Good day, everyone. Welcome to the News Corp Fourth Quarter Fiscal 2020 Conference Call. Today’s conference is being recorded. Media will be on a listen-only basis. And at this time, I would like to turn the conference over to Mike Florin, Senior Vice President and Head of Investor Relations. Please go ahead.

Thank you very much, Nicole. Hello, everyone, and welcome to News Corp’s Fiscal Fourth Quarter 2020 Earnings Call. We issued our earnings press release about an hour ago, and it’s now posted on our website at newscorp.com. On the call today are Robert Thomson, Chief Executive; and Susan Panuccio, Chief Financial Officer. We’ll open with some prepared remarks, and then we’ll be happy to take questions from the investment community. This call may include certain forward-looking information with respect to News Corp’s business and strategy. Actual results could differ materially from what is said. News Corp’s Form 10-K and Form 10-Q filings identify risks and uncertainties that could cause actual results to differ and contain cautionary statements regarding forward-looking information. Additionally, this call will include certain non-GAAP financial measurements such as total segment EBITDA, adjusted segment EBITDA and adjusted EPS. Definitions and GAAP to non-GAAP reconciliations of such measures can be found in our earnings release. With that, I’ll pass it over to Robert Thomson for some opening comments.

Thank you, Mike. Let me say initially that I trust all on the call and your families are faring well. These are certainly complex times, and there are few who have not been touched in some manner. The coronavirus has irrevocably changed businesses and our businesses in expediting pre-existing digital trends, in challenging established practices and in prompting necessary introspection about work habits and the workplace itself. There has been much agility and adaptation at News Corp. The vast majority of our employees across the world have been working at home, and the resilience of the company’s culture has been a core component in continuity. Without doubt, digitization has accelerated. And without doubt, all of our businesses have been affected and responded with customary ingenuity. I would like to express my sincere thanks to each of our employees and their families for having responded so promptly, so intelligently and so thoughtfully to these testing circumstances. Evidence of that response was seen in the fourth quarter, when virtually all of our businesses prudently reduced costs, sometimes painfully to ensure that they were robust enough to cope with volatility and disruption. Preserving cash was a priority, and it is worth noting that our cash balance increased in the last quarter by $129 million to over $1.5 billion as of June 30. Revenue comparisons are obviously made complex by the sale of News America Marketing and Unruly, plus the consequences of COVID. But our adjusted revenue for the quarter declined by 13%. Obviously, the net income and EPS were affected by non-cash impairments, primarily at our UK and Australian businesses. And Susan will be able to provide more details momentarily. However, our adjusted total segment EBITDA declined by a modest 10%. This is particularly significant and a somewhat historic earnings call. Regular listeners…

Thank you, Robert. Before talking through our fiscal 20 results, I would like to recap on the actions we’ve taken this past year to better position News Corp for long-term success with a focus on increasing shareholder value and transparency. Firstly, the company has taken significant action on our cost base. Our publishing business in Australia has been significantly restructured with 112 of our regional and community markets transitioning to digital or closed. The cost base at Foxtel has been restructured with savings across programming and support functions. With increasing OTT scale and a lower cost base, Foxtel is better positioned for success, and I would like to reiterate that we have no plans to provide additional funding. Our digital real estate businesses have also been proactive in reducing headcount to confront the challenges of COVID-19. In addition, we took quick and decisive action to reduce OpEx and CapEx in the fourth quarter with CapEx reducing by 1/3 year-on-year and total costs decreasing 21% year-on-year, partially due to divestments in FX, but primarily due to active cost management. We are also close to finalizing our savings opportunities for global shared services across the company as we look to leverage our global scale and reduce duplication. These collective actions resulted in a 7% reduction in headcount this year across the businesses, excluding the NAM and Unruly sales. Secondly, Dow Jones results are now reported as a separate segment, which better highlights its performance and provides a more complete comparison with its peers. The business saw record subscriptions and achieved growth in both revenue and EBITDA for the year. Thirdly, we are taking tangible steps to stabilize our newly formed News Media segment through digital subscriber growth, cover price increases and aggressive cost targets, which will be further enhanced by our global…

[Operator Instructions] We’ll take our first question from Kane Hannan with Goldman Sachs.

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

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

And Kane, just in relation to the cost program. So the $100 million net number, yes, it does include – it’s net of the sports cost increase, so that’s approximately $55 million. And so we have factored the savings into that number. And when we think about the OTT cost, in relation to Binge and Kayo, again, that number is net of any investment that we would expect to see within those products. I’m largely, clearly it would be marketing because we scale given we’ve got the content.

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

We’ll take our next question from Entcho Raykovski with Crédit Suisse.

I’ve got a couple of as well. The first one is just around the $40 million to $55 million negative COVID impact, which you flagged for the quarter. I just wanted to clarify, does this take into account some of the positive benefits of lower sports rights costs that you’ve seen over the course of the quarter? So it’s basically a net number. Or it’s perhaps a large number, and we need to take those benefits separately into account. Just interested to what extent you can recoup in the future years. And then just secondly, advertising trends over the course of the quarter seem to get slightly worse at Dow Jones. I mean, obviously, very strong performance in the segment as a whole. But if I look at advertising, I think it was tracking at 20% down in April and then down 28% for the quarter, whereas the market improved. So just interested in whether there was anything specific, which might be driving that.

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

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

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

Our next question comes from Alexia Quadrani with JPMorgan.

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

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

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

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

My first question, you mentioned – Susan, you guys took 112-year mastheads at the smaller papers down in Australia, either shut them down or transitioned them to digital. I was just wondering, what percent of revenues did that represent down there in the Australian newspapers? The first question. About 5% to 10%?

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

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

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

Fraser McLeish from MST Marquee has our next question.

Great. Just a very basic one for you just for Susan, if that’s okay. Just on the Binge subscriber numbers, Susan, I would imagine numbers at Telstra is quite important for driving those. Are you just able to confirm whether anything with Telstra is going into paid subscriber or as a non-paid subscriber in those August Q4 numbers you’ve disclosed?

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

Would that come as a paying – into what you’re calling a paying subscriber?

Correct. Correct.

Our question comes from Alan Gould from Loop Capital.

Robert, I noticed that The New York Times dropped Apple News. I was wondering if you can help us frame of how we should think about how big the opportunity could be of getting paid premium payments for premium content?

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

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

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

Our next question comes from Brian Han from Morningstar.

Just a quick question. The newspapers in the News Media division, did they fall into losses this June quarter because of the virus? Or were they loss-making even before then?

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

And also, Brian, don’t forget, you’ve got the NAM numbers taken out. So it’s not a like-for-like comparison. What I would say is that, essentially, the breaking out of Dow Jones is doing two things. It is providing more scrutiny generally for each of those segments, Dow Jones and News media. And scrutiny has to be a good thing. Because we are very confident that our news media executives will continue the transition to digital, which they are certainly on the pathway to doing. And sorts of deals that we’ve been discussing today are of themselves helpful. And then Dow Jones, Dow Jones is a uniquely undervalued property in what I would argue is a uniquely undervalued News Corp.

I think maybe just to add just some further context. So if you look even at the year-on-year decline, which we’re talking about, the sort of the $95 million movement, probably 75% of that comes from NAM and the closure of the regional communities or the suspension of the mastheads down there. So actually a really big bulk of that number. Does come from that. And then clearly, you’ve got the impact of advertising and print circulation on that, which we will expect to pick up as we move through the coming year.

Our final question will come from Andrew Levy from Macquarie.

If I could sneak in three. The first one is, Robert, I’d just be interested in your thoughts on the digital platforms review in Australia, and particularly on the structure of the News Media bargaining code, if that’s a structure that News is supportive of and works for you guys in its current form. The second was also you made a reference to licensing news media content globally. Is that a discussion around extracting dollars from the digital platforms? Or is there a broader sort of mandate or avenues that you think you can license from the news media content. Any thoughts would be helpful on that one. And the third one, Susan, just sorry to come back to it, but just on the COVID impacts on the quarter, if I wrote it down correctly, you’re saying $330 million revenues and $40 million to $50 million of EBITDA. And obviously, a large chunk of the cost impacts of COVID are the sporting rights. So I was wondering if you could give us some color on what else is in the cost offsets for the period and how we should think about outside of sports, which you’ve obviously discussed, what’s sustainable? Or what sort of bounces back into the cost base in 2021?

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

I’ll just jump in on the cost side. So if I have a look at the expenses for the quarter on an adjusted basis, they were down $273 million or 14%. So the bulk of that reduction between reported and adjusted was due to NAM and FX. The COVID impact we’re predicting in about $270 million odd, $280 odd million in order to get you to that EBITDA impact. We were expecting costs to increase slightly for the quarter because we did have increased revenue at Dow Jones and HarperCollins and some of our businesses. And what I would say in relation to the COVID impact cost is, clearly, there’s a lot that are related to volume, so particularly on our mastheads around the globe. And we would expect to see those scale obviously, as those businesses scale back up. But we have also reduced headcount by 7% across the business, excluding NAM and Unruly, and that’s savings that we would certainly expect to continue into the next year. We’ve made significant cuts on marketing. We clearly will have a look at what we think is an appropriate level for marketing going forward, and it may never be back to the level that we had pre COVID. Likewise, with most companies, we’ve got a lot of cost cuts coming through on TNE and other discretionary spend, which, again, when we think forward, we will review exactly what we think we need as a business in order to continue spending within that area. We’ve clearly got compensation cost reductions as well as a result of lower bonuses. And outside of the OpEx impact, we’ve got the cuts that came through in CapEx. I think I mentioned that we’ve cut that by third year-on-year. So clearly, as we move forward into next year, it’s difficult to predict exactly that cost base is going to look like because it will all depend on the revenue trends. But we are confident that there’s a significant amount of reoccurring costs that will go into next year from a cost reduction perspective. And we do actually believe that we can continue to take costs out, as we’ve mentioned.

Thank you, Andrew. Thank you, Nicole, and thank you all for participating. We look forward to speaking with you soon. Have a great day. Take care.

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