News Corp reported its financial results for the three months ended December 31, 2019 late last week.
Commenting on the results, chief executive Robert Thomson said:
“In the second quarter of fiscal 2020, News Corp saw growth at several of our news businesses and an increased profit contribution from Move, operator of realtor.com. The results were affected by a sluggish Australian economy, uncharacteristic softness in book publishing, and foreign exchange fluctuations. We expect improvement in the second half as real estate markets show signs of gradual recovery, Dow Jones benefits from new content licensing arrangements and higher digital subscribers, and HarperCollins capitalizes on an exciting slate of new releases.
“Our News and Information Services segment posted notably higher profitability driven by a strong increase at News UK as well as continued growth at Dow Jones, where consumer subscriptions recently reached a record 3.5 million, including two million digital-only subscribers at The Wall Street Journal.
“We are seeing significant progress in our long battle for equitable treatment from the dominant tech platforms, and our deals with Apple and Facebook are beginning to yield financial dividends. The company took important steps on the path toward simplification with the sale of Unruly, the ad tech business, while we are engaged in negotiations for the sale of News America Marketing. We believe that increasing investor focus on the core growth sectors, whether Risk and Compliance or Digital Real Estate, will be to the advantage of our shareholders.”
News and Information Services
Revenues in the quarter decreased $16 million, or 1%, as compared to the prior year, reflecting a $15 million, or 1%, negative impact from foreign currency fluctuations. Within the segment, Dow Jones and News UK revenues grew 4% and 2%, respectively, while revenues at News Corp Australia and News America Marketing declined 9% and 4%, respectively.
Circulation and subscription revenues increased 3% compared to the prior year, which includes a $6 million, or 1%, negative impact from foreign currency fluctuations. Circulation and subscription revenues again benefited from a healthy contribution from Dow Jones’ consumer products, which saw a 5% increase in circulation revenues, reflecting 17% digital paid subscriber growth and subscription price increases. Dow Jones’ consumer products reached 3.4 million total subscribers, reflecting an 8% increase compared to the prior year. The results also reflect an 8% increase in revenues at Dow Jones’ Professional Information Business, which benefited from 21% growth in its Risk & Compliance products. Price increases and digital subscriber growth at other mastheads also contributed to the results. These increases were largely offset by lower print volume in Australia and the UK.
Advertising revenues declined 5% compared to the prior year, of which $7 million, or 1%, was related to the negative impact from foreign currency fluctuations. The remainder of the decline was driven by weakness in the print advertising market, primarily in Australia, and lower home delivered revenues, which include free-standing insert products, at News America Marketing.
The declines were mitigated by growth at News UK, led by strong digital advertising growth at The Sun. Advertising revenues at Dow Jones declined 5% in the quarter. Digital revenues represented 43% of total Dow Jones advertising revenues in the quarter.
Segment EBITDA increased $30 million in the quarter, or 27%, as compared to the prior year, benefiting from a $22 million one-time benefit from the settlement of certain warranty related claims pertaining to previously incurred and ongoing repairs and maintenance costs for News UK’s printing business. The results also reflect higher contribution from News UK, resulting from cost savings, and from Dow Jones, as well as lower losses at the New York Post. The improvement was partially offset by the lower revenues at News Corp Australia and News America Marketing referenced above.
Digital revenues represented 36% of News and Information Services segment revenues in the quarter, compared to 32% in the prior year. For the quarter, digital revenues for Dow Jones and the newspaper mastheads represented 39% of their combined revenues, and at Dow Jones, digital accounted for 57% of its circulation revenues. Digital subscribers and users across key properties within the News and Information Services segment are summarized below:
• The Wall Street Journal average daily digital subscribers in the three months ended December 31, 2019 were 1,929,000, compared to 1,709,000 in the prior year (Source: Internal data)
• Closing digital subscribers at News Corp Australia’s mastheads as of December 31, 2019 were 566,600, compared to 460,300 in the prior year (Source: Internal data)
• The Times and Sunday Times closing digital subscribers as of December 31, 2019 were 320,000, compared to 269,000 in the prior year (Source: Internal data)
• The Sun’s digital offering reached approximately 140 million global monthly unique users in December 2019 (Source: Google Analytics; prior year comparable statistic unavailable due to source change)
Subscription Video Services
Revenues in the quarter decreased $61 million, or 11%, compared with the prior year, of which $25 million, or 5%, was due to the negative impact from foreign currency fluctuations. Adjusted revenues for the segment decreased 6% compared to the prior year. The remainder of the revenue decline was driven by the impact from lower broadcast subscribers and changes in the subscriber package mix, partially offset by higher revenues from Foxtel’s OTT products, Kayo, which launched in November 2018, and Foxtel Now.
As of December 31, 2019, Foxtel’s total closing subscribers were 2.952 million, an increase of 3% compared to the prior year, primarily due to subscriber growth at Kayo, partially offset by lower broadcast subscribers. 2.268 million of the total closing subscribers were broadcast and commercial subscribers, and the remainder consisted of Foxtel Now and Kayo subscribers. As of December 31, 2019, there were 372,000 Kayo subscribers, of which 350,000 were paying subscribers, compared to 72,000 subscribers (42,000 paying) in the prior year. As of February 5th, there were more than 370,000 paying Kayo subscribers. As of December 31, 2019, there were 343,000 Foxtel Now subscribers, of which 334,000 were paying subscribers, compared to 358,000 subscribers (354,000 paying) in the prior year.
Broadcast subscriber churn in the quarter was 16.0% compared to 15.6% in the prior year, due to increased volume of churn from lower-value customers on expiring contracts in wholesale channels, partially offset by improvements at the Foxtel retail channel. Broadcast ARPU for the quarter declined 1% compared to the prior year to over A$77 (US$53), primarily due to the changes in the subscriber package mix.
Segment EBITDA in the quarter decreased $14 million, or 17%, compared with the prior year, primarily due to lower revenues, partially offset by lower total costs, including programming and transmission costs. Adjusted Segment EBITDA (as defined in Note 2) decreased 12%.