FOX Q4 2024 Earnings Call Transcript

Hey Ben, thank you very much for the question, and good morning. Obviously, a number of milestones have been achieved on the development of Venu as we've gone through the beta and as you lead towards the launch later this month, this new beta releases practically every day. And the product is looking both excellent, really good, but also in a quite revolutionary in the way Americans are going to view sport. So we remain incredibly excited about it, the Venu announced their pricing of $42.99 as an initial launch price. We think that really hits the right mark and the target for what we want to be as a business but also as a consumer proposition.

And there's no update really on our expectations of 5 million subscribers over 5 years. That's what's in the business plan, and that's what we're aiming to achieve. Obviously, it's very important that those subscribers are focused on cord cutters and cord nevers. We feel that all the partners in Venu feel very strong that we can target our marketing and our subscriber acquisition to sports fans that are not currently in the cable television bundle. That's important to us and that really is what leads us to subscriber level in the mid-single digit millions.

Steve?

Yes. Thanks, Ben. So in terms of impact on financial statements, obviously, we had a 2-sided relationship with Venu Sports. So as a shareholder, listen, the business is going to take some time to sort of get the cash flow breakeven. So from a shareholder perspective, you'll see that investment come through. We'll take the deficit through equity earnings in the P&L and investment through the cash flow. But obviously, we're a key supplier to the JV being a content supplier of our sports networks and so the benefit of that you'll see come through in our affiliate fee revenues, both in cable and TV. So it's a touch early. I think we saw 100% lockdown in terms of launch date to give you any sort of guide on quantum in terms of fiscal '25 impact. But as I said, I think a couple of earnings calls ago on a net-net basis, it should be accretive to us on a pretty quick basis.

Operator, next question, please?

Thanks very much, John. So overall, our pricing is very strong, and we had both pricing and volume increases coming out of our upfront, we've now closed our upfront. We've -- 99% of the business is in-house. So we've -- the upfront process is now completed and completed. I'm happy to report very successfully. Going into the upfront to be totally honest, there was ins and outs. There were some headwinds that you could see, and we were -- we still remain cautiously optimistic about what could be achieved, but we actually came through the upfront above our expectations. And again, I'm pretty pleased with the momentum that we saw in our businesses. Of course, this was led by sport in -- both with the sport inventory that we have and the marquee events that we have culminating in Super Bowl 59 this year.

Sport was incredibly strong, not just in football, but also in Major League Baseball. So we're very pleased with that. In cable, Fox News also saw volume increases in the upfront, most pleasingly, I think -- and obviously, that's coupled with really remarkable ratings increases. But most importantly, and we've talked about this a number of times on previous calls, the strength in the direct response marketplace in the high teens in terms of pricing is a great return to growth in pricing for direct response and really bodes well for that line of our business.

When we then look at political, we expect probably ex the Georgia runoff, right, so if you look at the apples-to-apples political cycles, we would expect a record political cycle this year. And in particular, as the race heats up, we're seeing more money flow into the marketplace. And new marketplace is emerging, as I mentioned in my prepared comments, as the rates tighten. For instance, Atlanta and Phoenix, where there's a significant amount of money now being placed only in the last couple of weeks. So we do expect a very robust political cycle, and we think a record political cycle ex the Georgia runoff 4 years ago.

Next question, please, operator?

Thank you very much, Robert. So I think on growing affiliate fees, we expect to continue to modestly grow our affiliate fees in light of, obviously, the declining volume of subscribers. I think we called out in the past quarter, last quarter, sort of reduction in subscribers are around 8%, mid-8% and as that continues, we'll be able to grow our pricing above that, but it's going to be modestly above that number. And that's really based on the focus of our core brands. The fact that we're not carrying the baggage of any entertainment cable channels or legacy channels, which are -- we have to use the leverage of Fox News or Fox Sports to support. We can be entirely focused on driving the appropriate value for our core cable brands and also for our television stations retransmission.

Yes. And Robert, in terms of content spend, if I just go through the sort of the key verticals we have, at sports, we've got regular amortization increases. Obviously, the NFL is the single largest piece of that, in fiscal '25, that's partially offset by the fact that in October, we move away from WWE and program with college sports rights. Tubi, I think you should expect us to continue to grow content. Some of that is active in terms of license content and originals and some of that is passive because so much of the revenues come from revenue share deals. And so that just grows with the amount of user shipment advertising growth.

News is pretty modest growth. A lot of that to do with talent and breaking news coverage and that sort of very predictable and then the final one, I think you were alluding to was entertainment and the shift from scripted to unscripted. With that, it's probably worth noting that fiscal '24, obviously, was very impacted by the strike, and so you had a very significant shift from scripted to unscripted programming. And that is -- well, that's partially thematic. Fiscal '24 was -- that trend was particularly amplified and it basically save us north of $100 million in the in terms of entertainment programming costs, don't expect that to continue to happen.

In fact, it will swing back a little bit the other way as we sort of rebalance the portfolio to slight next year with a little bit more scripted fair. I think though when we look at entertainment, we look at it from the perspective of how do we get our cost per hour down. And when I compare what I think fiscal '25 will look like versus fiscal '23, that cost per hour is probably down 10% to 15%. But we obviously want to have a balanced broadcast network that serves our sort of cross-promotional needs, serves our capacity to monetize from an advertising perspective and serves our capacity to monetize our content in downstream windows and its ownership of the content. So we're going to be balanced about it.

Operator, we can go to the next question.

Thanks very much, Jessica. Good morning. First, on the ad sales team, thank you for calling them out. They've done a tremendous job, and we're very happy with the their performance. Jeff Collins has stepped into the role very, very well and is leading the team effectively. And obviously, I'm monetizing all of the impressions that we're able to generate. So we're very pleased with that. Going into the upfront, we're structured, I think a little bit different than some other media companies I'm not aware of sort of the structure of the advertising sales organizations across the entire industry. But we retain expertise across the verticals. So we have a very focused sports team, we have a very focused news team, entertainment and importantly, more and more our digital team, which is obviously a great part of is Tubi.

So while we have sort of expertise in those teams, in the upfront, we were able to sell across the entire portfolio, our One Fox portfolio, and that proved to be very successful and very effective in this upfront. So I'm not sure if that's very different from what everyone else is doing, but it's a structure that we think works for us and has certainly proven its value in the marketplace this year. In terms of what we want to do with our balance sheet and how we deploy capital, I think we are careful and prudent deployers of capital, that's going to continue. We have the right mix of investment -- capital investment in the business of organic investment in our businesses in return to shareholders and then increasingly, our focus on M&A. We have nothing to update you on in the latter category other than to say we're going to be prudent and careful, but we are aware that M&A remains one of the important levers that we have and how we deploy capital.

Next question, please?

Great. Let me start with Tubi, then I'll hand over to Steve. Tubi continues to go from strength to strength. I think importantly, exiting the fourth quarter with revenue growth in the mid- to upper teens, I think was very good to see, to see that momentum as we moved into July, and we've seen that momentum continue into this quarter in July. You have to put that in context of a tremendous supply of advertising entering into the streaming market with the Amazon Prime, entering the advertising-supported streaming business. That caused a lot of other streamers to really fight hard for their revenue and drop pricing. Tubi did not have to, Tubi has sustainable pricing in this market and really drove this growth on the strength of its brand and their tremendous reach and quality of its audience. So we're very pleased with that, and we expect further growth in Tubi as the year progresses.

Thanks, Lachlan. Good to hear from you, Mike. So just in terms of investment, if I look at where we landed for fiscal '24, Tubi was the single largest driver of the investment across our growth portfolio. So its level of investment was at a consistent clip to where we were in fiscal '23. So the mid sort of 200 range. And if I look across all the other growth businesses, whether it be nation, weather credible, the entertainment studios that we're building out, that collectively sum to about another $100 million in rough numbers. Looking forward to fiscal '25, I think most of the improvement comes from a little less investment at Tubi, which should put us in the high 2s, I think, and from a net investment perspective across those businesses.

Great. At this point, we're out of time. But if you have any further questions, please give me or Charlie Costanzo a call. Thanks so much for joining us today.