FOX Q2 2024 Earnings Report

FOX EPS Results

• Actual EPS: $0.34
• Consensus EPS: $0.11
• Beat/Miss: Beat by +$0.23
• One Year Ago EPS: $0.48

FOX Revenue Results

• Actual Revenue: $4.23 billion
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

FOX Announcement Details

• Quarter: Q2 2024
• Date: 2/7/2024
• Time: Before Market Opens
• Conference Call Date: Wednesday, February 7, 2024
• Conference Call Time: 8:30AM ET

FOX (NASDAQ:FOX) (NASDAQ:FOX) is a U.S.-based media company that operates television broadcast, news and sports businesses. The company traces its contemporary structure to the 2019 reorganization that followed the sale of certain entertainment assets to The Walt Disney Company; Fox Corporation retained a portfolio centered on the Fox Broadcasting Company, Fox Television Stations, Fox News Media and Fox Sports. Over time the company has expanded its digital footprint through acquisitions and direct-to-consumer services, building a mix of linear and streaming distribution.

FOX’s core activities include the creation, aggregation and distribution of television programming and live sports, the operation of national cable news and business networks, and the ownership and operation of local broadcast stations. Its television operations supply prime-time entertainment and live-event coverage, while its news division produces national and digital news content and subscription streaming through branded services. The company generates revenue through advertising, affiliate fees from pay-TV distributors, content licensing and streaming monetization.

While the company’s businesses are primarily focused on the United States, FOX distributes programming and licensed content internationally through partnerships, syndication and digital platforms. Its sports rights portfolio includes major national sports properties and live-event coverage that attract large audiences, and its local station group reaches numerous local markets across the country. The company’s digital strategy has emphasized ad-supported streaming and on-demand platforms to complement its traditional broadcast footprint.

Headquartered in New York, FOX is managed by an executive team that includes members of the Murdoch family, reflecting the company’s long-standing ownership and leadership ties. Its corporate activities combine content production, live event broadcasting and distribution, positioning the company as a multi-platform media operator focused on news, sports and broadcast entertainment.

FOX Q2 2024 Earnings Call Transcript

Key Takeaways

• Fox’s television segment achieved 10% growth in affiliate fee revenues and the cable segment returned to growth, completing most of its fiscal 2024 renewals without disruption and laying the groundwork for fiscal 2025.
• Advertising revenues fell 20% year-over-year due to cyclical events like the FIFA Men’s World Cup and midterm elections, but strong sports demand (NFL and college football) and Tubi’s 62% growth in viewing hours underscore Fox’s advantage in a mixed ad environment.
• Fox led the industry in live sports for the fifth consecutive year, delivering 29 of the top 100 telecasts in 2023, averaging 19 million viewers per NFL game, and setting a playoff average record of nearly 45 million viewers.
• Fox announced a new sports streaming joint venture with Disney and Warner Bros. Discovery, targeting roughly 60 million “cord-never” households with content from 14 linear networks when it launches in fall 2024, while remaining committed to existing pay-TV partnerships.
• In Q2, Fox reported total revenues of $4.23 billion (down 8%), adjusted EBITDA of $350 million (vs. $531 million a year ago), net income of $109 million ($0.23 per share), a seasonal free cash flow deficit of $615 million, and returned capital via $550 million in share buybacks and a $0.26 per share dividend.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the Fox Corporation Second Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

[Operator]

I would like to emphasize the functionality for the question-and-answer session; cue will be given at that time. If you should require assistance during the call, please press star, then zero.As a reminder, this conference is being recorded. I would now like to turn the conference over to Chief Investor Relations Officer, Ms. Gabrielle Brown. Please go ahead, Ms. Brown.

[Gabrielle Brown, EVP and Chief Investor Relations Officer at Fox Corporation]

Thank you, operator. Good morning, and welcome to our fiscal 2024 second quarter earnings call. Joining me on the call today are Lachlan Murdoch, Executive Chair and Chief Executive Officer, John Nallen, 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.

[Gabrielle Brown, EVP and Chief Investor Relations Officer at Fox Corporation]

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 in the company's SEC filing. 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 filing, which are available in the Investor Relations section of our website. With that, I'm pleased to turn the call over to Lachlan.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

Thank you, Gabby, and thank you all for joining us this morning. Against the backdrop of an active news cycle and another robust fall sports schedule, our fiscal second quarter again illustrated the strength of Fox. The growth we delivered in affiliate fee revenues was the standout this quarter, with the television segment growing by 10% and the cable segment returning to growth, once again demonstrating the power of our brands and our programming.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

We have now largely completed our fiscal 2024 affiliate renewal cycle, having achieved our commercial goals without disruption and setting a solid foundation for renewals in fiscal 2025 and beyond. As expected, advertising revenues in the quarter were down, primarily due to comparisons to last year's major cyclical events, including the midterm elections at the TV stations and the broadcast of the Men's World Cup in the cable and television segments.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

Parsing through the cyclical comparisons, our concentration in news and sports, coupled with the outstanding performance of Tubi, is clearly an advantage in a mixed advertising environment. More specifically, sports advertising was very healthy during the quarter, and we saw particularly strong demand for the NFL and college football, which continued into the NFL playoffs. At news, the second quarter was more nuanced.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

While preemptions and the direct response market adversely impacted quarterly growth, we sequentially narrowed the gap between the current and prior year in ratings and in pricing. We were also able to increase our viewing share over the previous quarter, and the positive trends in share, ratings, and pricing have carried over into the current quarter. Last week, I visited our bureau in Jerusalem, met with our talented and dedicated staff there, and saw firsthand the devastation wrought by Hamas on October 7th.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

Our hearts, our thoughts, and our prayers go out to the victims of that day, the innocents killed in Israel and in Gaza, and the hostages still denied the embrace of their families and loved ones. The work our correspondents, our camera people, and our producers do, reporting on these events, is important, outstanding, and deeply appreciated. Now on to sports. In calendar 2023, 96 of the year's 100 most-watched telecasts were live sports. Fox was responsible for 29 of the year's 100 most-watched shows, more than any other network.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

This marks the 5th straight year that Fox has topped the industry in live sports viewing and demonstrates the unparalleled reach and engagement our content achieves.The 30th NFL regular season on Fox concluded with an average of 19 million viewers across all games, with America's Game of the Week averaging 25 million viewers, an eight year high. Fox NFL Sunday logged its 30th straight year as the number one NFL pregame show.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

That strength continued into the postseason, with Fox's three postseason windows delivering a best-ever playoff average of almost 45 million viewers across the Wild Card, divisional, and championship games. In digital, we saw strong engagement at Tubi, which finished with a very impressive 62% growth in total view time and 17% growth in revenue. Tubi's library of over 240,000 movies and TV episodes, coupled with ubiquitous distribution, drove engagement, helping Tubi reach 78 million monthly active users....

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

Logged almost 2.5 billion streaming hours in the quarter, and set a new monthly record of 855 million total viewing hours in December alone. Tubi has consolidated its position in the streaming landscape, ranking as the most-watched free TV and movie streaming service in the United States, according to Nielsen, and surpassing Peacock, Max, Paramount+, and Pluto TV in view time for seven consecutive months. At Fox Entertainment, the second quarter saw programming strength, with Fox having the season's number one new broadcast entertainment series in Krapopolis.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

Hats off to Dan Harmon. The number one new game show debut in Snake Oil, and the number one cooking series in Hell's Kitchen. We're also pleased with the very strong start of our mid-season lineup and the early success of We Are Family and The Floor.Before I hand over to Steve, I'll comment on the sports platform we announced last night between Fox, Disney, and Warner Bros. Discovery. This new and unique digital distribution platform is focused on sports fans outside of existing pay TV offerings.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

Upon launch in the fall of 2024, the platform will offer a broad suite of sports, including those from a combined 14 linear networks that broadcast sports today. The inclusion of our networks in the platform is consistent with our strategy, being proudly consumer-first and distribution agnostic. Across the distribution ecosystem, our traditional pay TV market will remain our dominant customer base for some time to come. As such, we remain committed to our existing distribution partners, where our strong portfolio of leadership, sports, news, and entertainment brands thrive in their bundled offerings.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

This unique new platform opens up a new market for us, one that we at Fox have not accessed before and that we're excited to participate in. As always, we are focused on delivering value for our shareholders in a thoughtful and disciplined manner, and we will continue to explore every opportunity to maximize that value over the long term. Let me now turn it over to Steve for his comments on the quarter's financial results.

[Steve Tomsic, CFO at Fox Corporation]

Thanks, Lachlan, and good morning, everyone. With the vast majority of our fiscal 2024 affiliate renewals now successfully completed, Fox delivered 4% growth in total company affiliate fee revenues, led by 10% growth at television and a return to growth at Cable. This growth reflects the must-have nature of our content and the value that our distribution partners place on it.

[Steve Tomsic, CFO at Fox Corporation]

Consistent with our expectations regarding event cycles, advertising revenues this quarter were impacted by the absence of the FIFA Men's World Cup at Fox Sports and midterm political revenues at the local television stations, along with lower advertising revenue at Fox News Media. Collectively, these factors contributed to a 20% decline in total company advertising revenues. Total company other revenues grew by 14%, driven by higher sports sub-licensing revenues.

[Steve Tomsic, CFO at Fox Corporation]

All in, Fox reported total company revenues of $4.23 billion, down 8% from the prior year. Total company expenses decreased 5% over the prior year, primarily due to the absence of the Men's World Cup at Fox Sports and fewer hours of original scripted programming at Fox Entertainment due to the strikes. However, this was partially offset by the first-year step-up under our new NFL rights agreement. Quarterly Adjusted EBITDA was $350 million, as compared to the $531 million reported in the prior year quarter.

[Steve Tomsic, CFO at Fox Corporation]

Net income attributable to stockholders of $109 million, or $0.23 per share, compares to the $313 million, or $0.58 per share, reported in the prior year period.Largely due to the EBITDA impact I just mentioned, along with the net changes in the fair value of the company's investments recognized in other, net. Our effective tax rate for the quarter came in at 12%, reflecting a one-off remeasurement of our deferred tax assets as a result of changes in state tax laws. Excluding this impact and other non-core items, adjusted EPS was $0.34 per share versus last year's $0.48.

[Steve Tomsic, CFO at Fox Corporation]

Turning to our segments, starting with Cable, which reported 2% growth in total quarterly revenues. Cable affiliate fee revenues increased by $5 million, with growth in pricing from our distribution renewals outpacing the impact from industry subscriber declines, running at approximately 8%. Cable other revenues increased to $124 million, largely driven by higher sports sub-licensing revenues associated with our college sports and international soccer agreements.

[Steve Tomsic, CFO at Fox Corporation]

This growth in affiliate and other revenues was partially offset by a 23% decline in cable advertising revenues. At Fox News Media, advertising revenues were impacted by a softer direct response marketplace, lower comparative ratings, and higher levels of pre-emptions due to our breaking news coverage of global events. Meanwhile, at the National Sports Networks, we measured against last year's broadcast of the Men's World Cup.

[Steve Tomsic, CFO at Fox Corporation]

Expenses at the cable segment were 14% lower than the prior year, with savings mainly gained from the absence of the Men's World Cup, as well as lower legal, programming, and production costs at Fox News Media. Taking all these factors into account, quarterly Adjusted EBITDA at the cable segment grew 60% over the prior year quarter.Moving to our television segment, which reported total quarterly revenues of $2.54 billion, down 13% from the prior year.

[Steve Tomsic, CFO at Fox Corporation]

The TV segment reported strong 10% growth in affiliate fee revenues, as price increases across all Fox-affiliated stations more than offset the impact from industry subscriber declines. TV advertising revenues were down 19%, as solid growth at Tubi was more than offset by comparisons with last year's cycle of major events, including the FIFA Men's World Cup and midterm political revenues, as well as the relative mix of World Series matchups and game counts. Also, at TV, revenue from our entertainment production companies was impacted by the SAG and WGA labor disputes.

[Steve Tomsic, CFO at Fox Corporation]

This contributed to a $64 million decline in TV other revenues, most of which was offset by a commensurate reduction in expenses.Overall, expenses at the TV segment remained flat, as higher costs under the NFL agreement and a modest increase in investment in Tubi were offset by lower costs from the absence of the Men's World Cup, lower college sports rights costs, and fewer hours of original scripted content due to the strikes.

[Steve Tomsic, CFO at Fox Corporation]

Together, these revenue and expense impacts led to a quarterly adjusted EBITDA loss of $138 million at our TV segment, compared to an EBITDA contribution of $256 million reported in the prior year quarter. Turning to free cash flow, where we recorded a deficit of $615 million this quarter. This is consistent with the normal seasonality of our working capital cycle, where the first half of our fiscal year reflects the concentration of payments for sports rights and the buildup of advertising-related receivables.

[Steve Tomsic, CFO at Fox Corporation]

In terms of capital allocation, fiscal year to date, we have repurchased an additional $550 million through our share buyback program, bringing the total cumulative amount repurchased to $5.15 billion, or 25% of our total shares outstanding since the launch of the program in 2019. In addition, today, we announced a $0.26 per share semiannual dividend.

[Steve Tomsic, CFO at Fox Corporation]

These capital return measures are supported by our robust balance sheet, where we ended the quarter with $4.1 billion in cash and $8.4 billion in debt.These balances are before taking into account the repayment of one of our $1.25 billion note in late January. And with that, I'll turn the call back over to Gabby to open up the Q&A.

[Gabrielle Brown, EVP and Chief Investor Relations Officer at Fox Corporation]

Thank you, Steve. Now, we would be happy to take questions from the investment community.

[Operator]

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 one, then zero on your touch tone phone. You will hear a tone indicating you have been placed in queue. You may remove yourself from queue at any time by once again pressing one, then zero.

[Operator]

If you are 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 question, please press one-zero at this time. One moment, please, for the first question. We have a question from Ben Swinburne with Morgan Stanley. Please go ahead.

[Ben Swinburne, Managing Director and Head of U.S. Media, Telecom, and Cable Research at Morgan Stanley]

Good morning. Lachlan, obviously big news in the new sports joint venture, so I'd love to get your thoughts really around that product and opportunity in kind of two areas. First is, you know, what is the opportunity that you guys see in the United States for a product like that? Obviously, we're all focused on the cord cutter, sort of, TAM, but how many people do you think are interested in a product like this?

[Ben Swinburne, Managing Director and Head of U.S. Media, Telecom, and Cable Research at Morgan Stanley]

And then do you see any risk to, you know, particularly Fox News? This is the first time you guys have offered a product with just Fox Broadcast. So how'd you balance that when you thought about putting this business together? Thanks so much.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

Hey, thank you very much, Ben, and good morning. So the opportunity is huge, and that's really because this you know sports focused platform is focused entirely on you know cord not cord cutters, but cord-nevers. If you look at the American market, there's roughly, say, 125 million households in America, and roughly half of those are not within the traditional you know bundled cable ecosystem.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

And so the target for this product, which is gonna be, I think, incredibly innovative when you see it roll out, is really that universe of, you know, call it, 60 million odd households that currently don't participate in the bundled cable and pay television ecosystem. So we think it's a tremendous opportunity. We've been working on it for... I think it's been reported this morning fairly accurately, for several months now. You know, I've been lucky enough to have seen some of the prototypes for this service. And again, it will be unique and I think, you know, very innovative when you see it roll out.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

In terms of the risks and particularly for FOX News, I think the risks are very low, and that's because of the focus of the sports product being on, you know, the cord-nevers. You know, FOX News continues to be, you know, the top-rating cable network. You know, and our distributors, our partners really value that channel and that brand, as it really drives tremendous viewership and audience and engagement for them, and we think will continue to do so within the traditional cable and pay television bundle. Thank you, Ben.

[Gabrielle Brown, EVP and Chief Investor Relations Officer at Fox Corporation]

Operator, next question, please.

[Operator]

We go to Robert Fishman with MoffettNathanson. Please go ahead.

[Robert Fishman, Managing Director and Senior Research Analyst at MoffettNathanson]

Good morning, everyone. Sticking with the sports news, so we've long discussed with you the benefits of Fox-... to a sports-led skinny bundle. So I'm just wondering, any additional background you can share on what pushed this deal forward now, including maybe any flexibility you built into your recent affiliate fee renewals? And then on a related note, should we expect to see any changes in your approach to negotiate future sports rights? And any comments you wanna share about the Netflix-WWE deal that might impact these negotiations going forward? Thank you.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

Well, let me start back to front, Robert. So there's no impact on the Netflix-WWE deal at all. So I don't think that plays a factor in this. And in fact, in how we approach our portfolio of sports rights, you know, we will be aggressively competing in the sports market for sports rights, but nothing has changed there. The primary business and value in Fox Sports is competing, you know, both from every subscriber in the traditional cable pay TV bundle, and advertisers. You know, viewer and ultimately advertisers.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

So sports remains a competitive business which we frankly thrive in, and we don't see any difference to that. You know, what led to this now? I know, I think we've answered the many questions on these quarterly calls over you know many years about that when we are ready to launch a streaming service such as this, and we will do it. And we've been monitoring the space, obviously, for years, the past few years, in particular.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

And as we developed with our partners the concept around a very unique and innovative product, we felt now was the right time to launch such a product really into a new market, right? It's a new market where there's no product serving the sports fans that are not within the cable TV bundle. So it accesses... For us, it accesses a whole new market and really drives a tremendous amount of new reach that we weren't servicing before.

[Operator]

Operator, next question, please. Next is John Hodulik with UBS. Please go ahead.

[John Hodulik, Managing Director and Senior Equity Research Analyst at UBS]

Great, thank you. First, just quickly on the sports TV, just any cash contribution, or can you size any cash contribution required for from Fox? And then, turning, you know, to advertising, you know, obviously, a number of things affecting the numbers this quarter. You guys had some positive color as we look into next quarter.

[John Hodulik, Managing Director and Senior Equity Research Analyst at UBS]

Just any color, one, I'd say on the TV side, what you're seeing at this point in terms of political, and then you know, with the improvement in the ratings and the year-over-year, you know, the gap that you're seeing closing. Can we assume that the 23% on the cable ad side is sort of the worst number, and any color on the sort of slope of the improvement we should see as we head through the year? Thanks.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

I've lost track. Sorry... Okay, so ad contribution, advertising, and cable-

[Gabrielle Brown, EVP and Chief Investor Relations Officer at Fox Corporation]

Cable advertising.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

Cable advertising.

[John Hodulik, Managing Director and Senior Equity Research Analyst at UBS]

Cable advertising. You got it. Sorry.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

After this, we won't need any more questions. We'll cover the whole gamut. Thanks, John. On the cash side, I'll let Steve fill in, but it's obviously this business has both marketing and other costs associated with running the business in the partnership. But there's also the revenue that we garner through affiliate fees for our networks that come out as the business grows. But I'll let Steve talk-

[Steve Tomsic, CFO at Fox Corporation]

Yeah.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

Fill in the details.

[Steve Tomsic, CFO at Fox Corporation]

So John, I think it's a touch early for us to be giving some forecasts around sort of the contribution or deficit from the JV. But sort of as we look at it, it'll be accretive to us from a net net perspective when you take into account the affiliate fees that we'll collect as revenue versus whatever funding we need to make to the JV. We think from a net net to Fox perspective, it'll be accretive pretty quickly.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

And then on advertising, I think, you know, the advertising outlook is, as mentioned with news, but you could apply this term to the overall market as sort of nuanced, as we look at it. If I start with sports, you know, we had a very solid regular NFL season from an advertising perspective. And I think a stronger NFL postseason, which we were very pleased by. But also that was, it's a smaller revenue line, but we had a fantastic college football season, a really...

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

I think the story of this past autumn was really the strength of college football and particularly as advertisers you know sort of you know founded and appreciated the you know the quality of the audience watching college football. Coming up if we look forward obviously we have the Daytona 500 and then the start of the regular Major League Baseball season in March. And there's a lot of positive momentum with advertisers with those. Fox News you have positive trends with DR pricing.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

Direct response pricing is still down, but as you start to lap the comparisons from last year, it's certainly improving quite a lot. We have an impact from preemptions with election and unfortunately with war coverage. So the preemptions are affecting, and ratings are continuing to improve. So we're happy with where we are at Fox News, as all those trends are improving steadily. Our local stations is probably the most mixed, but you have a bad comparison, particularly in the current pacings, with Super Bowl comps this time last year.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

It's probably about $50 million in Super Bowl revenue, just in the station group, this time last year. So the comparisons are quite tough as we go forward, but we remain confident that we'll see a record political cycle. This is slightly ameliorated, I think, in the current quarter, with the lack of a sort of competitive primary competition. But we're already seeing business in the first half of next year start to flow in from a political perspective.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

It's obviously sort of natural because, you know, our stations, we have a large number of stations in, you know, key political markets like, you know, Georgia and Michigan, Pennsylvania, Arizona, and Wisconsin. So, you know, we're very confident in a very strong political cycle once that's really starts to flow. And then finally, with Tubi, Tubi's TVT has continued to grow. I think it's 62%-63%. And obviously, with the TVT growth, you know, the revenue is following. The revenue growth is slightly less or somewhat less than it was last year.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

In the sort of streaming environment, you know, we're very happy with its growth. So that's on advertising. Scatter pricing is all up above upfront pricing. So that's positive. And then finally, on the cable affiliate subscribers and fees, you know, we are in an environment where I think we called out it's roughly 8% cable erosion, and yet our cable affiliate fees have grown in this quarter. So I think that really shows the strength of our brands and our programming in the cable universe.So we're very pleased with that. Thanks, John.

[Gabrielle Brown, EVP and Chief Investor Relations Officer at Fox Corporation]

Next question, please, operator.

[Operator]

It is from Jessica Reif Ehrlich with Bank of America Securities. Please go ahead.

[Jessica Reif Ehrlich, Managing Director and Senior U.S. Media and Entertainment Analyst at Bank of America Securities]

Oh, thank you. Back to the sports platform. Lachlan, you seem really confident that it won't affect the pay TV bundle, which is... I just wanna get some color on that, given that sports has been really the glue that's kept it together. So why do you feel so confident that it will not impact that? And then, you know, what is the openness to ad partners, and will this, or will this have a separate advertising organization? How will the ads work in your content?

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

Hi, Jessica, by the way. First on how it affects the overall pay TV bundle. Again, the key market, the market that we will be, you know, driving towards is the market that sits outside the sports fan, who sits currently outside of the, you know, traditional bundle. We, you know, obviously, we've been working on this for several months.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

We've done lots of sensitivity analysis, and we would not be launching this product if we thought it was gonna significantly affect our, you know, pay TV affiliate partners. And that, that's very important to us. We remain, you know, I think the biggest supporters of the traditional pay TV bundle. We think there's tremendous value in the pay TV bundle. For the consumer who wants to get it all at an affordable price, the big bundle is still the best way to get that programming and those brands.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

So, so we are confident that, that this product will be additive and will give us incremental subscribers, and not, not, not, you know, affect significantly the, the traditional, bundle. And the openness to add partners, that's not, something that we're, considering, at this stage. We think that the, the 14 linear networks, that this, service, offers gives people a tremendous, amount of, of, of content, between, you know, ABC affiliates, Fox affiliates, ESPN, ESPN2, ESPNEWS, the SEC Network, you know, you know, Fox affiliates, Fox Sports 1 and 2, the Big Ten Network, TNT, TBS, it's a... and others.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

It's a tremendous offering that covers, you know, the majority of the key sports in this country: NFL, NBA, WNBA, Major League Baseball, NHL, et cetera, college, obviously NASCAR, and so on. So, you know, we think it's an incredibly strong offering, and at this stage, we're not contemplating adding partners to it. I think your, the third question, Jessica, was on advertising revenues.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

And so, advertising revenues will flow through this, so the advertising that we have on our linear networks will flow into this service, and will just give us increased reach to market that hasn't seen those that advertiser engage with those clients before.We think it's a net positive.

[Jessica Reif Ehrlich, Managing Director and Senior U.S. Media and Entertainment Analyst at Bank of America Securities]

Great.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

Thank you, Jessica.

[Gabrielle Brown, EVP and Chief Investor Relations Officer at Fox Corporation]

Operator, we have time for one more question.

[Operator]

Very good. That will come from Michael Morris with Guggenheim. Please go ahead.

[Michael Morris, Senior Managing Director and Senior Equity Research Analyst at Guggenheim]

Hi, good morning. Thank you, guys. So, wanted to ask about two areas of strength in the quarter. The first one on the sports sub-licensing. Can you share a little more detail on what that was, how it impacted profitability, and how to think about whether or not that's a recurring revenue and profit source? And then my second question is on the affiliate acceleration, which is really great to see.

[Michael Morris, Senior Managing Director and Senior Equity Research Analyst at Guggenheim]

We know that the rate of cord-cutting, you know, is gonna be impactful on that number. It's very hard to predict. But on pricing alone, and the precedent that you just set, should we look at this as the first quarter of a sustained stronger pricing dynamic?How long do you think we should anticipate that you can continue to see this type of growth being fueled by those new contractual relationships? Thank you.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

I thought it was unfair that Steve would get the easy question, and then you asked a second question. So, anyway, good morning, Michael. I'll let Steve address the sports sub-licensing first.

[Steve Tomsic, CFO at Fox Corporation]

Hey, Mike. So our sports sub-licensing revenue we have in, in the cable segment. So we have... We own sports sub-licensing income in relation to various sort of college sports properties and international soccer rights. Some of these rights come with some variable-based economics to them, which we saw in the quarter.

[Steve Tomsic, CFO at Fox Corporation]

I think you should see this as somewhat of a one-off. It's not gonna repeat like this going in future quarters, future years. And if you wanna try and dimensionalize it, then the, the size of the increase in cable other revenues between this quarter and, and previous quarter last year is a pretty good guide to the, the net benefit to us from those sub-licensing arrangements.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

So, on the affiliate revenue acceleration, I think if you look at it in two, and, and can we sustain that? We've now completed all of our distributions or renewals in this cycle that will affect the remainder of this fiscal year. So, there's no more renewals negotiated that will affect this fiscal year, and obviously, then we're rolling into renewals that will take effect after this fiscal. If you look at the underlying rate of decline around 8%, and this goes back to a little bit of what John's question.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

You know, if we look at that 8%, actually, in September and October, it was better than 8%. It was a little bit better. And then – and this we believe was, you know, the impact of football, and, you know, sports, sports viewing, in the fall. But then, you know, after, you know, October, sort of as you get into November and December, the rate decline returned to its sort of baseline at 8%. So, you know, for the immediate future, we don't see that changing. There's some cyclicality within that, but I think the 8%'s, yeah, a number that we're sort of baking into our assumptions.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

You know, with that, you know, we believe, as we've achieved over the last year, where we've renewed over a third of our distribution, we've been able to achieve, you know, rate increases that have, you know, made up for those declines. And that is because of the, you know, the strength of our brands, the strength of our programming, and really, you know, where they sit, having sort of a focused strategy on a key number of very core brands that are essential for the distributors and for their customers, that we'll be able to maintain, you know, similar rates of change going forward.

[Gabrielle Brown, EVP and Chief Investor Relations Officer at Fox Corporation]

Great.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

Thanks, Mike.

[Gabrielle Brown, EVP and Chief Investor Relations Officer at Fox Corporation]

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 again for joining today's call.

[Steve Tomsic, CFO at Fox Corporation]

Thank you.

[Lachlan Murdoch, Executive Chair and CEO at Fox Corporation]

Thanks, everyone. Have a good day.

[Operator]

Ladies and gentlemen, that does conclude your conference call for today. Thank you for using AT&T Executive Teleconference. You may now disconnect.

Participants

Executives

• Gabrielle Brown, EVP and Chief Investor Relations Officer
• Lachlan Murdoch, Executive Chair and CEO
• Steve Tomsic, CFO

Analysts

• Ben Swinburne, Managing Director and Head of U.S. Media, Telecom, and Cable Research at Morgan Stanley
• Jessica Reif Ehrlich, Managing Director and Senior U.S. Media and Entertainment Analyst at Bank of America Securities
• John Hodulik, Managing Director and Senior Equity Research Analyst at UBS
• Michael Morris, Senior Managing Director and Senior Equity Research Analyst at Guggenheim
• Robert Fishman, Managing Director and Senior Research Analyst at MoffettNathanson