Ladies and gentlemen, thank you for standing by. Welcome to the Fox Corporation Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, I would like to emphasize that the functionality for the question-and-answer queue has recently changed. Instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I’ll now turn the conference over to Chief Investor Relations Officer and Executive Vice President of Corporate Initiatives, Mr. Joe Dorrego. Please go ahead, sir.

Thank you, operator. Good morning and welcome to our fiscal 2021 second quarter earnings call. Joining me on the call today are Lachlan Murdoch, Executive Chairman and Chief Executive Officer; John Nallen, Chief Operating Officer; and Steve Tomsic, our Chief Financial Officer. First, Lachlan and Steve will give some prepared remarks on the most recent quarter, and then we'll take questions from the Investment Community. Please note that this call may include forward-looking statements regarding Fox Corporation's financial performance and operating results. These statements are based on management's current expectations, and actual results could differ from what is stated as a result of certain factors identified on today's call and in the company's SEC filings. Additionally, this call will include certain non-GAAP financial measures, including adjusted EBITDA or EBITDA, as we refer to it on this call. Reconciliations of non-GAAP financial measures are included in our earnings release and our SEC filings, which are both available in the Investor Relations section of our website. And with that, I'm pleased to turn the call over to Lachlan.

Thanks, Joe. Good morning and thank you all for joining us to discuss our second quarter results. Financially and operationally, we continued our impressive results and strong momentum in the quarter with EBITDA growing by 17%, driven by revenue growth of 8%. These financial results were led by exceptional gains in advertising revenues, which grew by 14%, spurred by record political cycle, in which we generated more than $420 million of net political revenue company-wide during calendar 2020. The overall advertising strength was propelled by our FOX Television Stations, gains at FOX News Media, and the dramatic growth of Tubi. Beyond advertising and because of the substantial pricing power of our brands, our affiliate revenues grew by 6% despite a reserve taken for potential distribution credits. While we experienced a decline in subscriber volume, the trend improved for the third consecutive quarter. This quarter, we saw industry subscribers declined just above 5%, which is more than a 50 basis point improvement from what we experienced in Q1. The financial performance of Fox is illustrative of the strength of the core brands that anchor our company and of the contributions of new assets to lay the groundwork for continued growth and rapid evolution. As you know, the new cycle over the last year has been quite active and it has led directly to gains across our local stations as well as all the networks and all the extensions of FOX News Media. For example, Fox’s ability to provide the best in local news was on full display at FOX 5 Atlanta during the Georgia Senate runoffs. Not only did our colleagues at FOX 5 report on the national significance of the Georgia election, they also expanded news coverage in response to viewer demand, held a candidate debate and produced special runoff…

Thanks. Lachlan, and good morning. Highlighting the strength and momentum across our businesses, the company delivered double-digit growth in advertising revenues along with underlying double-digit growth in affiliate revenues in our fiscal second quarter. Our total advertising revenues increased 14%, with this strong growth led by the FOX Television Stations, the inclusion of Tubi, and continued linear and digital strength at FOX News Media. As we previewed on our most recent earnings call, the growth at our television stations was driven by record political advertising revenues. When viewed across the entirety of our portfolio, we generated quarterly political advertising revenues of approximately $250 million, bringing our fiscal year-to-date to approximately $340 million. Total company affiliate revenues increased double digits on an underlying basis in the quarter, once again demonstrating the strength of our brands and our focused portfolio of leadership channels. During the quarter, we recorded an accrual for potential distribution credits due to canceled college football games. While this credit was fully offset in our programming costs, on a reported basis, our total company affiliate revenue growth was 6%. This strength in our two most significant revenue streams drove total reported company revenues to $4.09 billion, up 8% over the comparative period in fiscal 2020. Quarterly adjusted EBITDA was $305 million, up $44 million over the comparative period in fiscal 2020, due to the top line increases in revenues partially offset by contractual annual escalators for our key sports franchises. Net income attributable to stockholders of $224 million or $0.37 per share was lower than the $300 million or $0.48 per share in the prior year quarter. This decrease was the result of higher gains recognized in other net in the prior year quarter, most notably from the mark-to-market adjustments associated with the company’s investments. Excluding this impact and…

Thank you, Steve. And now we’d be happy to take questions from the Investment Community.

[Operator Instructions] Your first question comes from the line of Ben Swinburne from Morgan Stanley. Please go ahead.

Good morning. My question is around FOX News. Obviously, there is been a lot written about the network and the business in the press of late, and you guys just put up a really strong first half of the year. Can you talk a little bit about the strategy to maintain leadership at the network, particularly sort of post the last administration, post the inauguration? And cord cutting is obviously out of everybody’s control, but if you think about a mid-single digit headwind on volume for that business, do you think you can grow cash flows over time? I ask this because when I look at the stock, it seems like the FOX News outlook is not being reflected in the stock price. I’m curious if you think that business can grow even with the sort of industry headwinds that we’re all aware about? Thanks a lot.

Hey, Ben; it’s Lachlan. Thank you for the question. You’re right, a lot being written about and we are few more trees cut down. I think I’m writing about it in the days and weeks to come. Look, I think the fundamental – let me answer – there’s two part to your question. Let me answer – I’ll answer both parts, but let me answer the first part broadly and then specifically. So, in the journalism business, the journals in trade. What you do is you work out what your market is and you produce the best product you can possibly produce for that target market, right, for your readers or your listeners or your viewers. FOX News, the success of FOX News throughout its entire history has been to provide the absolute best news and opinion for a market that we believe is firmly center right. And we don’t pivot or change that, and we haven’t pivoted or changed that throughout the history of FOX News. So, we’ll continue to provide the best journalism with the best hosts, with the best analysis, with the best opinion, going forward, as we have throughout our past new cycles. And we believe where we’re targeted to the center-right is exactly where we should be targeted, as we’ve been. We don’t need to go further right. We don’t believe America is further right, and we’re obviously not going to pivot left. All of our significant competitors are to the far left. So, we’ll stick where we are, and we think that’s exactly right and that’s the best thing for the business and for our viewers. Now with that, we will see a return in our ratings dominance. As I said, we believe the center-right is where Americas politics are, and we expected– as…

Operator, we could go to the next question.

Your next question comes from the line of Jessica Reif Ehrlich from Bank of America. Please go ahead.

Thank you. I have a topic – multipart topic on sports betting. Can you talk about the impact that sports betting had on the quarter at the local station level? And as the adoptions continue to grow state-by-state, how big do you think that pool, that advertising pool can be? And then can you give us any update on your options and what you’re thinking about your options on FOX Bet intangible? And finally, on NFL, how much is sports betting part of the conversation in your upcoming – in your negotiations for the upcoming – the next cycle? Thank you.

Sorry, Jessica, can you just repeat the last one of the multiple? I guess definitely two questions.

One question on sports betting.

Yes.

Yes. So, on the NFL, I mean negotiations presumably are progressing hopefully well. How much is sports betting part of the conversation, given your unique assets?

Great. Thank you, Jessica. Nice to hear your voice as well. So, first of all, from an advertising point of view, our strongest category in the station group is entertainment, which is pacing up 10% year-on-year. Entertainment is really made up of two things. One is sort of streaming services, and the second is sports betting. So, absolutely the sort of wagering businesses, both locally and in the States, we’re wagering as legal but also FanDuel and DraftKings is really helping drive local performance at the station group level. I don’t have that sort of broken out as – not as even as a category, but as a sub-category in sports wagering for you, but it is in the very top growth tier for us. And then obviously, so we’re enjoying the growth of our sports betting, sports wagering on multiple fronts. One, from an advertising front at the local station level, but also obviously participating in it with FOX Bet and with our action, our option in FanDuel. We are really incredibly excited about the opportunities for FOX Bet. The Super 6, as we’ve talked before in these calls and in person, the Super 6 funnel at the top of FOX Bet is working very efficiently. We set ourselves a goal during this NFL season to reach over 4 million active users. I will actually say, we set goal – we ended up with a goal of 4 million. We started with a lower goal. We’re tracking so well during – middle of the football season that we increased the goal to actually 4.4 million users, which we achieved at the very end of the season. And that funnel is then successfully driving people into FOX Bet wagering, where it’s licensed and legal, and we just launched in Michigan,…

Operator, we can go to the next question.

Your next question comes from the line of Doug Mitchelson from Credit Suisse. Please go ahead.

Thanks so much. So, question for Lachlan, but I guess partly a jump ball. I’m just curious, future profitability potential for Tubi. So that’s the one question. The details are, you talked about the usage up 100% and advertising up 70%. So, a view time of 70%, revenue up more than 100%. So, CPMs are obviously expanded. I’m just curious what the level of ad pricing is now relative to, say, broadcast primetime and where you see upside there? And you talked about Tubi being the leading AVOD platform in the future, and I’m just curious, your view on competitive differentiation. I think a lot of content that ends up on these AVOD services is not exclusive. And so, what do you think will attract people to Tubi versus other AVOD platforms that are out there? And then lastly, just the margin structure when you hit that $1 billion plus of ad revenue for Tubi would be super interesting. Thank you.

Thank you very much, Doug. So, let me start and Steve can jump in if I’ve forgotten any part of the question. So, with Tubi – and I’ll answer your question honestly, but I’m not sure when I look at competitors’ SVOD services, whether you prefer us to say we would be profitable early or we’d spend billions of dollars in investing in the business before we saw breakeven because certainly, our strategy is very different from our competitor strategy. We see the SVOD competitive set as the potential to lose very many billions of dollars. We see it is very crowded. We see it is very hard to stand apart and differentiate ourselves within SVOD. And that’s why we’ve really chosen to embrace AVOD as our direct-to-consumer strategy, and we think we can do this for really two reasons. I must say, what we hope to achieve out of this or we will achieve out of this is really twofold. One, and just to be very clear because I spent a lot of words in my preamble to this call talking about Tubi, but if the headline wasn’t clear, it is that we expect to win in AVOD. We expect to win in AVOD and be the leading AVOD player in this country. And secondly, we expect to be able to do it by reinvesting our profits, but not by losing billions of dollars in programming costs or other costs in the time it takes to breakeven. Because of those two things, we will drive Tubi very aggressively. We will hit $1 billion in the medium term or near-term in revenue and the business will ultimately become a very profitable one for us. The other elements of the question, I think on sort of our broadcast CPMs versus digital CPMs; digital CPMs are lower than broadcaster and they’re sort of the high teens. Obviously, some of the tech stack allows us to drive that further. And Steve, did I miss any other part?

Yes. So, Doug, just in terms of the other question, in terms of margin development as we get to that $1 billion, we aren’t going to put a target out there obviously. But I think the way you should think about it is, in the near-term, if you look back over the last six months, Tubi has actually been P&L neutral for us, up from a bottom line perspective. We would expect that to change over the course of the second half as we continue to invest in the growth. And then over time as we take our foot off the gas in terms of investing in growth, you’d see some pretty good conversion of revenue into bottom line margin as this business gets to scale, so. And when you look at that revenue development in the near-term, Lachlan is absolutely right in terms of where CPMs are. The way where we see a lot of headroom, where we’ve gotten a lot of growth from in the initial phase has just been fill rate. And so, there’s still plenty of headroom to take that further north.

Operator, we can go to the next question.

Your next question comes from the line of Robert Fishman from MoffettNathanson. Please go ahead.

Hi. Good morning. As you think about future negotiations with the major sports leagues, how do you think Fox is positioned with its portfolio of networks plus Tubi compared to the other media companies that look to be using a hybrid approach of linear networks and their SVOD services for the top sports rights? And then on a related note, in light of NBC Sports Network shutting down, can you discuss the company’s outlook for FOX Sports 1 and FOX Sports 2, and how you can use Flutter or FanDuel partnership to possibly play a role there?

Sure. Thanks, Robert, for the question. So, first of all, we see NBC Sports, the announcement of it shutting down as probably a net positive for FOX Sports 1. There is less competition, I suppose, although we never saw them as our main competition. This year, FOX Sports 1 beat both ESPN2 and NBCSN for an entire year for the first time ever. So, we feel very well positioned. Obviously, with COVID and with some sports being less available, opinion programming, which is probably very reliable and you don’t have the higher rights costs accounted for 35% of the FOX Sports 1 schedule and over 20% of viewing, which I think is important statistic. It shows that you can be compelling and you can win with a mix of both live sports, but also with the sports analysis and opinion that Fox Sports 1 has. Clearly, having a breadth of sports platforms will ultimately help FOX Bet and our partnership also with FanDuel. I’d also include in that obviously the local stations and the amount of time and effort the local stations and their news and their sports broadcasting also contribute to promoting FOX Bet and engaging also with our partners at FanDuel. The last part there in terms of about sort of sports rights, I think that the thing that Fox has always had as part of its DNA is really a focus on the major sports rights as well. So, it’s obviously Major League Baseball, the NFL, WWE. And so, our focus on our bouquet of sports is really the big sports that are going to move the needle and not so much in smaller – still great sports but smaller sports for other platforms.

Operator, we have time for one more question.

Okay. That question comes from the line of Alexia Quadrani from JPMorgan. Please go ahead.

Thank you. Can you elaborate on the overall advertising market? You had very positive comments on Tubi and its ad outlook, and I assume most of that is coming from the investments and improvements you’re making on the platform, but are you also seeing kind of a nice tailwind from an ad recovery? And then just a follow-up to circle back on some comments you made earlier on, on seeing some improvements in the subscriber declines. I’m curious if you can give us some color if that slight improvement is coming from bigger contributions or from virtual MVPDs or something else?

Sure. So, first on the ad market, and in this last quarter, we’re talking about, obviously, the impact of political as we’ve discussed, Alexia, has just been tremendous. I’d be tempted to say we’ll never see a political season so big, but I don’t think that’s true. I think when you have a Senate and the House so finely balanced, I think we’re going to see these records broken in two years and four years for sure. So, the spending was pretty staggering. Obviously, we have the additional bonus of sorts with the Atlanta station and the Georgia runoff, which I think contributed to. I’m not sure it was just a runoff, but the Atlanta station alone contributed about $60 million of political revenue in itself. So, in the past quarter, obviously the story, the headline is all political. I think in the current quarter, obviously we have difficult comps because of the Super Bowl, and obviously having had the Super Bowl last year, which by the way rated almost 102 million viewers. It was a terrific Super Bowl and a great achievement. That obviously, we can take that comp out. So, if we strip out the Super Bowl revenue, we’re pacing in the negative single – mid single-digits, maybe even a little bit better than that. So mid single-digits down 5%, 6% as where we would expect to end up in local advertising for the quarter. That’s a tremendous improvement if we look to COVID from a year ago, right. Every quarter, every month, we have seen advertisers come back. And now we are stripping out football and stripping out political and everything else. We’re about back to where we’d expect to be year-on-year. Of course, looking forward, the comps become much better because we will have been – we’ll be comparing to the first quarter that was CVOID impacted versus now being in a more normalized advertising environment. From a category’s point of view, I think I mentioned too in response to Jessica’s question, entertainment leads the categories; home, professional services, all strong. I should just mention that on the flip side, that automotive, which is obviously a very large category for us, is still down. But this is primarily driven, skewed upon by our domestic manufacturers. In fact, foreign auto spending is roughly flat. By the way, second part of your question…

Yes, Alexia, just in terms of the improvement in sub-decline, if I look where we were like six months ago, I think what we’ve seen is continued growth of the virtual MVPD is for sure. But we’ve also seen a bit more balance coming. We’ve actually seen the traditionals, their sub decline has moderated a touch. So, coming from both sides of that equation.

At this point, we are out of time, but if you have any further questions, please give me or Dan Carey a call. Thank you once again for joining today’s call.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.