News Corporation (NWSA)
Investor Day Conference
May 28, 2013 1:00 pm ET
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Robert J. Thomson - Chief Executive Officer
Lex Fenwick - Head of Dow Jones
Mike Darcey - Chief Executive Officer of News International
Paul Carlucci - Chairman and Chief Executive Officer
Kim Williams - Chief Executive Officer
Brian Murray - Chief Executive Officer of Harpercollins Publishers Worldwide and President of Harpercollins Publishers Worldwide
Joel I. Klein - Executive Vice President and Director
Bedi Ajay Singh - Chief Financial Officer
Reed Nolte - Senior Vice President of Investor Relations
Jessica Reif Cohen - BofA Merrill Lynch, Research Division
Richard Greenfield - BTIG, LLC, Research Division
Barton E. Crockett - Lazard Capital Markets LLC, Research Division
Benjamin Swinburne - Morgan Stanley, Research Division
Anthony J. DiClemente - Barclays Capital, Research Division
Michael C. Morris - Davenport & Company, LLC, Research Division
Todd Juenger - Sanford C. Bernstein & Co., LLC., Research Division
Alan S. Gould - Evercore Partners Inc., Research Division
Tuna N. Amobi - S&P Equity Research
Jaison T. Blair - Telsey Advisory Group LLC
Matthew J. Harrigan - Wunderlich Securities Inc., Research Division
Marci Ryvicker - Wells Fargo Securities, LLC, Research Division
Good afternoon, and welcome to Investor Day for the new News Corporation. I'm Mike Florin, the Head of Investor Relations and I'm very excited to be here today and to be able to share our story with you. We have a lot to cover, so I'll just quickly review the agenda. We'll have opening remarks from Executive Chairman, Rupert Murdoch, to be followed by the new News Corporation Chief Executive, Robert Thomson, who will provide an overview of the company and some of the pillars to value creation. We will hear from each one of our CEOs from major operating units. We'll first hear from Dow Jones CEO, Lex Fenwick. We'll hear from News International CEO, Mike Darcey. It's our U.K. operations. We'll hear from News America Marketing Chairman and CEO, Paul Carlucci. We'll then take a 15-minute break. I know there'll be refreshments, snacks, but also check out -- there's a kiosk out by registration, which will have -- will be demoing with a number of products. So the -- well worth your time to check that out. We'll return to hear from News Limited CEO, Kim Williams. That's our Australian operations. We will hear from HarperCollins CEO, Brian Murray. That's our book publishing business. We'll take another 15-minute break, return to hear from Amplify's CEO, Joe Klein, and we'll hear from the new News Corporation CFO, Bedi Singh, to provide a financial overview of the company. We'll conclude with a Q&A session of all the executives back up.
Now I think, there'll be a Safe Harbor, which I will refrain from reading until the first earnings call. So you have it there for you. We will also be giving out the deck at the end. So from a note-taking perspective, you can wait. You don't take notes on every slide. So with that out of the way, it is my pleasure and my honor to introduce the first speaker, Executive Chairman, Rupert Murdoch.
Keith Rupert Murdoch
Thank you, Mike. Thank you. Well, good afternoon. Thank you, all, very much for being here today. This is really a very, very exciting day for me. With the split of our company and the birth of the new News Corp., I've been given an extraordinary opportunity most people never get in their lifetime: the chance to do it all over again. So I don't want to sound boastful, but I have you all here as a captive audience, so I'm going to take just a minute to take advantage of that.
When I began on the journey of creating News Corporation 60 years ago in Adelaide, I pretty much had one small newspaper and a very overdeveloped ambition. Well, today, the company is worth $77 billion. I'm not saying I didn't make many mistakes along the way, even some spectacular ones. But not as many as everyone predicted, thank God. Now I'm proud to say that again, and again, we've confounded expectations. When we moved to Sydney, our competitors boasted they would run us out of town. When we bought the London Sun in 1969 and converted them to a tabloid, The Daily Mirror, the great leader, just laughed. Well, today, The Sun sells 2.25 million copies everyday to the Mirror's 900,000. And after 15 years of industry frustration, we opened a new printing plant, winning the first private sector strike in 50 years and giving new life to all newspapers in Britain.
Let me start at the FOX Network. Then in 1986, people thought that Barry Diller and I were just positively mad and said that no one can compete with the big 3. And of course, when we came up with The Simpsons, people would say, "Animation was just for kids." Today, it's longest-running comedy in prime time in American history and has made us and a lot of other people a fortune.
When we launched Sky, people said the public don't need more choice and that we would bankrupt ourselves. The BBC should alone decide what was good for viewers. In retrospect, I could have done without the stress of nearly bankrupting the company and my family. But today, BSkyB has over 10.5 million customers and is still growing and making a lot of money. And when we launched Fox News, no one thought we could take on CNN. Nobody. Even Ted Turner bragged that he was going to squash me like a bug, and a lot of other things. But with hard work and the genius of Roger Ailes, Fox News has been #1 in cable news for 11 straight years, and now its annual operating profits are more than $1 billion.
So given that success story, you may be wondering why I want to do it all over again. The simple answer, there is opportunity everywhere. The companies that make up the new News Corp. has some of the most extraordinary and brilliant brands in the world. Yes, and some certainly had challenges, but they are undervalued and underdeveloped. But that all changes starting today.
I will admit it feels a hell of a lot better starting out with $3 billion cash in the bank and 0 debt in Adelaide. But there is something else we have today that is even more valuable. It makes me confident that what we will do with the new News Corporation: talent. We have an extraordinary team of executives who you will hear from today, who have strong teams around them in our own -- in our businesses here in the U.S., in the U.K. and in Australia. We've always been an eclectic and unconventional company, so you should not expect that will change. I've told each of our CEOs to be themselves even as we set out to tell you about the new News Corp. What we share is our core belief, and I think you will see it as the common thread here today. Knowledge is the most valuable commodity in the world, and never has a more ravenous appetite for knowledge existed than today. So we will create new businesses and new products, tell new stories and inform and educate the public in new ways. And above all, we will continue our own transformation and embrace the mobile future, disrupting some industries on the way.
My goal for the new News Corp. is to compress the success time line of the original News Corp. from 60 years to 10 years. And you may think that's crazy, too. But back in the 1950s, we only had lead pencils and typewriters. Today, we have WiFi, 4G and digital compression.
So now, it's my pleasure to introduce Mr. Robert Thomson, who we are extremely lucky to have as our Chief Executive Officer. I've known Robert for many years and have seen him excel as a senior news executive for 2 of the most storied publishing enterprises in the world. He not only knows the publishing business, he's mastered it and chartered new paths for growth within it. Robert has covered corporations and industries around the world for 30 years, and leveraged that knowledge into the skills and vision necessary to operate, transform and expand powerful global brands. Under his leadership, The Wall Street Journal became the largest daily circulation newspaper in the United States. That achievement stands alongside the expanded reach and revenue stream he created through the wsj.com. Today, the global platform of dedicated subscribers is helping fuel the growth of Dow Jones.
And at a time when many in traditional media played defense, Robert has smartly played offense in untraditional ways, growing circulation, revenue and profitability. Few in the business can say that. Earlier in his career, Robert successfully recreated The Weekend Financial Times, having the foresight to anticipate the desire and create something valuable for consumers. And unfortunately, before I met him, Robert also have built the FT in the United States, tripling its circulation at a time most traditional news operations were losing subscribers. It's this kind of fearless yet brilliantly executed transformation that Robert will bring to this company.
Let me close by saying, on a personal level, there are few whose wisdom I have found to be as valuable and as important as Robert's. I've turned to him for insight in the markets and industry, to business counsel and a critical eye. One that is informed by his having worked underground in Australia, Europe, Asia and the U.S., [indiscernible] the new News Corp. has targeted for growth. We are thrilled to have Robert as our Chief Executive, where I believe investors will come to appreciate him. I know they will as much as we do. So thank you very much. Robert, would you like to come up?
Robert J. Thomson
Thanks. Rupert, thank you very much. The problem with such a lavish introduction is that the reality is that much more mediocre. Rupert, I'd like you to read the eulogy at my funeral, and I don't think anybody in this room has any doubt that you'll be around to do it.
Rupert has just described to you an extraordinary journey. One asks, as Churchill once did in rather different circumstances, is that the end of the beginning? No, it's a new beginning. The new News is an extraordinary company of scale and reach and opportunity, but it will have a sensibility of a start-up. Now I'll let the invisible hand go to work. That hand is signing off on the launch of the new News, a company with a remarkable providence. But that providence will be a platform for the future. There will be restless energy and insatiable curiosity. There will be opportunism and experimentalism. There will be alchemy. There will be Murdochian [ph] magic, a permanent start-up sensibility. We will be relentless in our cost-cutting and in our pursuit of profits. But we will also be a resolutely creative company.
But we'll also be a resolutely creative company. Creativity will not be the preserve of the few, but the mission of the many. Now you'll soon be hearing from our extremely capable division heads, and they'll be able to furnish you very, very ably with both strategy and fine detail. And then we'll give you a textured sense of a company with of global reach and national depth. You will see that we are focused, very focused on free cash flow, obsessed by it and on the prudently opportunistic and strategic use of our cash flow.
But before they take you on a narrative tour of those businesses, I think it's important for you to get a sense of the context in which the company will develop. The new News does not exist in splendid isolation. Unless we comprehend the context, we will not fully understand the scope of opportunity or fully serve our shareholders and potential investors. Now some of this will be a little obvious to most of the erudite people in the room, so please bear with me.
The 2 most profound trends of our time, trends that will determine the fate of the majority of large companies, are globalization and digitization. These powerful currents are particularly influential for content companies, and that is where the structure of the new News gives us a clear comparative advantage. As I said, that is the global reach and the national depth. These trends, globalization and digitization, were obvious when I was writing about the Chinese economy in the 1980s and analyzing Japanese semiconductor companies in the early 1990s. So these are not new trends, but their impact is growing with each passing year. And we must understand precisely how powerful these trends are, not just as an abstract concept but in the way markets are changing.
So what are markets? Markets are an aggregation of people's desire, demands, needs and aspirations. Customers' needs are changing, how they read and watch and communicate and learn. These changes to lifestyle are exponential. Who would have imagined, as we discovered today, that a Chinese company is bidding to take over a French icon like Club Med? So the opportunities for companies and investors that actually understand the trajectory are virtually limitless.
A small example: taste, our food website in Australia. 26 million recipes were downloaded and printed in the festive season last year. Look, when I was a child in Australia, a sandwich with mayonnaise and not on white bread was regarded haute cuisine. And vinaigrette dressing on a salad was seen as a little too, shall we say, continental. Now 49% of taste's users are accessing the site from their mobile device. 22% of taste's traffic is international, and that is growing at 40% annually. In this period of extreme transition, our complementary strengths give us a definite advantage. Having companies involved in different but adjoining sectors means that we are really are able to learn from each other, because we are coming at the same goal from different angles. And don't forget that technology, not content, is a commodity. Technology is a canvas for our content.
So the next crucial part of context for the new News is that we are, indeed, a content company. We are acutely aware of the 3 principles that determine our success or failure. We have to create great content, deliver great content and price and sell great content. The first backdrop means having an environment in which you can anticipate customers' interests and that you share that quickly. The scale of the new News will have a focus that makes such sharing easier. We now have a rule that if you make a successful ad pitch in London to a client, that you must share that intelligence within 24 hours to ad managers around the world. Not to do so is to squander scarce capital and to let down our investors and to make me somewhat angry.
Editorially, we're also installing a common publishing system for our newspapers around the world, so that the photos and stories can be easily shared, for digital and print, and duplicated expenditures done away with. We want a single cost of content and multiple opportunities for profit from that content.
The delivery of great content. We will have the ability to influence the form and content for smartphones in the same way that some of our apps were templates for other publishers in on iPad. We are still at an early stage of a second great migration: from print to web and from web to mobile. And that is as true for both our [indiscernible] at News America Marketing, our coupon business as it is, for Amplify [indiscernible].
One of our foremost ambitions is to run in a second screen, to create content that complements or even redefines that event. Whether it be a football match or a British elections, the second screen is a first priority. And our Australian broadcast businesses will play a crucial role, culturally and technologically, in helping us to exploit the opportunity.
Now as I speak of platform permutation, let me be very, very clear. Print is still a particularly powerful platform. 43% of Wall Street Journal readers are millionaires, and the other 57% will be millionaires if they continued to read the Journal. In this age of endless digital distractions, if I told you that you could have the undivided attention of 2.6 million British households every morning, what is that worth? You can't multitask with a newspaper in the morning other than drinking coffee. You can't open a second, third, fourth or fifth screen. There is an intensity to the print relationship that is unique in modern media. I do think that will become more obvious to advertisers, and it's our job to make it so.
The pricing and selling of great content. Gone are the days when flat earthers insisted that all digital content must be free all the time. Whether it be e-books at HarperCollins, where Brian Murray and his team have developed wonderfully sophisticated algorithms to maximize revenue, to the pricing of B2B intelligence at Dow Jones, which Lex Fenwick will take you through in detail. There is a rising tide of charges, and premium content will attract ever more premium prices. Later, Mike Darcey will explain the logic behind the imminent payment strategy for Britain's best-selling newspaper, the legendary Sun, which involves not only charging for the content, but the building of loyal communities.
There are 2 particular factors of content character that have become obvious to me in the 17 years I've been developing content businesses in one guise or another. I would argue that they are useful to you in analyzing our earnings prospects and those of any other media company. The first is the content curve. It's rather crude. It's suppose to be. It's obvious enough to say that the value of content changes over time. But it's not understood well enough how much the timely delivery of content and the ownership of an event can maximize revenue. That is, that the initial ownership of the event and then the ownership of the unfolding of the event. If one of our intrepid Dow Jones reporters breaks the story about fiscal easing in Japan or a tightening of the Federal Reserve, for a minute or so, that story's worth millions, tens of millions, hundreds of millions to a forest of bond traders. That value diminishes quickly as the story becomes popular and known. The challenge of content creators and knowledge builders is how to plan the unfolding of a narrative so that the content is not quickly modified. And that can only be done when content is commissioned and only if the journalists have a clear understanding of the value of the story to readers and clients. One consequence, there will be more and more windowing of content in a way that it is conceptually now, as I said, with the film industry, and there will be more revenue for more windowing. And that there will be extra emphasis on owning big events, so called, even if you do not have first rights to that event.