Q2 2021 Fox Corp Earnings Call
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.
And I would like to emphasize that the functionality for the question and answer queue has recently changed instructions will be given at that time.
You should require assistance during the call. Please press Star then zero as a reminder, this conference is being recorded on.
And I'll turn the conference over to Chief Investor Relations Officer, and Executive Vice President of corporate initiatives. Mr. Joe Durango. Please go ahead Sir.
Thank you operator, good morning, and welcome to our fiscal 2021 second quarter earnings call joining.
Joining me on the call today are Lachlan Murdoch executive Chairman and Chief Executive Officer, John Nolan, 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 and the Companys SEC filings. Additionally.
Additionally, this call will include certain non-GAAP financial measures included 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 and 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 and a quarter with EBITDA growing by 17%.
Given by revenue growth of 8%.
These financial results were led by exceptional games and advertising revenues, which grew by 14%.
Spurred by record political cycle, and 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 and <unk>.
Beyond advertising and because of the substantial pricing power of our brands affiliated revenues grew by 6%. Despite a reserve taken for potential distribution credits.
While we experienced a decline and subscriber volume the trend improved for the third consecutive quarter.
This quarter, we saw industry subscribers declined just about 5%.
Which is more than a 50 basis point improvement from what we experienced in Q1.
The financial performance on Fox.
And the illustrative of the strength of the core brands and anchor our company and of the contributions of new assets that 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 on Fox News media.
For example, Fox <unk> ability to provide the best and local news was on full display at Fox five Atlanta, drawing the Georgia Senate Runoffs.
Not only did our colleagues at Fox five report on the national significance of the Georgia election. They also expanded news coverage and response to viewer demand held a candidate debate and produce special runoff programming focus on the issues impacting Georgia voters.
During the entire on off period Fox five was the number one station in Atlanta for six and a half hour morning News block.
Hard work, but gets just awards and so it's no surprise, we led the market and political revenues generated.
This success was replicated across the Fox television stations footprint.
Net political revenue approximated $190 million and the quarter, bringing our total for the stations and the first half of the fiscal year to approximately $260 million.
And that amount more than three times greater than the last presidential cycle.
The new cycle also continued to connect engaged audiences to the various Fox news media platforms Lynn.
And linear digital radio and streaming for news and analysis and opinion.
In fact, the Fox News channel finished the quarter with the highest average primetime ratings and a history of cable news.
Fox News channel close the calendar year as the number one television network and weekday prime time continuously topping all broadcast networks and total viewers since the very early months of 2020.
Fox News with number one and election night coverage drunk primetime, beating all television networks, and averaging 25% share of total viewers.
While calendar 2020 ratings were a record breaking we are now seeing the expected post election and audience pullback that we anticipated on this call last quarter, and which is consistent with prior election cycles.
We fully expect that the overall news audience will normalize and our share of ratings will dominate and in fact this trend has already beginning as we have seen substantial share gains versus our competition since the inauguration.
As in the past.
Sorry, I was in the past and we are confident that the strength and breadth of the Fox News media businesses positions us for sustained long term growth.
I am pleased to announce that Fox News media CEO Suzanne Scott has extended her from where the company under her leadership Fox News has expanded its reach with consumers and has diversified significantly to become a multi platform media brand.
I've been fortunate to work closely which is suzanne over the last several years and I've seen and acts and her ability to seamlessly guide the newsroom and stories break.
And our openness to new ideas and her ability to innovate new opportunities to grow our business.
I'm also happy with the programming changes that Suzanne is implementing including Larry Kudlow show on Fox business network that will Premier next week.
We all welcome Larry to Fox.
Turning to other areas and the company our mix of assets, our viewers flock, and even greater numbers and Fox sports and TV post election.
Fox Sports leadership and live events demonstrates why it proudly and correctly claims to own the fall.
Even with an atypical fall sports schedule and that was crowded but out of season events that had that had been postponed earlier and the year and included unexpected and sudden cancellations Fox clocked nearly 170 billion minutes of live sports viewing in the fall more than 50% above the.
And next competing network.
Our 27th season of the NFL demonstrated that Fox continues to be the preeminent broadcaster of America's most popular sport with nearly 45 million viewers.
Tuning and to Fox for the NFC Championship game, we eclipsed last year's NFC Championships audience that was broadcast during the later window.
I want to congratulate the NFL for.
And for completing a seasonal last Sunday.
I know many of you on this call and worried about the risks associated of Fox, if the NFL season and fell short.
As a testament to the leadership of Commissioner Goodell, and and professionalism of both the NFL and the incredible team at Fox Sports that we were able to deliver and broadcast such a historic season.
Crowd.
And is not my favorite word.
Or concept.
But I am very proud of our team for this achievement.
Elsewhere, the return of live sports boosted our sports wage and partnership Fox bet.
After adding nearly 3 million players during the NFL season, Fox bet Super six now has a user base and excess of $4 3 million players and continues to be the biggest free to play game of its kind in the country.
We also continued our successful track record with non sports Super six contests.
For example, the Super six game covering the Georgia Senate runoff and our recently launched stock market Challenge game and weekly Crisco and promoted on Fox and friends and enable us to fully engaged non sports fans, who generally would and interact with their wagering brand.
A key differentiator from Fox bet has been the cross promotional power of all of Fox as assets to.
And to ignite the Fox bet brand.
And a similar fashion, we have mobilized the entire fox portfolio to support and supercharge tubing.
Which we acquired less than a year ago.
This strategic acquisition, which is already a core asset for Fox Corporation, clearly merits some focused commentary.
<unk> is an exciting growth engine for the company and a key strategic platform for not only our digital expansion, but also our broader re imagining of Fox broadcast model for the future.
In fact, I believe <unk> is an investment and what we internally call the broadening our broadcast.
Meaning the Fox network and to be combining seamlessly to create a modern network inspired business.
And with to be as part of our portfolio Fox broadens from being the leader and broadcast network TV into a leader and linear and streaming ecosystems.
Both Fox and <unk> deliver distinct value to our viewers partners and advertisers already and.
And we believe to be technology and market approach coupled with Fox is a unique positioning and are focused network first business and make them, even more impactful when operated and offered together.
You know the broadcast network, well and our marketplace differentiation.
So I'll focus on the already meaningful momentum and results and tubing and the significant sustainable growth that we envision ahead.
<unk> has seen dramatic year over year increases across every key metric and it continues to grow beyond even our best acquisition expectations.
Over the first half of the year, we have seen yearly unique viewers more than triple.
Total view time grow by nearly 70%.
And and revenue more than doubled.
In fact, two lease revenue from this past quarter alone broadly approximated two lease revenue for the entire fiscal year before we acquired the company.
While some streaming services focus attention on metrics like sign ups or monthly active users. We think the most meaningful metric when measuring the performance of any <unk> service is total Utah and <unk>.
Our TVT.
As it is viewership that has direct and proportional and relationship to advertise and inventory and revenue opportunities.
It is this profile of <unk> that is driving digital advertising partners to engage with our audience.
Looking ahead to our plans to continue to boost <unk>, let me give you a bit more color on our content technology and synergy strategies.
<unk> vast content library by design caters to a broad audience.
We continue to strategically add to its offerings with marquee titles from Fox and the only other program every other programmer of note.
The addition of the masked singer of <unk> provides a perfect example, the power of these assets combined with.
And the show was a sensation when it launched on Fox and we added the mass senior to Toby It added reach for advertisers delivered significant view time on the platform and broad and advertisers seeking to be associated with the young diverse and complementary audience that to be adds to the Fox offering.
Another important differentiator for <unk> is its technology.
<unk> constantly enhancing its AD technology to provide better data and our results to digital advertisers.
For example, two we recently introduced advanced frequency management tool, which reduces the AD repetition.
And early study with a major insurance brand this tool reduced over frequency to the same viewers by more than 360%.
Simply stated rather than continuing to show the same AD to the same viewers as is often the case across other <unk> platforms <unk> tool enabled this insurance company to advertise to nearly 100000 more households within the same ad buy.
These compelling results led the insurance brand to make a multimillion dollar active image toebie throughout 2021.
And the brand is also a Fox advertiser now as well.
And I expect more technology advancements and offerings and the months ahead to these tech stack and general with separate <unk> from lesser Avon options for years to come.
<unk> has also rapidly become a synergistic acquisition.
We've had incredible success with advertisers, who find their way to <unk> to existing relationships with other Fox brands.
For instance, 50 advertisers who had not previously worked with Tuohy chose to buy to be drawing a recent upfronts season by.
By combining <unk> into our portfolio of advertisers, we reach brands that may have been unfamiliar with <unk> unique and additive audience, nearly 50% of which doesn't have a pay TV subscription.
We have a laser focus on growth and monetization of <unk>.
And as we continue to invest and to be we believe it will become the Ava platform of choice for viewers and digital advertisers alike and become a larger piece of the broader Fox Corporation business.
Translating this financially.
We expect <unk> revenues to more than double and the current fiscal year to exceed $300 million.
And as we look out a few years, we envision to be becoming a $1 billion business and a core pillar of Fox.
<unk> is a tremendous addition to our preexisting portfolio of growing digital businesses.
Which we have built over time and a fiscally responsible manner over.
Over the first half of our fiscal year, our Fox News sports and entertainment and TV stations digital businesses have attracted more than 330 million average monthly users.
Over a 30% increase from the comparable period and the prior year.
These users spent more than 160 billion minutes consuming our digital content. During this time and increase of more than 70% from the first half of fiscal 2020.
Through these digital destinations coupled with <unk> and credible we've generated well over $650 million of digital revenue through the first half of our fiscal year with approximately two thirds representing digital advertising revenues.
These rapidly growing platforms, along with our must have linear TV brands and market expanding partnerships are exceeding expectations.
As the United portfolio, there are even stronger with wide runways for the businesses to collaborate and retaining existing viewers harnessing new audiences engaged and consumers in new ways and broadening the touch points users have with Fox.
And now Steve will take us through the details of the quarter.
Thanks, Lachlan and good morning.
Highlighting the strength and momentum across our businesses the company delivered double digit growth and advertising revenues, along with underlying double digit growth and affiliate revenues and our fiscal second quarter.
And total advertising revenues increased 14% with a strong growth led by the Fox television stations, the inclusion of <unk> and continued linear and digital strength at Fox News media.
As we previewed on our most recent earnings call the growth at our TV 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.
Bringing our fiscal year to date to approximately $340 million.
Total company affiliate revenues increased double digits on and on 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 these credit was fully offset and our programming costs on a reported basis net total company affiliate revenue growth was 6%.
This strength and our two most significant revenue streams drove total reported company revenues to $4 $89 billion.
And up 8% over the comparative period in fiscal 2020.
Quarterly adjusted EBITDA was $305 million.
Up $44 million over the comparative period in fiscal 'twenty.
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 <unk> 37 per share was lower than the $300 million or <unk> 48 per share in the prior year quarter.
The decrease was the result of higher gains recognized and 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 other non core items adjusted EPS of <unk> <unk> per share was up six states compared to last year's <unk> <unk> per share, primarily reflecting the growth and EBITDA.
Turning to the performance of our operating segments for the quarter with cable network's EBITDA of $571 million was up 3% on revenue growth of 1%.
Cable advertising revenues increased 31% with the record audiences and digital engagement and Fox News media, leading this growth.
Underlying cable affiliate revenues increased mid single digits. This growth was underpinned by rate increases, including double digit pricing gains at Fox News media, along with the moderation in the rate of industry subscriber erosion, which is currently trending at a little over 5%.
As I mentioned earlier during the quarter there were a number of COVID-19 related cancellations of college football games.
As a result, we have recorded an accrual for the potential credits of certain distribution fees.
While these credit reduces our reported cable affiliate revenues. It is broadly offset by a corresponding reduction and <unk> costs.
Cable other revenues decreased by 32%, primarily due to low sports sub licensing revenues again as a result of the cancellation of certain college football games due to COVID-19.
These low sub licensing revenues were also broadly offset by a corresponding reduction and rights costs.
EBITDA at our cable segment increased by $15 million over the prior year period.
This reflects the revenue growth and I, just noted partially offset by the shift of certain sports costs from our fiscal first quarter into our second quarter that we foreshadowed on our last call.
The television segment reported revenue growth of 13% with the EBITDA loss improving $29 million.
To $185 million.
Continuing the consistently strong growth we have delivered since the establishment of bulk school television affiliate revenues increased 23% in the quarter.
This reflects double digit increases for both our programming fees from non owned station affiliates and direct retransmission revenues at our owned and operated stations.
The growth and TV advertising revenues was driven by the record political advertising I mentioned earlier.
And with the addition of revenues from the fast growing <unk>.
These factors excuse me.
These factors were partially offset and the segment by lowest sports advertising revenues, including the impact of Covid related cancellations as certain college football games, along with the postponement of key scripted Entertainment program.
EBITDA at <unk> television segment increased $29 million over the prior year period.
This reflects the revenue growth that I, just noted as well as higher programming rights amortization of Fox sports, primarily due to the contractual annual rights increases for a major sports franchises, including the NFL.
And incremental costs due to the consolidation of <unk>.
Partially offsetting these increases was lower programming rights amortization at Fox Entertainment due to the postponement of key scripted entertainment programming as a result of COVID-19.
Turning now to free cash flow, which we calculate as net cash provided by operating activities less cash invested and property plant and equipment.
And the quarter, we generated a free cash flow loss of $155 million.
Which is consistent with the seasonality of working capital and our business.
Reflecting our continued confidence and the business and our balanced approach to capital allocation today, we announced a semiannual dividend of <unk> 23 per share and continue to be active with our stock repurchase program.
So far this fiscal year, we have deployed $450 million of capital to repurchase approximately $11 3 million class a shares and $4 9 million class B shares.
Against our buyback authorization of $2 billion.
We have now cumulatively repurchased just over $1 billion representing.
Approximately five 4% of our total shares outstanding since the launch of the buyback program in November 2019.
From a balance sheet perspective, we ended the quarter with $4 5 billion and cash and $7 9 billion and debt.
Looking through to the second half of our fiscal year is worth reminding you of the C effect as it will impact comparability with the prior year.
Starting with sport and the current March quarter, we will comp against last year's broadcast of Super Bowl 54 on Fox.
But we did enjoy the benefit of one additional week of the regular season as well as the rotating divisional playoff game. This January.
Our plans also anticipate a timely start to the <unk> and major League baseball season.
However, as we have demonstrated in the past we would we will adapt to any potential COVID-19 driven disruption across our sports calendar.
Meanwhile, from and entertainment perspective, due to COVID-19, the launch of our key scripted titles on the Fox network has shifted from the first half into the second half of our fiscal year with completion of that full state and still dependent on minimal future disruptions to production schedules.
In terms of cash flow, we continue to anticipate relatively low working capital usage over the course of the full fiscal year and as a result, the normal working capital deficit exhibited in this year's first half reverses in the second half of the year.
As we foreshadowed in the past, we continue to expect a higher level of capital expenditure and fiscal 'twenty one to support the final phases and the build out without technical broadcast facility in Arizona and the upgraded some of our local station facilities.
With the majority of that full year advertising revenue already and in the first half a very light slate of affiliate renewals and a working capital tailwind that will build on and are already ample liquidity. We approach. The second half of this fiscal year from a position of financial strength.
Assuming the continuation of the constructive macroeconomic environment.
Tend to continue to deploy capital towards share repurchases and are targeting an additional $550 million and our fiscal second half to reach $1 billion.
And total buyback volume this fiscal year.
To sum this all up.
<unk> of our first two fiscal quarters demonstrates the strength of our underlying business.
This operating momentum combined with the benefits of strong free cash flow and liquidity and moderate leverage position us, particularly well for the future.
And with that I'll now turn the call back to Joe.
Thank you, Steve and now we'd be happy to take questions from the investment community.
Ladies and gentlemen, I would like to again emphasize that the functionality for the question and answer queue has recently changed.
You'd like to ask a question. Please press one and then zero on your Touchtone phone and you will hear atone, indicating you have been placed in Q you may remove yourself from queue at any time by once again pressing the one net zero if youre using a speakerphone. Please pick up the handset before pressing the numbers. It has been requested that you limit yourself to one question. Once again, if you have a <unk>.
<unk>. Please press one and zero at this time and one moment. Please for your first question.
Your first question comes from the line of Ben Swinburne from Morgan Stanley. Please go ahead.
Good morning.
And my questions around Fox News, obviously theres been a lot written about the network and the business and depressed of late.
And you guys just put up and then 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 and close the inauguration.
And cord cutting is obviously out of everybody's control, but if you think about a mid single digit headwind on volume to that business do you think it can grow cash flows over time.
And I ask because at least when I look at the stock it seems like the Fox news outlook is not being reflected in the stock price. So I'm curious if you think that business can grow even with the sort of industry headwinds that we're all aware about thanks.
Thanks, a lot.
And then as Lachlan and thank you for the question Youre right lots being written about it and and there'll be a.
A few more trees cut down I think.
Writing about it.
And the and the days and weeks.
And to come.
And I think the.
The fundamental that'll go out on me answer those two parts of your question and let me answer I'll answer both parts, but let me ask from the first part.
And broadly and then specifically so okay.
And the journalism busy.
Business.
And.
And the journals and trade.
<unk> you.
What are you doing work out what's your market is and you produce the best product you can possibly produce.
And for that for that target market for your readers or your listeners or your viewers.
Yes.
<unk> news the success of Fox News.
Throughout his entire history has been to.
Provide the absolute best news and opinion.
From a market that we believe is firmly center right.
And we don't pivot or change that and we haven't pivoted or changed throughout the history of Fox News and so we will continue to provide the best journalism and with the best hosts with diverse analysis with diverse opinion going forward as we have throughout past new cycles and we believe.
And.
And where were targeted to the center right is exactly where we should be targeted.
As we have been we don't need to go.
Further our right. We don't believe America is further right and we're obviously not going to pivot left on all of our significant competitors or to the far left so we'll stick, where we are and and we think that's exactly right and thats the best thing for.
<unk> for the business and for our viewers.
And with that and we will see.
Our return and our ratings dominance as I said, we believe the center right is where American politics are and we expected as we foreshadowed in the last call.
Our ratings too.
Tempered after.
And this election cycle.
Cycle.
And we were right we're down about 13%.
And ratings and I go back to the Trump Clinton election C.
And was down about 10%.
17%, sorry and CNN.
MSNBC, 10%, so C&I and 17.
MSNBC sorry.
Yes, that's right.
C N M C.
17, msmbc, 10% and so so we're right in between.
And that metric. So this is a cycle that we've seen before it's a cycle, we expected and we look forward to them and news are normalizing and.
And we will go on.
From strength to strength the second part of your question, though about.
About.
And really driving.
The business.
Continue to drive that business harder and continuing to generate cash I think we look at and two different ways. One is obviously the the pricing power.
Of our.
Filiate revenue.
Remains relatively untapped, we think we can continue to drive our pricing for Fox news.
Well ahead of any sort of volume declines and subscriber numbers.
That's very clear to us looking forward and I think the other part is that the new businesses that were driving out of Fox News media.
And now with Fox Nation, Fox and Fox business Channel is growing.
Fox the Fox digital all of the Fox digital assets Fox News Dot com.
And Ah.
Our radio Fox Radio and now we announced this past quarter on the launch Theyre coming loss of Fox weather. So when we look at Fox News media really is.
<unk> ecosystem of Fox News brands.
That are all growing and will all further contribute.
To grow on EBITDA and cash going forward.
Thanks Ben.
Operator, we can 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 and I have.
Our Capex multipart.
Topic on sports betting.
And 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.
And then can you give us any update on your options and what you are thinking about your options on Fox bet and tangible and finally on NFL.
How much is sports betting part of the conversation and your upcoming and you're in negotiations to the upcoming and the next cycle.
Thank you Jessica.
Jessica just to repeat the last day.
The last one on the muscle.
I got stuck on the fifth question.
One question on sports betting.
Yeah, so on the NFL.
Negotiations and presumably are progressing hopefully well.
And how much is sports betting part of that conversation.
Given your unique assets.
Great. Thank you Jessica nice to hear your voice as well.
So first of all from a and.
On advertising.
And our view.
Thus, our strongest category and in.
And the.
And the station group is entertainment.
Which is pacing up.
Yes, 10%.
Year on year.
And payment and really made up of a.
Two things one on one is sort of streaming services and.
And the second is sports betting so so absolutely.
The sort of wagering.
Businesses.
Both.
Locally and in the states, where wagering and legal, but also and sand duel and and and drafting and really help.
Helping helping drive.
Local performance at the station group.
<unk> I don't have that sort of broken out as a as a.
And not to say, even as a category.
There are subcategories and sports wagering for you, but it is.
And Theyre very top.
Growth tier for us.
Sure.
And then obviously.
And so we're enjoying the growth of.
Our sports betting and sports wagering on multiple fronts, one from an advertising fund at day at the local station level, but also obviously participating in it with Fox bet and with our action are option in and <unk>.
And <unk>.
You really and incredibly excited about the opportunities.
And for Fox bet.
Super six.
And as we've talked before on these calls and in person the Super six funnel at the top of our Fox bet.
And is working.
Very efficiently.
Set ourselves a goal during this NFL season to reach over 4 million active.
Active users.
I watched and say reached our goal we ended up with a goal of $4 million, we started with a lower GUL, we're tracking so well do a middle of the eye.
And of the football season that we increase the Golar and <unk>.
$4 4 million users, which we which we achieved at the very end of the season.
And that funnel is then is on successfully driving people into Fox bet wagering.
And where its license and legal and we just launched on Michigan.
January 26, and it was on.
A very successful launch.
<unk>.
In that state.
On the.
I think we've talked about before but the the fan dual option for our 85% is a 10 year option.
Beginning this summer, adding aside June or July.
And that option is based on.
In our fair market value.
<unk> was set with the.
Flutter acquisition of the asphalt stake in <unk>.
No.
We continue to be propel.
Proponents and fans of the dual brand strategy with Fox spec alongside with fan dual in these markets and we are we are enjoying our our partnership our deep partnership and important part and partnership.
And with flutter.
And as to the NFL is this is a growing business and you're absolutely on the NFL understands that this is a business that's important to us and it's important to how we are able to monetize our rights.
Our deals with them I don't want to go into the detail of the NFL negotiations that on.
And we continue.
To be and we've been and for a while we hope to bring those to a conclusion and and there in the near to medium term.
But the NFL is very aware of the importance of sportswear and I'm sure to us I'm sure I'm sure sort of others as well.
Thank you for the question Jessica.
Operator, we can go to the next question.
Your next question comes from the line of Doug Mitchelson from Credit Suisse. Please go ahead.
Oh, thanks, so much so.
A question for Lachlan and but I guess, partly a jump ball I'm, just curious future profitability potential for <unk>. So that's the one question and the details are.
You've talked about the usage up 100% and.
Advertising and up 70%. So you talked about 70% revenue up more than 100%. So cpm's are obviously, expanding and I'm just curious what the level of AD pricing is now relative to say broadcast primetime and and and where you see upside there and you talked about <unk> being the leading <unk> platform and the future.
And I'm just curious your view on competitive differentiation I think a lot of content that ends up on these <unk> services is not exclusive and so what do you think will attract to be people to to be versus other <unk> platforms that are out there and then and then lastly, just the margin structure would you hit that $1 billion plus of AD.
Revenue for <unk> would be Super interesting. Thank you.
Thank you very much Doug so.
Let me start and.
And Steve can jump in.
Forgotten and any part of the question.
So.
So with <unk> and all.
I'll answer your question.
Honestly, but but im not sure.
When I look at.
Competitors asphalt services, whether you'd prefer us to say, we'd be profitable early or we spend billions of dollars and investing and the.
And the business before we saw before we start breakeven.
And certainly our strategy is very different from our competitor strategy.
We see the <unk>.
Our competitive set.
As.
The potential to lose.
Very many billions of dollars, we see it as very crowded we see it is very hard to stand apart and differentiator and differentiate ourselves within within asphalt and Thats why we really chosen.
To embrace <unk> as our direct to consumer strategy and we think we can do this.
For really two reasons.
<unk>.
I'm going to say, what we hope to achieve out of us and we will achieve out of this is really twofold.
One and just to be very clear because I spent.
A lot of words and my.
And my preamble to this call and Youre talking about <unk>, but.
No.
If the headline wasn't clear it is that we expect to win in a volume we expect to win and Avon and be the leading <unk> player in this country and secondly, we expect to be able to do it by reinvesting our profits, but NAS, but not by losing billions of dollars.
In programming costs or other costs.
And the and the time it takes to breakeven.
And because of those two things we will drive to be very aggressively we will hit $1 billion or in the medium term or near term and revenue and the business will ultimately become a very profitable on.
For us.
The other element of the question and I think on on sort of our broadcast Cpm's versus digital CPM digital cpm's are lower than broadcast there and less of the high high teens.
And obviously some of the debt.
Tech stack allows us to drive that to drive that further and Steve did I Miss on any of it yet.
Doug just in terms of the.
The other question in terms of margin development as we get to that billion dollars went on 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 <unk> has actually been P&L neutral for us from.
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 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 loans, absolutely right in terms of way of CPE and.
The way, where we see.
A lot of headroom and where we've gotten a lot of growth from and the initial phase has just been fill rate and so and there's still plenty of headroom and 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 Moffett Nathanson. 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 <unk> compared to the other media companies that look to be using a hybrid approach of linear networks and their outside services for the top sports rights and then on a related note and <unk>.
Light of NBC sports network shutting down.
Can you discuss the company's outlook for Fox Sports, one and Fox Sports two and how you can use a flatter and do a partnership to possibly play a role there.
Sure. Thanks, Thanks, Robert for the question so.
First of all.
We see NBC sports.
And I ask members and shutting down as you know probably a net <unk>.
Positive Fox sports one.
There is a.
And less competition.
Suppose although we never saw them as our as our main competition.
And this year Fox sports, one beat both ESPN, two and and Nbcsn on 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.
On opinion programming.
Obviously bear reliable and and you don't have the.
The high on Reits.
Our rights costs accounted for 35% of the Fox sports, one schedule and and over 20% of <unk>.
<unk>, which.
Which is which I think is an important statistic in our shows that use them you cannot be compelling and you can win.
With a mix of both live sports, but also with the sports analysis and opinion that Fox sports one.
Has.
<unk>.
Clearly having a.
Uh huh.
On a breadth of sports.
Platforms.
<unk> you know ultimately help Fox.
Fox bet and a partnership.
Also.
And with <unk> I would also include and that obviously is the local stations and the amount of time and effort the local stations and their news and and their sports broadcasting and also contribute to remote to promoting Fox bet and the.
And engaging also with our partners.
At San <unk>.
On the.
The last part there and 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 it's on.
Obviously major League baseball.
The NFL.
<unk> 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 eni and smaller.
So gross sports with smaller sports for for other platforms.
Operator, we have time for one more question.
Okay that question comes from the line of Alexia quadrant and from J P. Morgan. Please go ahead.
Thank you and can you elaborate on the overall advertising market and you had very positive comments on <unk> and its AD outlook and ICP Ms.
That is coming from your investments and improvements you're making on the platform. But are you also seeing kind of a nice tailwind from and at recovery and then just a follow up to circle back on some comments you made earlier on.
On King Salman improvements and E.
Subscriber declines.
Curious if you can give us some color of debt that slight improvement is coming from bigger contributions and from virtual mvpds or something else.
Sure. So first on on the on the AD market and in the.
And in this last quarter, we're talking about obviously.
The the.
And the impact of political.
Discussed Alexia as just being being tremendous.
And I'd be tempted to say, we'll never see a political season, and so big and but I don't think Thats true I think when you have a a senate and house. So finely balanced I think we're going to see these records broken and two years and four years for sure. So.
On the.
Sure.
Yes.
The spending was pretty staggering, obviously, we had the the additional.
Bonus of sorts.
Without the Atlanta, Atlanta station, and the Georgia run off which I think contributed to.
And I'm sure. It was just a runoff of the Atlanta station alone contributed about $60 million.
Political revenue.
And in itself. So so in the past quarter, obviously, the story of the headliners all political I think and in the current quarter, obviously, we have difficult comps because of the Super Bowl and the.
Having had the.
The Super Bowl last year, which by the way right at 100 and almost $102 million.
Viewers was a terrific Super Bowl.
And a great.
A great achievement.
And that obviously, we could take that comp out so when we strip out.
The Super Bowl revenue and.
We're pacing in the negative.
Single mid single digits.
And maybe even a little bit better and map.
So mid single digits down five 6% is where we would expect to end up and.
And local advertising for the quarter.
And that's a tremendous improvement if we look through COVID-19 from from.
Sure.
From a year ago right every quarter every month.
We've seen advertisers.
Come back.
And now we are.
Stripping out football and stripping out and our political and everything else, we're about back to where we would expect to be.
Year on year of course looking forward.
On the comps become much better because we will have been we'll be comparing to the first quarter that was COVID-19.
Impacted.
Versus non.
Now.
Being in a more normalized our advertising environment.
Environment.
From a category point of view I think.
Mentioned.
And in response to Jessica's question Entertainment leads the categories.
Our home professional services all strong I should just mentioned the on the on the.
On the flipside that automotive which is a.
Obviously, a very large category for us.
Is still.
Still down but this is primarily.
Driven excuse the pun by.
Domestic.
Manufacturers.
And in fact foreign auto spending.
Is roughly flat.
And the second part of your question.
And Alexia just in terms of the improvement and sub declines if I look where we would like six months ago. I think what we've seen is continued growth the virtual mvpds mvpds for sure, but we've also seen a bit more balance coming and we've actually seen the traditional sub decline has moderated attached.
Coming from 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 teleconference. You may now disconnect.
Okay.
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