News Corp reveals sports rights savings offset Covid-19 impact

• Kayo, Binge numbers revealed, total streaming subscriptions now over 1m

News Corporation released its results for the fourth quarter and the full year 2019/2020 this morning. Chief executive Robert Thomson revealed that for the first time the combined number of Foxtel OTT subscriptions had passed 1m. Thomson said that as of August 4 Kayo subscriptions had grown again to 590,000 while the new entertainment streaming service Binge was on 217,000 (both numbers include trial subs).

Foxtel

News Corp is now breaking out the Dow Jones business (which includes The Wall Street Journal) to highlight its profitability, according to Thomson.

Despite challenges across the past few months, Thomson noted nearly all mastheads had record audiences. He noted they were reporting real news, not the “noxious nonsense” that can be found online.

As the migration of many mastheads to digital publications, Thomson explained: “The format is less important than the function.” He added, “We are relentlessly reviewing our portfolio.”

Thomson also noted the company had made significant savings in recent sport rights renegotiations – some $70m this year and as much as $180m over three years.

CFO Susan Panuccio reported Foxtel total subs were down 9% to 2.8m. She said the numbers at Foxtel Now were stable and churn was down marginally. Regarding financing, Panuccio said “there are no plans for additional funding”.

She added that Foxtel had managed to reduce its head count by 17%.

Highlights from the profit report:

Commenting on the results Robert Thomson said:

“The resegmentation of News Corp is a particularly historic moment and a fulfillment of our pledge to make the company more transparent and its potential more obvious. The presentation of Dow Jones as a separate segment highlights what we believe are two incontrovertible facts: the substantial and growing value of that business; and its superior profit profile and prospects compared to those of our nearest competitor. In what has been a difficult year for many media companies, Dow Jones reported a 13 percent increase in segment EBITDA, based on the strength of its Professional Information Business, digital growth and the pre-eminence of The Wall Street Journal.

“Across the Company, we have taken stringent action to reduce costs, and the benefits of those cuts will be felt in coming quarters. We have also launched a Shared Services program that we believe will transform the company, by centralising many of our functions. We are confident that this program should appreciably cut costs and expect it to have a materially positive impact on our bottom line.”

Helping to run the Shared Services program is Damian Eales who is relocating to New York from Sydney.

“The closure in Australia of many of our storied print editions and the renewed emphasis on digital was evidence of our willingness to be decisive at a historic inflection point. One result of our candid approach on costs was that, despite the COVID-19 impact, our cash position strengthened to $1.5 billion from $1.3 billion as of December 31st. We also saw increased profitability at Foxtel and our campaign to reset sports rights prices was successful. Just this week, we crossed the one million OTT paying subscribers mark, setting a new record thanks to our expanded streaming strategy.

“The changed terms of trade with the digital platforms is having a positive impact on our earnings. For News Corp, this favourable outcome would not have been possible without the leadership of Rupert and Lachlan Murdoch, and the support of a board which backed our advocacy, even when News Corp stood alone in pursuit of the principle of a premium for premium content.”

FULL YEAR RESULTS 

The Company reported fiscal 2020 full year total revenues of US$9.01 billion, an 11% decrease compared to $10.07 billion in the prior year. The decline primarily reflects an estimated $370 million, or 4%, negative impact related to COVID-19 as well as the divestiture of News America Marketing. The decline also reflects a $275 million, or 3%, negative impact from foreign currency fluctuations and lower subscription revenues at Foxtel. The decline was partially offset by growth in circulation and subscription revenues at the Dow Jones segment. Adjusted Revenues decreased 6%.

Net loss for the full year was $(1.55) billion as compared to net income of $228 million in the prior year, reflecting $1.69 billion of non-cash impairment charges, primarily related to Foxtel and News America Marketing.

Total Segment EBITDA for the full year was $1.01 billion, a 19% decrease compared to $1.24 billion in the prior year, reflecting lower revenues, as discussed above, and a $45 million, or 4%, negative impact from foreign currency fluctuations. The decline was partially offset by cost savings, particularly at the News Media segment, lower sports rights and production costs at Foxtel related to the suspension of sporting events due to COVID-19 and Segment EBITDA growth at the Dow Jones segment. The negative impact from COVID-19 on Total Segment EBITDA for the year is estimated to be $55-$70 million and represents the Company’s best estimate based on historical trends in operating performance and known identifiable impacts. Adjusted Total Segment EBITDA decreased 9%.

Subscription Video Services 

Fourth Quarter Segment Results

Revenues in the quarter decreased $129 million, or 24%, compared with the prior year, of which $29 million, or 5%, was due to the negative impact from foreign currency fluctuations. The remainder of the revenue decline was driven by the impact from fewer residential broadcast subscribers and the negative impacts from COVID-19, including an approximately $30 million, or 6%, impact from lower commercial subscription revenues resulting from the closures of pubs, clubs and other commercial venues and a $23 million, or 4%, impact from lower advertising revenues due to market weakness exacerbated by COVID-19. Adjusted Revenues decreased 19% compared to the prior year.

As of June 30, 2020, Foxtel’s total closing paid subscribers were 2.777 million, a decrease of 12% compared to the prior year, primarily due to lower residential and commercial broadcast subscribers and lower Foxtel Now subscribers, partially offset by growth in subscribers at Kayo and the launch of Binge, a new entertainment streaming product. 1.989 million of the total closing subscribers were residential and commercial broadcast subscribers, and the remainder consisted of Kayo, Foxtel Now and Binge subscribers.

Binge

As of June 30, 2020, there were 465,000 Kayo subscribers (419,000 paying), compared to 382,000 subscribers (331,000 paying) in the prior year.

As of August 4, there were approximately 590,000 (542,000 paying) Kayo subscribers. As of June 30, 2020, there were 336,000 Foxtel Now subscribers (313,000 paying), compared to 460,000 subscribers (446,000 paying) in the prior year, which was impacted by the final season of Game of Thrones. Binge, which launched in May, had 217,000 (185,000 paying) subscribers as of August 4 .

Kayo

Broadcast subscriber churn in the quarter improved to 13.2% from 14.7% in the prior year, primarily reflecting various measures implemented due to COVID-19. Broadcast ARPU for the quarter declined 1% to A$78 (US$51).

Segment EBITDA in the quarter increased $20 million, or 24%, compared with the prior year, primarily related to $70 million of lower sports programming rights costs, mostly due to the suspension of sporting events as a result of COVID-19, as well as lower sports production costs, lower license fees and other cost savings, partially offset by lower revenues. Adjusted Segment EBITDA increased 33%.

Full Year Segment Results

Fiscal 2020 full year revenues declined $318 million, or 14%, compared with the prior year, of which $126 million, or 5%, was due to the negative impact from foreign currency fluctuations. The remainder of the revenue decline was driven by the impact from fewer residential broadcast subscribers, changes in the subscriber package mix, lower commercial subscription revenues resulting from the closures of pubs, clubs and other commercial venues due to COVID-19 and lower advertising revenues due to market weakness exacerbated by COVID-19, partially offset by higher revenues from Kayo. Adjusted Revenues declined 9%.

News Media

Digital revenues represented 24% of News Media segment revenues in the quarter, compared to 19% in the prior year. For the quarter, digital revenues at the newspaper mastheads represented 24% of their combined revenues. Digital subscribers and users across key properties within the News Media segment are summarized below:

• Closing digital subscribers at News Corp Australia’s mastheads as of June 30, 2020 were 647,600, compared to 517,300 in the prior year (Source: Internal data)
• The Times and Sunday Times closing digital subscribers as of June 30, 2020 were 336,000, compared to 304,000 in the prior year (Source: Internal data)
• The Sun’s digital offering reached approximately 133 million global monthly unique users in June 2020, compared to 113 million in the prior year (Source: Google Analytics)
• New York Post’s digital network reached approximately 150 million average monthly unique users in June 2020, compared to 99 million in the prior year (Source: Google Analytics)

Full Year Segment Results

Fiscal 2020 full year revenues declined $606 million, or 18%, compared to the prior year, reflecting a $271 million, or 8%, negative impact related to News America Marketing and Unruly, which were divested in May and January 2020, respectively, and the $91 million, or 3%, negative impact from foreign currency fluctuations. Within the segment, revenues at News Corp Australia and News UK declined 16% and 13%, respectively. Adjusted Revenues for the segment declined 10% compared to the prior year.

Subscription Video Services: Ongoing disruption in the operations of pubs and clubs and occupancy at hotels throughout Australia, which are largely dependent on government restrictions, continued to adversely impact commercial subscription revenues. As live sports resumed across Australia and elsewhere around the globe, Foxtel saw a modest improvement in advertising trends in July. Assuming no further disruption to live sporting events, Foxtel will recognize approximately $55 million (A$78 million) of additional sports rights costs in fiscal 2021, which were deferred from fiscal 2020 due to the suspension of live sports in the fourth quarter. However, Foxtel expects overall costs for fiscal 2021, net of the increase in sports rights costs, to be lower than the prior year by at least $100 million (A$160 million), benefiting from various cost saving initiatives. Broadcast churn was modestly higher in July compared to the prior year and the fourth quarter.

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