Good day, and welcome to the News Corp Second 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 Michael Florin. Mike, Senior Vice President and Head of Investor Relations. Please go ahead, sir.

Thank you very much, Eduardo. Hello, everyone, and welcome to News Corp’s Fiscal Second 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. The 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. Before we begin the formalities, I would like to express my sincere thanks to our readers, customers and employees in Australia, who have combined to respond thoughtfully and meaningfully to the tragic bushfires, which has had profound consequences for many communities. In particular, our reporters and editors and photographers have done an extraordinary job in tracking the fires and highlighting the impact of the tragedy on towns and regions that will take much time to recover. We are pleased that the company and its founders have pledged more than AUD 11 million to the cause and our company has continuing fundraising campaigns that will contribute significantly more over the coming months. We also thank the many companies, which had partnered with News Corp to make a positive difference for Australian communities. Turning to our results, as we anticipated the second quarter was somewhat soft for various businesses. However, we expect improvement in the second half as real estate markets in Australia show signs of gradual recovery, and we continue to progress with Opcity at Move, which should benefit the performance of our digital real estate businesses. We also expect faster growth in digital revenues at Dow Jones from the previously announced content licensing arrangements, particularly with Facebook, and improvement in book publishing based on the timing of the release schedule. Meanwhile, we are on the cusp of the seasonal selling peak for Foxtel, given that the main winter sports as soon to launch and Kayo, our streaming service, has already started seeing upturn in new subscribers even though we are still in the midst of the low season for sales. We took an important step on our path towards simplification with the sale of Unruly and notable development, which will yield financial benefits for us going forward.…

Thank you, Robert. turning to the financials, fiscal 2020 second quarter total revenues were approximately $2.5 billion, down 6% versus the prior year and total segment EBITDA was $355 million down 4% versus the prior year. On an adjusted basis, which excludes the impact of acquisitions and divestitures, currency fluctuations, and the other items disclosed in our release, revenues fell 4% and total segment EBITDA decreased 3%, a notable improvement from the prior quarters EBITDA performance. For the quarter, diluted earnings per share were $0.14 as compared to $0.16 in the prior year. Adjusted earnings per share were $0.18 in the quarter flat with the prior year. Turning now to the individual operating segments. in News and Information Services, revenues for the quarter were over $1.2 billion, down 1% versus the prior year. on an adjusted basis, revenues were flat reflecting a material improvement from the prior quarter. Advertising fell 5% while circulation and subscriptions grew 3% despite currency headwinds, digital revenues for Dow Jones and the newspaper mastheads represented 39% of their combined revenues, up from 35% in the prior year. Segment EBITDA for the quarter was $142 million, up 27% from $112 million, benefiting from the growth at News UK and Dow Jones. There was a one-time benefit of approximately $22 million due to the settlement of certain warranty-related claims in the UK. However, even absent that benefit, we saw growth in segment EBITDA. This was driven by the UK, Dow Jones and the narrowing losses at the New York post, partially offset by lower contributions from news Australia and news America Marketing. Similar to the first quarter, we reclassified approximately $8 million of cost in the second quarter of fiscal 2019 from the other segment, the News and Information Services segment. These reallocated costs are related to…

[Operator Instructions] All right. And I’ll take our first question from Kane Hannan at Goldman Sachs. please go ahead.

Good morning. Just two from me please. Firstly, to ease up those around the expected timing on that NAM final negotiations. And also your latest thoughts around the use of these proceeds. Now, the Foxtel debt financing has been finalized? And then secondly, just on the entertainment OTT plans. What should we read into the HBO max trademark that was recently filed in Australia? And can you comment on how you think about the importance of HBO OTT or Foxtel’s entertainment offering? Thanks.

First of all, News America Marketing was indeed marketed. We’re engaged in active negotiations for the sale of the company. And I’m happy to report that those discussions are well advanced. Frankly, the company’s balance of revenues have shifted from being a newspaper insert company to being more of an installed marketing company. The letter is certainly a profitable business, but not core to our competencies. I won’t comment on the use of the funds. as for HBO-related questions, you really should pose those to HBO. What I would say is that we have an unparalleled collection of programming at foxtel, where unlike U.S. cable companies in the past week ranges across a real range of providers. And there’s no doubt, for example, with recent renewals of Fox, NBCU, Sony, Discovery, BBC, we still have two more years of HBO that we’re in very good shape.

Thank you, Kane. Eduardo, we’ll take our next question please.

Yes. I’ll take the next question from Entcho Raykovski of Crédit Suisse. Please go ahead.

Hi, Robert. Hi, Susan. My question is around Kayo, obviously subs the client in the quarter, you’ve pointed to some states and all factors driving these. I’m just interested in how is that decline is compared to your expectations. Are you a little bit surprised that that subs it down over the period? And I mean do you feel that we have now reached close to full penetration for Kayo. It’s fairly – fairly seems to launch. And then just related to that, I mean, do you think pricing speaks to the right level? Do you feel like you need additional content? Any comments would be helpful.

Entcho, it’s a very early phase of the evolution of Kayo and it has been an exponential evolution. If you look at really only been in existence for just over a year. And as you know, we are very much in the low sports season in Australia. Our crickets fascinating, sometimes antediluvian as it can be is not as compelling for crowds in Australia as Aussie Rules or Rugby League. But cricket has certainly made a positive difference to audience retention. But the winter sports in Australia are about congregation and audience aggregation and we’re on the cusp of that selling season. There’s no doubt that Kayo is an absolutely world class OTT offering, also no doubt that it has a hell of a runway. As you know, the customer reviews are resoundingly positive. I mean, streaming technology without equal in Australia, is unrivaled and non-pareil [ph]. And let us be clear, this is not a 699 offering, but a premium $25 a month product.

Thank you, Entcho. Eduardo, we’ll take our next question.

Our next question comes from Alan Gould at Loop Capital. Please go ahead.

Thank you. I have just two questions please. First for Susan, can you just talk where the Foxtel debt stands now, including this Telstra debt and what kind of covenants it has and how it stands relative to its covenants? And Robert, for marked philosophical question. Warren Buffett has given up on local newspapers in the U.S. in the U.S., you have a national newspaper without local newspapers. How important are the local newspapers in Australia to your national newspapers and the rest of your Australian business? Thank you.

Hi, Alan. Just in relation to the Foxtel refinancing, you’d be able to find all the details in the 10-Q. They will have the different charges with the interest rates and the maturity by every individual chart in there What I would say though is in relation to the covenants; we did put $700 million of a shareholder loan in subordinated, in order to provide plenty of head room in relation to the covenants. So, we have absolutely no concerns at this stage that there’s any issues with those.

And as for papers, Alan, I think yours was a philosophical question and I’ll give you an even more philosophical answer. Is it the ecosystem generally can use content is in the midst of two levels of transition. We have to change the ecosystem for news content. It is digitally dysfunction, which affects national and local papers. And then our papers, whether local or national, have to transform themselves within that challenging landscape. Unless fundamental changes take place at both levels, the havens will not be, cannot be in equilibrium. And let’s be clear, we are literally dealing with fundamental changes in the character and valued content, and it is absolutely fair to say that with Rupert and Lachlan Murdoch’s leadership, no company has been as influential on this issue as News Corp.

Thank you, Alan. Eduardo, we’ll take our next question please.

So our next question comes from Craig Huber at Huber Research Partners. Please go ahead.

Yes, hi. I got a few questions. You can just go one at a time please. On your last call, Robert, you mentioned a little bit today, I’d like to hear a little bit further about your relationship with Facebook. The Wall Street Journal payment there, is a room there, is just kind of think out here in the coming years to actually expand that relationship and the size of monetary payment, what’s the benefit for you? That’s my first question.

Craig, obviously, that’s an evolving relationship and not just with Facebook, but with the other digital platforms, where – I can’t obviously go into specific details about the agreement, but it is a substantial agreement, it creates new precedents. We host the content, we sell the advertising, and Facebook pays a premium for premium journalism and up until that point, that kind of precedent hasn’t been established and it is a precedent that will resonate.

Do you see any, Robert, the other platform that’s like a Google or something coming down the pipe at some point when we get to payments there or is that not realistic?

I couldn’t possibly comment on other platforms other than the observation I made about the real appreciation of Sundar Pichai for the importance of high-quality journalism for society.

Okay.

Eduardo, we’ll take our next question please.

And so our next question comes from Brian Han at Morningstar. Please go ahead.

Robert, now that you’ve sold the Unruly and put NAM on the sales book, would it be fair to say that assets, such as the Wireless Group, storyful and SkyNews are also being looked at? And also Susan, in News and Information, did you guys change the prior quarter’s EBITDA number from 120 to 112? And if so, why?

Regarding your question of simplification, obviously, we love all our assets and we just acquired wireless, which is playing a beneficial role in the development of – for example, as I mentioned, [indiscernible]. Look, simplification is an ongoing process with a clear cogen purpose, to make the inherent value of the company more obvious to investors. You may have noticed, it was a complexity to the company given the mix of assets and there’d be great transition in some of the sectors. And the more – frankly, that we can highlight the value of individual assets, the more that the positive trajectory and the transparency of the company will become obvious.

And Brian, just in relation to your question around the News and Information Services EBITDA, as I mentioned in my prepared remarks, we – this is similar to what we did last quarter. We had about $8 million of costs that we reallocated into that segment from the other segments and those costs related to various initiatives including news IQ, which is our global programmatic effort, and shared technology services that directly impact on that particular segment, which we continually look at as we look to leverage our global scale.

Thank you.

Thank you, Brian. Eduardo, we’ll take our next question please.

It appears there are no further questions at this time. I’d like to turn the conference back to Michael Florin for any additional closing remarks.

Thank you, Eduardo and thank you for all participating. We look forward to talking to you soon. Have a great day. Take care.

This now concludes today’s call. Thank you for your participation. You may now disconnect.