Good day, and welcome to the News Corp First Quarter Fiscal 2019 Conference Call. The conference is being recorded. [Operator Instructions]. At this time, I'd now like to turn today's call over to Mike Florin, Vice President and Head of Investor Relations. Sir, please go ahead.

Thank you very much, Carrie. Hello, everyone, and welcome to News Corp's Fiscal First Quarter 2019 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 will 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. The definitions and GAAP to non-GAAP reconciliations of such measures can be found in our earnings release. With that, I will pass it over to Robert Thomson for some opening comments.

Thanks, Mike. Fiscal year 2019 is off to an impressive start with growth in revenue and earnings reaffirming our strategy to become increasingly digital and global and to put renewed emphasis on subscriptions in a choppy advertising market. We are committed to extracting a premium for our premium content regardless of the platform on which it is published. In the first quarter, News Corp saw growth in revenues and total segment EBITDA, with Digital Real Estate and Book Publishing continuing to thrive and with the strong expansion in digital subscribers across our news businesses. Meanwhile, at Foxtel, which has added significantly to our consolidated revenue and EBITDA, the transformation of the company continue to pace. In summary, reported revenues grew 23% to $2.5 billion for the quarter while reported total segment EBITDA expanded 44% to $358 million. These numbers are noteworthy as, even excluding the Foxtel consolidation, we achieved tangible increases over the same period last year. In this era of big digital, with its blandishments and banishments, our editors and journalists have consistently reminded readers of their value as trusted sources of real news delivered in real time and with real context. The transition to digital continues, and we will strive as a company to change the contours of the content landscape for the sake of our businesses and our societies. We are in active negotiations with Google, Facebook and Amazon, and we are in discussions with lawmakers and regulators in Europe, U.K., Australia and the U.S. There is finally a more sophisticated debate about prominence and propriety in these countries, after more than a decade of effort from Rupert Murdoch and the News Corp team. Our victory over the punitive First Click Free was just a start, and it certainly assisted quality publishers around the world. And Rupert's…

Thank you, Robert. Before I review the results, I wanted to highlight a few things from this quarter. We continue to take steps to stabilize News and Information Services. We are seeing strong growth in digital paid sales while balancing that with ongoing cost efficiencies, including industry solutions. There's still plenty of work to do, but I'm pleased with our progress in the start to the fiscal year. Our revenue mix within the segment is also improving with advertising now making up less than 50% of revenue. In Digital Real Estate Services, we completed the acquisition of Opcity to Move last month for approximately $210 million, including certain deferred payments and stock bonds. As Robert mentioned, this is a leading best-in-breed real estate tech platform that expands realtor.com's offerings to include a success-based concierge model for prequalified transaction-ready leads. Realtor has made significant progress and remains an area we continue to believe is important to both capital reinvestment and to value creation. We are making progress at Foxtel. The team is working hard on the launch of its sports-only OTT product while making significant improvements to our core broadcast offerings. We have restructured the management team, adding key expertise and that team is now heavily focused on further improvements to reinvigorate the new Foxtel. The performance of HarperCollins this quarter again underscores the value of premium content and global scale, posting another quarter of robust EBITDA growth despite more challenging prior year comparables. With that, I would now like to discuss our financial results in more detail. We reported fiscal 2019 first quarter total revenues of over $2.5 billion, up 23% versus the prior year, which reflects the impact of the consolidation of Foxtel. On an adjusted basis, which excludes the impact of the Foxtel consolidation, unfavorable currency impact and…

[Operator Instructions]. Our first question will be from Entcho Raykovski with Crédit Suisse.

My question is around Subscription Video Services. Firstly, could you let us know how much was spent in Q1 on investment into the OTT products? Obviously, that's a focus that you've mentioned. So just interested in how much was spent and how that investment is then expected to be phased over the remainder of the year. And as a follow-on to that question, following the launch of the packages, how do you think about the addressable market? Where do you think penetration can get to? Obviously, you've been sitting around that 2.8 million, 2.9 million mark so just interested about how you're thinking about additional subs.

Entcho, I think it's fair to say that what we see in the Australian market in recent years that the presumption of a ceiling on the number of Australians willing to pay for television services and services delivered across other platforms, that, that ceiling no longer exists. And having broken through that ceiling, it creates extra opportunities for the highest quality provider. And we are certainly, in terms of programming, the highest quality provider, like in terms of sports, entertainment, documentaries, children's programming. But we haven't, in the past, delivered those services in the way that potential customers have necessarily wanted. So as you know, we have new leadership, we have new technology. We have a new marketing team. And we are genuinely confident that this confluence of an expanded market and an improved product will make a difference to our percentage share.

And Entcho, just in relation to OTT, we haven't given out the investment numbers in relation to that. But what we have said, and we said this on the last call, we spent about $285 million in CapEx last financial year at Foxtel. And we expect the investment to be at least $50 million higher than that in the current year. And at this stage, we're currently expecting that, that will come in line. We, obviously, when we launched the product, we will have marketing costs that will be associated with the OTT program. So that will come in, in the first quarter -- or in the second quarter and obviously will continue somewhat through the balance of the year. And just as a note, we spent about $69 million of CapEx in relation to Q1, which is flat, relatively speaking, year-on-year.

Our next question will be from Alexia Quadrani with JPMorgan.

My question's on the News and Information Services segment and the strong growth you're seeing in digital subscribers. I guess, any color can you give us on the opportunity for further growth, really sort of how big is the potential opportunity in your opinion, how that may differ by market obviously? And then just my follow-up would be a quick question on HarperCollins. When you look at the pipeline of books out there going into the next calendar year and even the fourth quarter, any sense on how those skew physical versus digital?

Alexia, look, obviously, we're doing a lot to change the contents of the -- content marketplace. And the whole subscription scenario has fundamentally changed recently, and in large part, because of the work that News Corporation has done in convincing Google to get rid of First Click Free, which is really punishing premium content. So one thing I'd like to say, if any other publisher around the world, which is now profiting from our efforts would like to send us commission checks, we're welcome to that. The -- really varies paper-by-paper and country-by-country. I'll focus on Dow Jones because it's obviously the largest of our properties. But what we're seeing two phenomena, which are fruitful: one, continuing to use artificial intelligence to identify, through propensity modeling, new customers and using that modeling as well to provide them with a more satisfying experience; and two, from that, an ability to upsell those customers to higher value-added products from our Professional Information Services.

And I think if we just focus on Dow Jones, obviously, the size of the market within the U.S. is very large as well as internationally. And just to give you sort of a sense, we had about 93 million nonsubscriber website visitors in Q1 made up of first-time repeats and even former subscription visitors. So there is a big opportunity, obviously, within that pool of people to drive conversions. And The Wall Street Journal customer base is only 11% made up of international subscription. And given the brand and the strength of that brand on a global scale, we do expect to see growth within international going forward.

And as for HarperCollins, Alexia, as you can see from the results quarter-after-quarter, the team has done a wonderful job in identifying talent and having natural empathy that you need not only to satisfy current demand but to anticipate future demand. And that's particularly so as I said with the release this very week of Homebody, which we have great expectations on and the other authors that I mentioned. But it's a tribute, one, to the ability of Brian Murray and his team and Charlie Redmayne in the U.K.; two, put together groups of editors, who can get the best out of authors and then to make the most of the product by marketing it in a clever way, and also being open to do opportunities, which is what you see with the exponential increase in digital audiobooks. And we're very optimistic, as I mentioned, not only about the opportunity in the U.S. but actually around the world, where the same trend is now preeminent. And in that sense, the team deserves particular praise because, at HarperCollins, we have been the author of our own success.

Our next question will be from Kane Hannan with Goldman Sachs.

Can you just provide a little bit more color around the Opcity business, the strategy for integrating that into Move and how the economic program of Opcity lead is compared to a Connections for Buyer lead? And then just one quick one, just on the Sun Bets payment of $48 million, just confirming that's $48 million in EBITDA for the NIS in the quarter?

So just in relation to Sun Bets, yes, it is. We obviously got net offset for coming to that, but yes, the gross payment was $48 million and it dropped to EBITDA.

And with the Opcity integration, clearly, we're integrating Opcity not just into realtor but actually into the broader News Corp because it is the complementarity of our platform that has been behind the successful growth and turnaround story really that is realtor.com. Essentially, we believe that realtors should have a choice between quantity leads and quality leads and that they should be appropriately priced. And so we're very much focused on realtors and on buyers and sellers. We're not interested in house flipping, as I said, in other company. And so we do see a lot of loyalty. When you look at the other company's business and there's a fair amount of churn there among their clients, probably more churn than you find in the average butter factory, it is our intent with Opcity to be absolutely focused on realtor leads. And the product of that, we expect in the second half is a significantly higher rate of growth in overall revenue at realtor.com of the order of the mid- to high teens, which, compared to the 10-or-so percent in the quarter just completed, is obviously a tangible increase.

And I think the other thing that's important to note in relation to that is that realtor will be managing the conversion from leads coming in into Opcity to make sure that the customer experience is optimal. And so that may fluctuate as we go throughout the year.

Next question comes from Tim Nollen with Macquarie.

I have a question about costs, particularly in Australia. I may have missed the News [indiscernible] side how you manage to get some nice EBITDA expansion, I think you mentioned in Australia, despite some revenue declines there. I know you've been doing some cost-out efforts for a while there and maybe that's all that was, a better base. And then similarly on the Subscription Video Side, it looks like some good operating cost cuts. Despite the fact that a lot of those costs are sports-related, I wouldn't think you'd have to adjust to put cost out. Wondering if you could help us maybe quantify a bit more how much the pay-per-view fight contributed to the revenue and the cost differential or how else you managed to save costs in that business.

So just taking News Australia first. I think the team has done a great job at looking at the overall cost bases in that business. And obviously, it's quite large from a geographical perspective. They have been working on industry solutions. They have been looking at editorial savings, production savings, back-office savings. They obviously get the benefit of lower newsprint coming through because of the volumes. And they've also been looking at distribution savings. So they've been going really hard on this with the organizational structure and design and taking cost out where they think it's not going to impact on the end product. So I think they have been very focused on that. They obviously have got the benefit of the cost-out in the previous year. From an annualized perspective it's going through into this year, but they also have to be looking at other cost opportunities in the current year. Just in relation to Subscription Video Services. So your question, can you maybe just repeat your question again in relation to that?

Yes, it's kind of a two part thing. Just trying to understand with the fight and the revenue recognition, I think you gave some comments on that. I just wondered if possible to quantify what the revenue and cost differential was there on the fight and any other item. What I'm trying to understand is how you managed to save a fair amount of operating costs, given a lot of sports rights generally in the mix.

So on pay-per-view, it's about $10 million to $12 million in Q1 so that gives you a quantification of that. And revenue recognition was about $4 million in the quarter.

Our next question will be from Alan Gould with Loop Capital.

I know it's just the first quarter that you've consolidated Foxtel with the Australian sports. But I'm just wondering, what sort of time frame should we be looking for and what sort of metrics we'd be looking for to see the success of turning around Foxtel?

Well, clearly, we're at an early stage. We're early in the season, we're early in the cricket season in Australia. We're early in the season of renaissance at Foxtel. I would look, really, over the next 12 months, particularly the takeout of the OTT in coming months, then ahead of the next winter sports season in Australia, so the selling season there is sort of in the February, March, April peak selling season, and keep an eye both on the number of new customers and obviously the ARPU. But to be very clear, benchmarks over the coming year, it'll be obvious to you, and we're going to make it obvious to you how we're faring. But we have full confidence in Patrick Delany and the new team and it is an overhauled team. And the early indications are that they have both an understanding of the opportunity, empathy with potential customers and kind of real energy that has brought new life to Foxtel. And so one, it's a great opportunity for the company; and two, the metrics will be very clear.

Our next question will be from Eric Pan with JPMorgan.

So just a little bit more on realtor.com, visitor growth there seems to be slowing. Can you talk a little bit about your strategy there to try to boost the visitorship, where you're focusing your energy? And then [indiscernible] you're saying you acquired a mortgage business. Do you foresee either Move or realtor going to the ancillary businesses as well?

Well, first of all, the audience growth was certainly greater than that of the competitor in the most recent quarter. And core real estate revenue growth was 19%. The overall was 10%, in part, because we consciously reduced the number of advertisements on the side. We're experimenting with user experience. And we can, frankly, turn that dial up and down as and when we choose. But we're obviously constantly trying to improve the experience, both for users on the site and obviously for our realtor clients. Our focus over the next year will be the integration of Opcity because we believe there really is an opportunity in providing quality leads to realtors and being able to price those leads in a way that reflects our contribution to their success.

Our next question will be from Craig Huber with Huber Research Partners.

This $48 million revenue benefit from Sun Bets definitely sounds like it's onetime in nature. I guess, I'm just surprised it wasn't taken out of your adjusted EBITDA number. Is there a reason why? I'm just curious. And then secondly, I have a similar question to earlier, somebody else. In your Subscription Video Services, it looked like costs are down, based on Page 19, roughly about 14%, maybe down roughly 7% adjusting for currency. What drove the costs to be down that much, given with the programming costs, were up pretty nicely, right, probably at least mid-single digits or so?

So just in relation to the Sun Bets, it was actually partly operational in nature because the settlement of that was effectively the payout of a contract, bringing forward effectively the minimum revenue guarantee that we had within that contract. So obviously, there's the termination payments in there as well, but the bulk of it was operational. And as a consequence that's why we reported it the way we did. In relation to Subscription Video Services and the costs, we did see cost reductions coming through from nonprogramming as well as some of the program. We didn't have some of the year-on-year costs that we talked about on the pay-per-view, which was $12 million. We didn't have sports, some of the sports costs that came in relative to Q1 of the previous year, but they also are working hard on some of the overhead costs in the background. So they have been looking at driving costs out in the back office, as we said, in order to provide a runway for investment going forward.

Our next question will be from Brian Han with Morningstar.

In the books division, can you please explain the big margin improvement in the quarter despite just a 4% revenue increase? I mean, the big growth in digital audio can make up for all that, can it?

Part of the reason obviously is because of the backlist. We get higher margins obviously as they come through from a backlist perspective relative to the frontlist, where we're obviously paying large all throughout [indiscernible] we have. So that's really is what's helping drive that margin improvement.

Susan -- and what was the increase in the backlist revenue during the quarter versus B2P?

We had a backlist that contributed to about 55% of the revenues. I don't have the percentage here in front of me of what that movement was quarter-on-quarter but it contributed 55% to the overall revenues.

I'm showing no further questions in the queue at this time. I'd like to turn it back to Mr. Mike Florin.

Great. Thank you, Carrie, and thank you for participating. And we look forward to talking to you next quarter. Have a great day.