First quarter 2019 highlights
• Revenues of US$2.52 billion, a 23% increase compared to $2.06 billion in the prior year, reflecting the consolidation of Foxtel and continued strength at the Digital Real Estate Services and Book Publishing segments
• Net income was $128 million compared to $87 million in the prior year
• Total Segment EBITDA was $358 million compared to $248 million in the prior year
• Strong paid digital subscriber growth at The Wall Street Journal, The Times and Sunday Times and The Australian with digital subscribers accounting for more than half of total subscriber base.
Commenting on the financial results for the three months ended September 30, 2018, chief executive Robert Thomson said:
“In the first quarter, our growth in revenue and earnings reaffirmed our strategy to focus on digital development, and to put particular emphasis on subscriptions as the advertising market continues to evolve.
“Reported revenues grew 23% to $2.5 billion for the quarter, while profits rose 44% to $358 million. These numbers are noteworthy as, even excluding the Foxtel consolidation, we achieved tangible increases over the same period last year across many of our segments.
“Digital Real Estate Services continued to post strong operational gains, and we took an important strategic step forward with the acquisition of Opcity, which deepens the quality of our engagement with realtors and homebuyers.
“Our News and Information Services segment showed progress, with digital paid subscriptions rising at many of our mastheads. Dow Jones (DJ) is well advanced in its digital transformation, with nearly 65% of The Wall Street Journal subscribers digital-only. That growth is complemented by the Professional Information Business, which allows us to sell higher value-added products across the WSJ subscriber base.
“HarperCollins again demonstrated that unique, compelling content can be monetised successfully across different platforms and markets, posting another quarter of robust profit growth.
“We are enhancing the new Foxtel, having already launched a dedicated Fox Cricket channel, begun the rollout of 4K, and done advanced work on a sports-only IP offering. The Foxtel leadership team has also been transformed in recent months.”
The company reported fiscal 2019 first quarter total revenues of $2.52 billion, a 23% increase compared to $2.06 billion in the prior year period. The growth reflects the impact from the consolidation of Foxtel’s results following the combination of Foxtel and Fox Sports Australia (the “Transaction”) into a new company (“new Foxtel”) and continued strong performances at the Digital Real Estate Services and Book Publishing segments, partially offset by lower print advertising revenues at the News and Information Services segment. The results also include the $48 million benefit related to News UK’s exit of the gaming partnership with Tabcorp for Sun Bets, a $49 million negative impact from foreign currency fluctuations and $17 million of lower revenues as a result of the adoption of the new revenue recognition standard. Adjusted Revenues (which exclude the foreign currency impact and acquisitions and divestitures as defined in Note 1) increased 4%.
News and Information Services
Revenues in the quarter increased $7 million, or 1%, as compared to the prior year. Within the segment, News UK and Dow Jones revenues grew 12% and 3%, respectively, while revenues at News Corp Australia and News America Marketing declined 7% and 6%, respectively. Segment revenues also include the benefit related to the exit of the gaming partnership, which was partially offset by the $28 million negative impact from foreign currency fluctuations. Adjusted Revenues for the segment increased 3% compared to the prior year.
Advertising revenues declined 7% compared to the prior year, of which $15 million, or 2%, was related to the negative impact from foreign currency fluctuations. The decline was driven by weakness in the print advertising market, mainly in Australia and the UK and lower home delivered, including free standing inserts, revenues at News America Marketing, partially offset by a modest increase in digital advertising revenues. Advertising revenues at Dow Jones, excluding the impact from the cessation of The Wall Street Journal international print editions, were relatively flat in the quarter.
Circulation and subscription revenues increased 2%, including a $10 million, or 1%, negative impact from foreign currency fluctuations. The growth was primarily due to a healthy contribution from Dow Jones, which saw a 7% increase in its circulation revenues, reflecting continued digital subscriber growth at The Wall Street Journal, and growth in its Risk & Compliance products. Cover and subscription price increases also contributed to the revenue improvement. These increases were partially offset by lower newsstand volume at News UK.
Segment EBITDA increased $42 million in the quarter, or 57%, as compared to the prior year, primarily due to the benefit related to the exit of the gaming partnership, as mentioned above, and higher contribution from Dow Jones and News Corp Australia. Adjusted Segment EBITDA (as defined in Note 1) increased 59%.
Digital revenues represented 33% of News and Information Services segment revenues in the quarter, compared to 27% in the prior year. Digital revenues for the quarter include the gaming partnership-related benefit at News UK. For the quarter, digital revenues for Dow Jones and the newspaper mastheads represented 37% of their combined revenues, and at Dow Jones, digital accounted for 54% of its circulation revenues. Digital subscribers and users across key properties within the News and Information Services segment are summarized below:
The Wall Street Journal average daily digital subscribers in the three months ended September 30, 2018 were 1,584,000, compared to 1,318,000 in the prior year (Source: Internal data)
Closing digital subscribers at News Corp Australia’s mastheads as of September 30, 2018 were 442,400, compared to 375,400 in the prior year (Source: Internal data)
The Times and Sunday Times closing digital subscribers as of September 30, 2018 were 263,000, compared to 212,000 in the prior year (Source: Internal data)
The Sun’s digital offering reached approximately 74 million global monthly unique users in September 2018, compared to 84 million in the prior year, based on ABCe (Source: Omniture (OMTR))
Subscription Video Services
Revenues and Segment EBITDA in the quarter increased $420 million and $86 million, respectively, compared to the prior year, primarily due to the inclusion of Foxtel.
On a pro forma basis, reflecting the Transaction, segment revenues in the quarter decreased $115 million, or 17%, compared with the prior year, of which $45 million, or 7%, was due to the negative impact from foreign currency fluctuations. The remainder of the revenue decline was driven by the combination of the impact from the changes in the subscriber package mix at new Foxtel, the absence of a high-profile pay-per-view event compared to the prior year, lower advertising revenues and the impact from the adoption of the new revenue recognition standard.
As of September 30, 2018, new Foxtel’s total closing subscribers were 2.9 million, which was higher than the prior year, primarily due to Foxtel Now subscriber growth and the inclusion of commercial subscribers of Fox Sports Australia beginning in the first quarter of fiscal 2019, partially offset by lower broadcast subscribers. Broadcast subscriber churn in the quarter was 12.9% compared to 12.7% in the prior year. Broadcast ARPU for the quarter declined 6%, reflecting a 2% negative impact related to the adoption of the new revenue recognition standard. New Foxtel announced price increases of A$2 to A$3, which took effect on October 1, 2018.