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News Corporation (NWSA)

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News Corporation (NWSA)

Investor Day Conference

June 04, 2013 11:00 pm ET

Executives

Michael Florin

Keith Rupert Murdoch - Co-Founder, Executive Chairman, Chairman of the Media & Entertainment Arm and Chief Executive of the Media & Entertainment Arm

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

Greg Ellis - Chief Executive Officer, Managing Director and Director

Brian Murray - Chief Executive Officer of Harpercollins Publishers Worldwide and President of Harpercollins Publishers Worldwide

Joel I. Klein - Executive Vice President, Director, Chief Executive Officer of Education Division

Bedi Ajay Singh - Chief Financial Officer

Rupert Murdoch

Analysts

Vikas Gour - Deutsche Bank AG, Research Division

Mark McDonnell - BBY Limited, Research Division

Fraser McLeish - CIMB Research

Sameer Chopra - BofA Merrill Lynch, Research Division

Alice Bennett - Commonwealth Bank of Australia, Research Division

Richard Eary - UBS Investment Bank, Research Division

Presentation

Michael Florin

Good afternoon. Thank you for coming, 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 share our story with you, and it's great to be at the birthplace of News Corp. in Australia.

We have a lot to cover today, so I do want to go quickly through the agenda. That is our forward-looking disclosure. I won't read that right now because I think that will take about 15 minutes.

In terms of the agenda, we're going to first hear opening remarks from Executive Chairman Rupert Murdoch, who'll be followed by the new News Corp. Chief Executive, Robert Thomson, who will provide an overview for the company and some of the pillars to value creation. We'll then going to go through each one of the operating units. We will hear from Dow Jones CEO, Lex Fenwick. We'll hear from News International CEO, Mike Darcey. We'll hear from News America Marketing Chairman and CEO, Paul Carlucci. We're then going to take about a 10-minute break. I think it says 15 up there. Let's do 10 minutes. Refreshments will be out there and there'll be a kiosk where you can sample a lot of our products from across the company. So definitely worth checking out.

When we return, we'll hear from News Limited CEO, Kim Williams; REA Group CEO, Greg Ellis; and we will hear from HarperCollins CEO, Brian Murray, our Book Publishing business. We'll then take another short break, and then we'll return to hear from Amplify CEO, Joe Klein, and new News Corp. Chief Financial Officer, Bedi Singh, to discuss the financial overview of the company.

We'll then conclude with a Q&A session of all the executives back up. First, other housekeeping items. We will be handing out the deck, so please don't feel any need to write every -- on every slide, so you'll have that when you come -- on your way out. So with that as an introduction, it is now my honor and my privilege to introduce our first speaker, Executive Chairman Rupert Murdoch.

Keith Rupert Murdoch

Thank you, Mike.

Michael Florin

Thank you. Thank you.

Keith Rupert Murdoch

Well, good afternoon. Thank you all for coming here today. It's great to be back here in Australia for this exciting moment in News Corporation's history. And I'm so pleased that some of my family could be here with us today. And, of course, Mr. Peter Barnes, and you all know who will be chairman of our new Audit Committee.

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 lifetimes: The chance to sort of do it all over again. Now I don't want to sound boastful, but I'll just to take a minute as I have you all here in my captive audience.

When I began on the journey of creating News Corporation nearly 60 years ago in Adelaide, I pretty much was working with one small newspaper and a rather overdeveloped ambition. Well, today, that company has a market cap of $77 billion. It's a powerhouse in global media, no doubt. But that is how it retains the Aussie spirit of a family company. I'm not saying I didn't make many mistakes along the way, even some spectacular ones, but not as many as everyone predicted. And I'm proud to say that again and again, News Corp. has confounded expectations.

When we move from Adelaide here to Sydney, our competitors threaten to run us out of town. And let me tell you, they were quite enthusiastic with their threats. But that's all distant memories. When we bought the London Sun in 1969 and turned it into a tabloid, The Daily -- 5-million circulation Daily Mirror just laughed. Today, the Sun sells 2 million, 2.25 million every day, and the Mirror is down under 1 million. So after 15 years of industry -- later, after 15 years of industry frustration, we opened a new printing plant, which went on and go -- went on to win the first private sector strike in 50 years in Britain and giving new life to all newspapers in that country.

When we set up the FOX Network in 1986, people thought we were positively mad, said that no one could compete with the big 3. When we came out with The Simpsons, people have said animation was just for kids. Well, today, it's still the longest-running comedy in prime time in U.S. history and has made us and a lot of other people a large fortune.

When we launched SKY, people said the public didn't need more choice and that we would go bust. The BBC should alone decide what was good for viewers. So in retrospect, I could've done without the stress of nearly bankrupting the company and my family. But today, BSkyB has over 10.6 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. Its founder, Ted Turner, bragged that he was going to squash me like a bug and a lot of other things. But with hard work and with the genius of Roger Ailes, our Chief Executive, FOX News has been #1 in cable news for 11 straight years and now has annual operating profits of more than $1 billion.

So given that success story, you may be wondering why I want to do it all over again. Well, the simple answer is there's just opportunity everywhere. The companies that make up the new News Corp. are some of the most extraordinary and brilliant brands in the world. Yes, some have their individual challenges, but they're undervalued and I believe underdeveloped. But all that changes starting today. I will admit it feels a hell of a lot better starting out with $3 billion in liquidity than with nothing as we did in Adelaide. But there is something else we have today that is even more valuable and makes me confident at what we will do with the new News Corp. and that's talent. We have an extraordinary team of executives that you will hear from and who have strong teams around them in our businesses in the United States, in the United Kingdom and here 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 today even as we set out to tell you about the new News Corp. What we share is one core belief and I think you will see it as the common trait here today. Knowledge is the most valuable commodity in the world and never has a more ravenous appetite for knowledge existed than in today's world. So we'll create new businesses and new products, tell new stories and inform and educate the public in entirely new ways. And above all, we will continue our transformation and embrace the digital and 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. You might think that's crazy. But back in the 1950s, we only had lead pencils and typewriters. Today, we have WiFi, 4G and digital compression.

Well, now it is my pleasure to introduce to you Mr. Robert Thomson, whom we are extremely lucky to have as our Chief Executive Officer. I've known Robert for many years. As you probably know, he's a Melbourne boy like me. And actually, he started his career as a copy boy 35 years ago in the Herald in Melbourne. So we've gone full circle. But I've seen Robert 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 charted new paths for both 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 our 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 extended reach and revenue stream he created through WSJ.com. Today, that global platform of dedicated subscribers is helping fuel the growth of Dow Jones. At the time when many in traditional media played defense, Robert has smartly played offense in untraditional ways, growing circulation, revenue and profitability. Few in this business can say that. But earlier in his career, Robert successfully re-created 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 the new News Corp.

Let me close by saying that on a personal level, there are a few whose wisdom I have found to be as valuable and on point as Robert's. I've turned to him for insight in the markets and industry, for business counsel and a critical eye, one that is informed by his having worked on the ground in Australia, Europe, Asia and the United States, all markets the new News Corp. has targeted for growth. We're thrilled to have Robert as our Chief Executive, where I believe investors will come to appreciate him as such as we do. So let me introduce Robert.

Robert J. Thomson

Rupert, thank you very much for the kind words and for the faith and responsibility that you've invested in me. The problem with such generous introduction is that the reality is that much more mediocre. I have your support, which is, of course, crucial, but I also have PowerPoint. For without PowerPoint, as everybody in this room knows, executives are both powerless and pointless.

Rupert has just described to you an extraordinary journey. One asks, as Churchill once did in rather different circumstances, is it 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 the sensibility of a start-up.

Now we'll let the invisible hand go to work. I presume there aren't too many anti-Adam Smith right here. That invisible hand is signing off on the launch of the new News, a company with a remarkable prominence. But that prominence will be a platform for the future. There will be restless energy and insatiable curiosity. There will be opportunism and experimentation. There will be alchemy. There will be Murdochian magic, a permanent start-up sensibility. We will be acutely and astutely cost-conscious but determined in our pursuit of profits. However, we will 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 the extremely capable division heads, and they will be able to furnish you very, very ably with both coherent strategy and fine detail. And they will give you a textured sense of a company with global reach and national depth. You will see that we are indeed focused on free cash flow, obsessed by it, and on the prudently opportunistic and strategic use of our cash balance.

But before they take you on a lively narrated tour of those businesses, I think it 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. Some of this will be a little obvious to most of the erudite people in this room, so please bear with me. But the 2 most profound trends of our time, trends that will determine the fate of the majority of large companies, our 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 a 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 '90s. So these are not new trends, but their impact is growing with each passing year.

In the past week, we've had Chinese bids for an American icon, Smithfield, and for a French icon, Club Med. We must understand precisely how powerful these trends are, not just as an abstract concept but in the way markets are changing. And what indeed are markets? Markets are an aggregation of people's desires, demands, fears, fidelities, needs and aspirations. Customers' needs are changing, how they read and watch and communicate. These changes to lifestyle are e exponential, and 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 during the festive season. Frankly speaking, when I was a child in rural Australia, a sandwich with mayonnaise and not on white bread was regarded as haute cuisine. And vinaigrette dressing on a salad was thought of as perhaps a little too, shall we say, continental. Now 49% of Taste users are accessing the site from a mobile device. 22% of Taste traffic is international, and that is growing at 40%. So 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 really are able to learn from each other, because we are coming from the same -- 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 the context for the new News is that we are a content and knowledge 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 means having an environment in which you can anticipate and not necessarily just follow customers' interests, and then you share lessons quickly. The scale of the new News means we 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 photos and stories can be easily shared for digital and print and duplicated expenditure done away with. We want a single cost of content and multiple opportunities to 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 or templates for other publishers in the early phase of the iPad. We are still at an early stage of a second great migration, from print to web and from web to mobile. And that this is true for Paul Carlucci at News America Marketing, our coupon business, as it is for Amplify and Joel Klein.

One of our foremost ambitions outside Australia is to own the second screen. In Australia, we have the first screen. In other words, to create content that complements an event or even define that event, whether it be a football match or a British election. The second screen is the first priority, and our Australian broadcast businesses will play a crucial role culturally and technologically in helping us to exploit that opportunity.

Now as I speak of platform permutations, let me be very clear. Print is still a particularly powerful medium. 43% of Wall Street Journal readers are millionaires, and the other 57% will be millionaires if they continue to read the Journal. In this age of endless digital distraction, if I told you that you could have the undivided attention of around 2.7 million British households every morning, what is that worth? Newspaper readers. 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.

Thirdly, the pricing and selling of great content. Gone are the days when flat-earthers insisted that all digital content must be free all of 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 charging, 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 content but the building of loyal communities. And these communities are by virtue of paying a defined and desirable demographic. They are worth far more to advertisers than digital drive-bys. And we will see that inevitably reflected in advertising ranks.

There are 2 particular facets of contents 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 but illustrative. It is 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 revenues. That is, the ownership of the event and then the ownership of the unfolding of that event. If one of our intrepid Dow Jones reporters breaks the story about, say, fiscal easing in Japan or a tightening of the Federal Reserve, for a minute or so that story is worth millions, tens of millions, hundreds of millions to ForEx and bond traders. That value diminishes quickly as the story becomes both copied and better known. But the question for content creators is how to plan the unfolding of a narrative so that the content is not quickly commodified. And that can only be done when content is commissioned and only if journalists have a clear understanding of the value of the story to readers and clients. One consequence, there'll be more and more windowing of content in a way that is conceptually now associated with the film industry, and there will be more revenue from more windowing. And there will be extra emphasis on owning big events even if you do not have the first rights to that event.

Read the rest of this transcript for free on seekingalpha.com