a position where we have the luxury of optionality in the way we allocate capital. You've seen with the external investments we made at Dow Jones to buy OPIS and CMA. The logic of that should be obvious to investors now, and it's up to us to make the most of it. You can see with the buyback that we do believe in maximizing the returns where appropriate. At the same time, we're absolutely committed to finding more ways of re-reducing that gap. In part, it's a perception gap. Maybe in part, it's an opacity gap between the current share price and what any sane person knows is the actual value of News Corporation.
That's excellent, Robert. Look, we've probably got time for one question if there's a question in the room at all. Actually, I don't think I can see one. Given we're up on time, Robert, I'll let you off the hook there and say thank you very much.
Thank you.
Thank you very much for your time.
Cheers.
Thank you for putting up with two moderators.
That's all right.
Coming at you double barrel.
Yeah.
We appreciate it very much.
Thank you, Andrew. Thanks, Sean.
Look forward to catching up with you.
Thank you.
Thank you very much.
Thank you.
Cheers.