Q4 2021 Fox Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Fox Corporation fourth quarter of 2021 earnings Conference call. At this time all participants are in a listen only mode. Later, we'll conduct a question and answer session I would like to emphasize that functionality for the question and answer queue will be good.
And at that time, if you require any assistance during the call. Please press Star then zero as a reminder, this conference is being recorded.
I'll now turn the conference over to Chief Investor Relations Officer, Mr. Joe <unk>. Please go ahead Sir.
Thank you operator, good afternoon, and welcome to our fiscal 2021 and fourth quarter earnings call. 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 will 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, 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 both of which are available and the Investor Relations section of our website and with that I'm pleased to turn the call.
All over to Lachlan.
Thanks, Joe Good afternoon, and thank you all for joining us to discuss our fourth quarter and fiscal 2021 and results.
At the outset I want to emphasize the exceptional financial and operational results that we have delivered over the last year. Despite the challenges posed operating through the COVID-19 pandemic.
The virus brought significant impact to our production through our processes and to our people and how.
Wherever we stayed resolute and focused and demonstrated that even in the most unexpected and challenging times our focus on a handful of powerful highly engaging brands produces exceptional results.
Over the past fiscal year, we have reinforced our competitive advantages of our core brands and.
Enhanced our digital capabilities.
Solidified our growth potential.
Turned 1 and a quarter billion dollars of capital to shareholders through buybacks and dividends and.
And otherwise prudently allocating our capital.
We have a strongly differentiated position and the market, which continues to benefit us to know and.
But our greatest strength is our people who have really stood up this year and performed extremely well under such difficult circumstances.
I know myself and my father, the board and the management team I appreciate all of their hard work and all their achievements this year.
And fiscal 2021, we generated revenue and profit, which exceeded even our own bullish expectations. Our affiliate revenue increased 9% year over year, which is net of the distribution credits that we recognized last fall due to COVID-19.
Our advertising revenue was up 2%, which is tremendous and when you recall that we broadcast of Super Bowl and the prior fiscal year during which we generated around $500 million of net advertising revenue.
Importantly, the fiscal fourth quarter saw these trends accelerate as quarterly revenues increased 20% led once again by double digit affiliate revenue growth and advertising revenue growth of 38%.
This growth was underpinned by the ability of our core businesses to consistently deliver audiences at scale and capture the upward momentum of a rallying advertising market.
We finished the fiscal year with historically strong upfront sales and are currently also and drawing enjoying sustained scatter demand with pricing at significant premiums.
We finished the fiscal year are strong.
And we feel we are and are very good place, where we are and a very good place with great momentum starting the new fiscal year.
Fox News media continued its ratings leadership and his platform a multi platform growth and the fourth quarter.
Fox News channel was the most Washington network in primetime across all of basic cable for the sixth consecutive year, and nausea, and 78 straight quarter at the leading cable news channel and total viewers.
While the year over year ratings comparisons are difficult due to last year's heightened news cycle. The Fox News channel has retained more of its audience and CNN and MSNBC since the presidential election.
In fact since the election Fox news has solidified its leadership position and cable news, having reasserted its pre election market share.
For total day audience is Fox news increased its market share by 11% and the fourth quarter compared to the prior year, while CNN and MSNBC lost 9% and 3% respectively over that same period.
From a prime time perspective, we once again find ourselves and are familiar position as we routinely see our ratings exceeding those of our peers combined.
We are also pleased with the performance of Fox News media and digital assets Fox.
<unk> remained the most engaged and news brand across social media channels, extending this run to nearly 7 consecutive years.
This is a critical pathway to reaching engaging and growing the broadest possible audience is with Fox News brand.
On the last call I told you that Fox nation, and the direct to consumer offering from Fox News media had reported its strongest quarter for customer acquisitions since launch and.
And this quarter, thanks to new and expanded content offerings vaccination and once again notched its best ever quarter for customer acquisitions.
Later this year, we will expand our Fox news and news media portfolio further with the launch of Fox weather.
Fox weather is just 1 example of how we plan to grow the Fox news brand across multiple verticals.
Yes.
And the power of our brands and the growth potential of their digital extensions was also on display at the Fox network with another round of ratings wins on broadcast and record breaking results at <unk>.
Fox is the home.
To the best Entertainment programs and television, which together with sport helped propel the Fox network to its second consecutive broadcast season as the top network in primetime among the key demo adults 18 to 49.
This fall we are strongly performing returning kits and a slate of promising new shows and particular, we're looking forward to the addition of 2 new dramas to our fall lineup.
These are the big leap and our kind of people.
Fox and has always thrived with shows featuring music and dance.
And the big Leap like Lee and so many others before lives right in that sweet spot.
The big Leap is and optimistic dramedy about second chances and chasing dreams.
We think these themes are spot on coming out of the pandemic.
Our kind of people is inspired by Lawrence oldest grams book of the same name.
It is executive produced by Empire creator Lee Daniels and stars Karen just.
And absorbing story that takes place and the aspirational world of Oak bluffs on Martha's vineyard.
And I am very pleased today to announce a new partnership with Gordon Ramsay studio Ramsey Global which will acquire Gordon's current television business and we will develop produce and distribute new culinary and lifestyle programming across all fox platforms, including <unk>.
Now, let's take a moment to talk about <unk>.
At the end of the fiscal year television surpassed 3 billion hours streamed up more than 50% over the prior year.
During our recent June quarter, total view time surpassed 900 million hours up more than 40% over the prior year quarter.
We spoke about it together last quarter, but I cannot emphasize enough the importance of total view time or TVT as a critical metric for AD supported streaming.
It is the best measure are bursting engagement on television and correlates directly to the monetization of the platform.
And there is no shortage of great content to keep audiences watching too and leads the industry with the largest library of content with more than 35000 movies and television series available.
And that library continues to expand with 2 B's first original movies tardy in genres that are informed activities machine learning capabilities and supported by tight production budgets and just weeks. These titles have exceeded our financial and strategic objectives.
Throughout the fall, we will modestly ramp the launch of <unk> original a number of which we will be produced in house by Fox Alternative Entertainment and our animation studio Bento box.
But let me be crystal clear about 1 thing.
To be original programming strategy is very different and the strategies of and S. Thawed streamer.
We have no interest or plans to invest and high cost programming to drive subscriber acquisition as we are not and the subscriber business.
We are focused on delivering programming that drives total viewing time, and hence monetization and very short order.
The return on our programming investment is measured in weeks not years and should be viewed through a completely different lens and investments and the <unk> universe.
We're in a very different space.
It's a space focus on advertisers and advertisers are increasingly seeking out <unk> as a leading platform to reach a younger audience that is both largely on duplicated from our traditional fox audience and not regularly streaming other ewald services.
And the recent quarter to be featured adds more than half of out of the AD age top 200 brands.
The reach and brand racking recognition of Fox behind it to be nearly double the number of brands buying its inventory and the upfront and more than tripled its upfront dollar commitments over the prior year.
Despite the COVID-19 related headwinds earlier in the fiscal year.
Fox television stations per quarter core advertising revenue that was on pace with the prior year when excluding the Super Bowl comp last year and the record political revenue and the current year.
I just 1 example, the adoption of legalized gambling is driving increased advertising spend particularly in Philadelphia and Detroit.
We anticipate additional markets, including Arizona, and Wisconsin to launch legalized sports betting and fiscal 'twenty 2.
The Fox television stations are particularly well positioned to capitalize on this opportunity given the strength of our stations in these markets.
Fox Sports also had a noteworthy year expanding its ratings dominance and live sport, while also extending and enhancing our long term rights agreement for agreement with the NFL.
We will remain not only the leader and football ratings, but also the home of the Premier NFC rights packaged true. The 2033 season, thanks to our new multiplatform rights deal with our partners at the NFL, which includes the designation of Fox bet as and authorize sports book operator of the leak.
We expect the companywide momentum our fiscal 'twenty, 1 to carry into our current fiscal year.
Macroeconomic trends bode well for a strong advertising market and brands are increasingly turning to our linear and digital assets to reach the largest collection of loyal and engaged viewers.
The return of normal sports and entertainment schedules, coupled with the ongoing leadership of Fox News media will enable us to capitalize on the robust ad market.
And in addition to delivering strong underlying operating and financial results and fiscal 'twenty..2 we are focused on expanding our digital businesses.
We are reinvesting a portion of the profit and free cash flow from our core businesses into the high growth and high opportunity digital assets that we know to be essential elements of our future.
This past quarter also saw the completion of a wide range of transformational technology investments that provide us with a range of modern state of the our platforms that will power the growth of our businesses for years to come.
These new capabilities include a new distribution and streaming operation and Arizona due.
Due to brand new data and advertising platforms that will underpin and evolve and evolving and advanced set of commercial offerings for clients across all of our products and services.
These investments now complete and position us strongly to seize on the growth opportunities that lie ahead.
We continue to deploy capital and a responsible manner to support to be the Fox News media digital properties, including Fox nation, and the launch of Fox weather as well as our other emerging digital businesses. We believe these investments relatively modest compared to those being made by our peers and.
Subscription and streaming areas will yield long term significant and returns and position us well to continue to adapt and take advantage of the evolving media landscape.
And now Steve will take us through the details and the fiscal year and the fourth quarter.
Thanks, Lachlan and good afternoon.
Looking back at our recently completed fiscal year Fox delivered total revenues of $12.9 billion.
Up 5% versus the price. This is despite the impact of COVID-19, and the cyclical comparison with revenues generated from last year's broadcast of Super Bowl 54.
Notwithstanding these 2 headwinds full year advertising revenue still increased 2% propelled by a record political cycle and the significant contribution of television and robust mid teens growth at the cable segment led by Fox News media.
And our best in class affiliate revenue growth was particularly noteworthy.
Total company affiliate revenues increased 9% on a reported basis and 10% on an underlying basis after adjusting for potential distribution credits at the cable segment due to COVID-19.
This underlying double digit companywide growth was led by 20% growth at the television segment.
And momentum across our digital businesses continues to be strong with digital revenue is growing over 40% to reach almost $1.4 billion those for the full fiscal year.
Taken together these impressive revenue achievement once again underlines differentiated strategy centered on our leadership brands and focused portfolio of assets they'll draw and built around live event programming, including news and sports.
From a bottom line perspective, the company delivered full year adjusted EBITDA of $3.1 billion and increase of 11% over the prior year and a record in the company's short history.
Full year net income attributable to stockholders was $2.2 billion or $3.61 per share while adjusted EPS was $2.88 per share up 16% versus $2.48 last year.
Now turning to our results for the fourth quarter.
Total company revenues increased 20% to $2.9 billion.
Driven by our fourth consecutive quarter and underlying double digit total the company affiliate revenue growth and strong pricing gains across the national and local ad markets.
Total company affiliate revenues increased 10% with 16% growth at the television segment and healthy 6% growth at the cable segment.
The rate of subscriber declines was stable and the quarter was trailing 12 months industry sub losses, now running below 4 and 5%.
Total company advertising revenues increased 38% with a 15% growth at the television segment as the local market continued to rebound from Kobe COVID-19 to be delivered another record quarter and the Fox networks benefited from a healthy linear and digital marketplace.
Total company other revenues increased 30%, primarily due primarily due to the timing of sports sub licensing revenues as a result of Covid higher production volume of Bento box and continued momentum and Fox nation.
Quarterly adjusted EBITDA was $717 million down 3% over the comparative period in fiscal 'twenty, primarily due to higher programming and production costs as we return to a more normalized programming schedule as compared to the COVID-19 related delays and cancellations experienced in prior quarters.
Additionally, we also increased our investment and our high growth digital and these initiatives at Fox News media and tubing.
Net income attributable to stockholders of $253 million or <unk> 43 per share was notably higher than the $122 million or <unk> 20 per share in the prior year quarter.
This increase reflects the absence of impairment and restructuring charges booked in the prior year quarter net of the impact of Mark to market adjustments associated with the company's investments recognized and other net.
Excluding these impacts and other non core items adjusted EPS of <unk> 65 per share was up 5% over last year's 62 cents per share.
Turning to the performance of our operating segments for the quarter, where cable networks reported a 10% increase and revenues.
Affiliate revenues increased 6% once again led by double digit pricing gains at Fox News.
Cable advertising revenues increased 17% driven by continued strength and digital monetization at Fox News media and the return of live events and studio show programming at Fox Sports, which were both impacted by Covid and the prior year.
Cable other revenues increased by $25 million, primarily due to the timing of sports sub licensing revenues as a result of Covid and continued subscription momentum at Fox nation.
EBITDA at our cable segment was flat against the prior year as the revenue increases were offset by higher programming and production costs at Fox sports following the Covid related postponements and cancellations and the prior year.
We also increased our investment and <unk> key digital initiatives at Fox News media, including Fox Nation, and the pending launch of Fox with Us.
Turning now to the television segment, which reported a 30% increase and quarterly revenues.
Television affiliate revenues increased 16%, reflecting double digit increases for both our programming fees from Nona and station affiliates.
And for our direct retransmission revenues at our owned and operated stations.
Once again reaffirms that we are on track to achieve the television affiliate revenue growth, we outlined at our Investor day.
Television advertising revenues increased by over 50% as we benefited from a meaningful rebound and the base market of the local Fox television stations.
<unk> strong pricing gains and Fox Entertainment and saw the return of major League baseball at Fox Sports. This spring mainly.
Meanwhile, to the continues to exceed expectations comfortably, surpassing $100 million and revenue for the quarter typically its seasonally slowest quarter.
And this brings to these full year revenue to almost $400 million.
Up nearly 170% versus that full prior year.
Other revenue the television increased 18% in the quarter led by higher production volume of Bento box and higher co production revenues and Fox Entertainment.
EBITDA at our television segment was down $21 million versus prior year as gains at our local stations will more than offset by our investment in <unk> and higher costs at the Fox network, primarily due to schedule changes caused by Covid.
Switching net of cash flow.
During the year, we generated free cash flow, which we define as net cash provided by operating activities less capex.
$2.2 billion.
As we foreshadowed on our last earnings call, we deployed $1 billion of capital and fiscal 'twenty, 1 to repurchase over 22 million class a shares.
And over 9 million class B shares.
Against our initial buyback authorization of $2 billion.
We have now cumulatively repurchased over $1.6 billion.
Representing 8% of our total shares outstanding since the launch of the buyback program in November 2019.
And as a reminder, our board recently approved an additional $2 billion to our buyback authorization, meaning that we have over $2.3 billion and that combined authorization remaining.
Underlining our continued commitment to shareholder returns today, we announced an increase in net semiannual dividend to <unk> 2004 sales per share.
Over the course of the fiscal year, we returned $1.3 billion to shareholders in the form of share repurchases and dividends.
Which when including the payment of the dividend we declared today will take the total cumulative amount of capital returned to shareholders to approximately $2.5 billion since since the spin and our Fox Corporation in March of 2019.
From a balance sheet perspective, we ended the quarter with $5.9 billion and cash and approximately $8 billion and debt.
Finally, let me take a few moments to provide some cause for a fiscal 'twenty 2.
We are anticipating robust topline growth across our businesses over the course of next fiscal year.
This is predicated on disruption free programming schedules and comes despite the comparison with a record net political revenues of over $350 million, we saw in fiscal 'twenty 1.
As Lachlan referenced we expect the underlying company wide advertising and I mentioned, we sold anything.
Okay.
To carry into fiscal 'twenty 2.
With approximately 5% of that total company affiliate revenues due for renewal, we expect a moderation and the growth of distribution revenues in fiscal 'twenty 2.
As we comp against the major renewal and the prior year and prepare for the start of and next renewal cycle and fiscal 'twenty 3.
Using the strength of our core businesses as a platform, we will use fiscal 'twenty 2 to invest and the expansion and acceleration of our digital assets.
Anticipate investing and the range of $200 million to $300 million of net EBITDA.
A particular focus on to the Fox nation, and the launch of Fox weather.
This is an appropriately sized investment for these high growth assets that will be a key part of our future.
Looking further out to fiscal 'twenty 3 the confluence of Premier sporting events, including the Super Bowl and the World Cup and combination with the midterm election cycle will make for a unique opportunity across our leadership brands and platforms.
These cyclical items, coupled with the stop and then next major distribution renewal cycle. The early exit from assets they not football deal and continued growth of our digital initiatives.
To provide a strong financial tailwind for our business.
Coming back to today, we enter fiscal 'twenty, 2 from a position of operating and financial strength.
<unk> is reflected in our balance sheet, where we will use existing cash balances to pay down the $750 million debt maturity that will come to you in January.
Beyond this we will continue to take a balanced approach to allocating capital between direct investment and our businesses strategic M&A and capital returns to shareholders and with that and I'll now turn the call back to Joe.
Thank you Steve.
And now we'd be happy to take some questions from the investment community.
Ladies and gentlemen, I'd like to emphasize the functionality for the question and answer queue. If you wish to ask a question. Please press 1 and then zero on your Touchtone phone and you'll hear a tone, indicating you've been placed into the queue. You can remove yourself from the queue at any time by once again pressing 1 followed by zero.
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1 moment please for the first question.
We do have a question from Jessica Reif Ehrlich.
<unk> Securities. Please go ahead, great. Thank you.
And.
And I have to follow up and then.
Okay and followed.
And you you laid out Steve and particular day towards the end and your investment priorities for fiscal 'twenty, 2 including digital assets and original and et cetera.
And just if you can clarify is this the peak year of spend and whatever you can say about sports rights and sports sports rights and sports betting as part of this investment year and would be helpful. But even with all of that you still have an incredibly strong balance sheet. So.
Do you feel like you need to get bigger and then my question is you've had a great and really fantastic upfront and as that gets tougher.
Whole industries had.
Can you give us color on pricing and sell out pretty much across all of the assets not just the networks.
Cable assets as well as Tobey. Thank you.
Thanks Jessica.
So.
I'd like to cash characterization of a follow up and then a question because that's all I've got 2 questions, but that's fine.
Good day and good to hear your voice.
So.
And first of all and in terms of the investment and and the digital assets and of our digital assets are growing very impressively I think this year and we look at the fiscal year. We ended up at a $1.4 billion of digital revenue, which was up 44%.
Year on year or so so.
Obviously, we like these assets and and and we're going to continue to invest in them to continue to grow them.
I think we're doing so pretty young.
Pretty prudently.
Balancing.
The opportunity with <unk>.
And with the costs that we're putting against them.
Do we need to get big.
Bigger.
We're always looking at and how to grow both both organically and Inorganically.
And we don't feel any pressing strategic need.
To get bigger and we don't have any.
Kind of holds and our portfolio, particularly when you look at our kind of.
Strength in live news and live sports and now in entertainment and the <unk>.
<unk> and <unk> and and it's really pleasing to see now how quickly our <unk> is growing so we don't need and so we don't see.
Our strategic.
Need to.
And our grow differentially went out and were not if you look at the.
Consolidation that's been happening around the industry a lot of that is around.
Subscription video streaming and thats, not a and and the desire to et cetera.
Acquire.
And larger entertainment libraries, and production capabilities and Thats.
That's not of and that sort of scale and then not a not a space that we're.
And we need to be and right now so so we feel pretty confident where we are but we I'm pretty comfortable where we are but we do continue to look at opportunities as they come up in terms of the.
Upfront pricing and I think you are asked to go into some.
Detail around it.
And current scatter pricing.
This was a absolutely historic.
Front season.
For us, but I'm sure for some of our our peers as well as the AD market rebounded from the depths and the and the lows of the other COVID-19 affected our year last year.
So the comparisons are our and <unk>.
And our archive because of because of we were a year ago, but having said that.
All of our categories are up very strongly with the exception of 2 which are auto and and.
And telecom and there.
And specific reasons around around those categories and I know we've spoken on prior quarterly earnings calls about about the auto supply issues, they're having but if you look at and our retail.
This is and I'm talking sorry, Jessica vicious.
Our local our local business at the moment.
So the television stations, our retail is up like 10% and entertainment, which includes that are and that really growing and exploding. Our wagering category is up 300% year on year media up 43%.
Pharmaceutical and pharmaceutical up 25%, even travel which is a much smaller category for us locally up 76%. So so a lot of growth and across the majority of categories again with the exceptions of auto and and telco if you exclude political advertising.
Our sales are pacing up about 8% locally so so we feel.
And we feel really good there and and obviously the momentum is carrying the momentum into the new year.
From a a national point of view and I said the Upfronts were.
Very strong our pricing was was all up over the 20% Mark.
Mark and then pushing into the mid twenties.
And since the upfront or scatter.
Our pricing is again.
And that that much again and and more.
The NFL is selling very well and a major league baseball is interesting is that as an aside and this I think this bodes well for the.
And the rest of the season and post season and we have.
A field of dreams game on next week and.
And that's that set a record.
For a regular season.
Baseball game so.
And so a lot of positive momentum across all of our categories are.
Not the least of which is Fox news, which is strong very strong sales with expanded demographics, and obviously that the digital platform as well so now we feel.
And we feel very good about the AD market and we think it's going to continue for some time.
Operator, we can go to the next question.
We have Robert Fishman and Moffat Nathanson. Please go ahead.
Hi, good afternoon.
And to be going to expand on your prepared remarks, how do you measure the ROI of our content investment and can you further explain whether the shift to original is essentially moves you away from the more standard Avon model of revenue share and just lastly unrelated note how he wished how do we think about to be margin.
And.
And as revenue grows and and reaches your $1 billion guidance.
Sure so.
Let me start with the.
How about education, and the right order, but but.
But there.
And how we look at the ROI on our content and and and then we can get into the.
But the margins and maybe Steve and take the.
The financial aspect of that question. So so when we look at.
The 2 big heart, and Meg and I remember from a from a.
And a volume perspective, and as I mentioned and in my prepared remarks, and as I mentioned last quarter.
The.
And it's all around our total viewing time and how much you know how and the advertising impressions that we can generate through and are increasing and expanding the engagement.
And as measured through total viewing time and it was really pleasing that I think and the.
Fiscal year, we did 3 billion hours of total viewing time, which was up 50%.
Year on year.
So the way to grow obviously total viewing time and should we can grow.
Viewers.
And multiply that by by the amount of content and the length of time and the spending in Washington, and content and we look at the content and basically.
I'd say 5 different categories.
As your third party content.
And that's where we have about 34.35000 hours of library.
Which is which is which is growing and so there is a third party content that's a mixture of.
And of our revenue share and and sort of and.
And licensed content.
There is an increasing amount of Fox owned our content and IP that we're able to put put onto tubing, which is which is our really pleasing to see and I think I think.
Helps drive to be awareness and and and the brand.
There is a news category, which is really starting to take shape and and and an increase engagement.
Theres, a sports category, which we'll be launching.
And sports channels.
And then I know, including the.
And the NFL.
Channel.
And some other sports and then and then finally there has to.
<unk> original <unk>.
And to be original has only just.
We have begun to launch, but we are seeing a return and a very our short order. These movies are.
Barry price effective and we're able through <unk>.
Technology to really target them very specifically to vary.
Well defined genres that we know if we promote them correctly on the television platform they will drive.
Hey.
Consistent expected amount of viewing which we can then monetize very efficiently.
So the model.
And from the investment into the original programming.
And it's really derive specifically.
And the exact amount of revenue that we are.
We can derive out of that original programming so.
Unlike <unk>, where you are creating original programming too.
Postal Scriber Zane.
And once they are in the platform and they don't watch that program that I watch other library programming, where noninterest and and and the subscriber acquisition and were purely interested and the time and expand on the platform and the amount of content they're consuming.
<unk>.
Steve do you want to talk to the margins yeah. So Robert just in terms of margin listen.
The biggest single cost of the business is obviously programming and even without steps towards original programming. The library is going to be heavily concentrated towards revenue share titles.
And both movies and series on on that front and so therefore, it kind of galvin's a lot of your margin because that revenue share comes straight off with revenue and then you've got Ya.
Customer acquisition of your acquisition costs as well as technology, now and you sort of called out the $1 billion target that we have which is an interim target we have for the business.
And we're wasting the kind of it's almost like a market establishment sites for this business and so you Shouldnt expect this business to be and <unk>.
And contributed to us and anytime soon we're going to continue to invest in it and as we've called out on the call today and that that investment will go towards that sort of 3 core pillars.
The content and user acquisition slash marketing as well as technology. If you look at sort of and to be in the first 3 quarters of this fiscal year was virtually a push for us financially.
And so we can almost dial up and dial down that margin as we see fit but with assets.
Certainly and bias at the moment is to lean into investing in that business, which remains a drag on margins for the next year or 2 to come.
Operator next question please.
Next we have John <unk> from Wolfe Research. Please go ahead.
Thanks, I've got 2 maybe I'll call those follow ups. If you don't mind, 1 would be can you talk more about how youre thinking about spending that incremental investment dollar.
And they talked about growth. So when you speak to those growth areas does that suggest.
And in the linear cable and network businesses exports will be fairly modest going forward and then separately. It sounds a lot and they've had services out there went out aggressively and the upfront and somehow have a pretty big tailwind and Cps and so can you talk about how you think to be priced relative to other services and to what extent Theres a GAAP.
And then a practical level how quickly can you close it.
Thanks, Sean so.
So in terms of in terms of the investment going forward.
The.
And I've mentioned in my and my prepared remarks, the big investment in terms of our.
And that's partially in terms of our linear business from a technology point of view has been that.
Arizona.
Play out and and and datacenter and Technology Center, which is now completed and that brings us into I think there are.
Best in class kind of.
Infrastructure for all of our product and obviously that's built.
Built today to be multi platform. So it's an investment in both and in the linear business, but also as importantly, and and the digital businesses as a digital business continues to grow.
$202 million to $300 million, Steve as called out in terms of our investment this year.
Further investment and in our and our and our digital assets is really split between as I think Steve mentioned Fox nation, which.
As a subscription service.
But continues to grow engagement has.
Really tremendously low churn and and remains.
Kind of a fantastic conversion rate from from trial users to paid users.
Well over 80%.
Fox News Dot Com will continue to push and too.
Our new verticals of content.
There planning and exploring content around set of real estate around cooking around sort of are some engaging games and crosswords and things is as we drive.
The Fox news brand into index and a more lifestyle.
Lifestyle categories.
And and.
And.
<unk> I think we've we've addressed so those are the key areas of of the investment this year not.
Not the linear.
Businesses.
In a.
<unk> and <unk> in terms of how we price the upfront.
I think the important thing for us and I can't talk to our competitors.
No, but the tubing revenue in our upfront is entirely incremental right and that's.
That's really important and we.
We are careful to not.
And move revenue from 1 pocket to another and and say that look and look at all other revenue. We are we've been able to attach or pushing toebie. The <unk> revenue is entirely incremental to what to what we otherwise sold on our on our linear our assets and that and that's a really pleasing thing to see.
The way <unk> structured with them with our programmatic advertising and in fact, when we got a very high rate for our programmatic advertising on television and so we're careful actually to constraint and solve somewhat and to what we sold into the into the upfront and <unk> because we feel towards as a.
The year progresses, and we will do extremely well through our programmatic.
Advertising and the and the Cpm's, we get through through programmatic, so and when we hit the triple revenue Mark and the upfront for <unk>. We decided that was that was enough. We would stop there and we would leave plenty of impressions for our programmatic, which I think is the right strategy for us.
Thank you operator next question please.
Ben Swinburne Morgan Stanley. Please go ahead.
Thanks, Good afternoon.
Steve You mentioned renewal cycle, starting again in fiscal 'twenty, 3 and you guys were really helpful back and your initial investor day, and kind of helping us think about the timing of that over the course of the next few years, which are now wrapping up I didn't know if there was any and you could help us and thinking about the cycle that starts and 23, if it looks like the last 1 in terms of the <unk>.
Curve or anything you would add.
And then.
And to be.
And.
And not just for Lachlan or whoever wants to take it maybe you could just give us sort of the pitch to advertisers.
You have a number of Avon or SaaS option.
Including buying I think to the inventory through people like Roku and Vizio and stuff what is it that you offer and advertiser, that's better or differentiated.
From Pluto or Hulu, or even buying Avon inventories through 1 of the plan.
Platforms that have and ability to aggregate and even larger audience and maybe more specific data, but would just love to hear more about how you guys go to market.
Thanks, Ben and Stephen do you want to jump in on distributions, but.
Sure.
Well effectively.
Steve and go into detail, but yes, 'twenty fiscal 'twenty 3 and 24 is about a third of our <unk>.
Distribution and gum.
Volume comes up so so this year is relatively quiet compared to that and then.
30 odd percent of 33, 34% of our deals come up and 23, and then again and 24.
Yeah, and on a steeper and I think that's exactly you're bang on yes.
Really like single digits. This year and 30 mid Thirty's. The following year, then 24, again mid thirty's and and a better quarter than the year after that so and remember that the 23 renewals will largely it is and will give us the benefit in terms of affiliate revenue growth and the back half of that fiscal year.
And so and.
Ben you reminded us or me.
Yes.
Investor Day, and the original Investor Day, we had and I think we called out there.
We were going to and.
<unk> increased our affiliate revenue in the television segment by $1 billion by I think it was calendar 'twenty 2 and.
We're well on track to achieve that.
And that objective and net debt target that we set for ourselves on back of that Investor day. So we're very very.
Very pleased with that for.
<unk> and in terms of other advertisers.
The.
To me is a very.
It's not about you don't sell these advertisers around so the mass mass scale and so.
I understand your point about some of the the Avon Aggregators.
With 2 big and we have an audience that is younger more diverse that can be very targeted we have very sophisticated advertising tools to ensure that advertisers and frankly they are there.
But people who are trying to reach are not inundated with a with a digital advertising are over and over frequently right. So we have these on frequency tools that make sure that the advertising on television.
Is appropriate and and and then the.
And the viewers getting a mic.
A mixture of our AD server to them. So there's a dynamic technology behind which is behind it which is very unique and very valuable to them to our clients.
We're also not duplicated. So so we have very low duplication not only with the Fox network, but also.
To be viewers are unlikely a very small percentage of them are watching any other ewald service they are and to a large part exclusive to <unk>. So it really is a unique offering and offering that our clients are seeing the value and and really the proof is in the putting if you look at tripling their <unk>.
And you are in.
And the.
And the upfront and I think it was sort of doubling the.
The number of top brands.
On the platform I think the proof.
And according to this the <unk> story and the tube sales story.
Is really resonating with the top advertising.
Brands and clients are and the United States.
And.
Operator, we have time for 1 more question.
Our last question comes from the line of Doug Mitchelson of Credit Suisse. Please go ahead and.
Thanks, So much I think if I have the rules right and I can ask a follow up a clarification and a question. So I think that.
And I approach.
And many follow ups as you often.
Thank you Laughlin.
For Steve My follow up I, just wanted to be.
Be clear on on the <unk> investment it sounds like from Laughlin commentary that any incremental investment you make and original do you expect a fairly quick payoff. So is it right to think that within your 200, and 300 million of EBITDA investment and growth the 2 b portion of that and and.
Net basis is really just the content and user acquisition and Oh, excuse me, the user acquisition and marketing and technology and not the content front since the content return should be.
So quick in Laughlin the clarification is on NFL advertising a pre sales.
And how does that compare to the entertainment upfront or are you seeing similar pricing or is there any difference there and and the question Lachlan and C&I and launching a streaming service next year and not necessarily unexpected but.
Is that interesting from a competitive standpoint does that influence your strategy at all with the digital offerings, you're pursuing on the Fox news side. Thank you.
Thank you very much Doug.
I think the first question or clarification, and a follow up first and more moderate you might be and foresee but the answer is yes.
And that the.
The <unk> investment.
And as a subscriber acquisition.
Marketing, which obviously feeds and the subscriber acquisition and technology spend here. So that's the majority of the investment could you remind me wrong, Steve and I Hope and now Youre right and as I think you've got to look at content into kind of buckets. There's the originals, where it was and I think that's gonna be modest from both a cash and P&L perspective, because you physically.
Just kind of ramp that up that quickly and then the second piece with the container investment.
Just building that big a library with licensed content and so that's going to come in the form of both.
Revenue share deals and license deals and the license deals will obviously have a P&L impact and the Leds.
And then on I'm glad I was right along with us.
And in fact.
Okay.
And then on.
On the NFL are pre sales and NFL is.
And is selling very well.
Cpm's of our strong positive and.
We couldnt be.
Are you more pleased with our with the sales there.
We think.
We think Oh.
Yes.
A lot of.
Issues and the marketplace, we think scatter pricing as well is going to remain a robust pricing through the end of the year, just because of the availability of spots across the kind of television.
Our universe. So we were confident and are in a very strong and.
NFL year by the way I didn't mentioned this and its not NFL, but on on the sport.
Outside the.
And the all Star game from Major League baseball.
<unk> had a.
Terrific.
Our revenue our results for us are nationally, but interestingly locally in Atlanta.
We generated.
Oh really.
Strong and amount of our political revenue on that local station for the for the all Star game.
Which was obviously.
Driven by the controversy around.
Major League baseball moving the game from from Atlanta to Denver.
And that the.
Net political advertising was all.
Focused on the.
Midterm elections next year and so when we when we look at that.
And so I think were taken from that is the next political season and the midterm season is going to be another record political season next year. It's not this year next year.
But we're going to see.
A staggering amounts and political dollars flowing into and to enter these are these local stations and we can we can see that from simply just.
The 1 example of the Atlanta station and the for the for the <unk>.
All star game.
Non CNN.
C N N plus I think it's called.
Look we think.
Uh huh.
It's a well, what's what and when someone southern copper as you, it's our best form of flattery.
And we think.
Fox Nation and continues to grow we think we're doing all the right all the right things with Fox nation.
<unk> talked about it before but.
Tremendous our growth and.
And in the quarter.
Driven off of.
Clever clever acquisition and and clever.
High quality programming, so we don't see.
C N N launching into that spaces as anything other than I am.
Afirma and of our strategy and what we're doing with a driving the engagement and the tremendously high engagement from from.
Fox news into.
Into our into our paid for.
Subscription service when we look at our competitors, we are heartened bye bye.
And the ratings trends as I mentioned and in my <unk>.
Prepared comments, we are now regularly.
Beating both the combined ratings and prime time of AR, and many times and and all day.
And CNN and MSNBC combined if.
If you take just last night as 1 example on the range.
Ratings just <unk>.
Just dropped out.
And our sogo, while we're on the call.
And prime time.
Fox News day.
$2.4 million on.
And people and Pizza plus C N N under 750000 and MSNBC under.
Under our $1.2 million, so you've got 2.
<unk>.
2.400 million versus a.
And at 1.1, 0.9, 2 million and so we're regularly we beat them combined plus with a margin of 20 per cent or so so.
Very.
In our strong ratings trends and a very strong engagement with our audience and that really goes to our whole digital strategy. How do we how do we take that audience and take that engagement and expanded across multiple platforms.
Thank you for your other question.
Yeah.
At this point, we're out of time, but if you have any further questions. Please give me a day and carrier call.
Thank you once again for joining today's call.
And ladies and gentlemen that does conclude your conference call for today. Thank you for using AT&T executive teleconference, and you may now disconnect.
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