Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

News Corporation (NASDAQ:NWSA)

March 05, 2013 8:40 am ET

Executives

Chase Carey - President, Chief Operating Officer, Director, President of The Media & Entertainment Arm and Chief Operating Officer of The Media & Entertainment Arm

Unknown Analyst

So we're going to get started, if everyone can have a seat, with our next presentation this morning. So very pleased to have with us Chase Carey, Deputy Chairman, President and COO of News Corporation. So we're sticking with 3 titles so far, same as last time.

Chase Carey

Kind of down to 2, but yes.

Unknown Analyst

Thanks for coming.

Chase Carey

Nice to be here.

Question-and-Answer Session

Unknown Analyst

So last year, we did a deep dive into the company structure and the cable network outlook, it was a focus. I think we'll cover the breadth of the company this year, so a little bit broader. But I did want to start same place as last year, with structure. Given the upcoming split, what are the steps yet to be completed to separate Publishing from FOX, and will it still be completed by this June?

Chase Carey

Everything's pretty much on schedule. I mean, most of that steps I'd call better as sort of more of a process than substance, and I think probably falling into 2 camps: sort of the tax rulings we need for various places; and the regulatory process that we need to follow through vis-à-vis shareholders and the like. But everything is largely on track. We're still shooting for June, and everything seems to be falling in place.

Unknown Analyst

So how do you think about the new Publishing stock? How would you sort of characterize how you think investors will look at that company and those businesses?

Chase Carey

I think in -- I'm not going to sort of speculate to where it'll trade, but a lot of -- to some degree, I think increasingly, there's a recognition that the company has -- is more than simply the newspaper group, and that's not a negative comment about the newspaper group, but it really is a broad-based Australian multimedia company that is in television, video, digital and publishing, so it's sort of a broad-based Australian multimedia business, and then really, a global publishing business in books and newspapers that I think really represents unique strengths in terms of franchises, unique strengths in terms of scale and particularly some unique assets that have the potential to really build exciting businesses in a digital age. And I guess if you sort of think of Dow Jones, the Wall Street Journal is, in particular, being businesses that really have the potential to really generate unique proprietary information and data in an age -- in a digital age where essentially, unique information is going to be more valuable than ever. So I do think that, that business, as it gets out there, have potential to really build some interesting businesses. And for those who believe, which we do, that uniquely branded news, quality-branded news has a real long-term future, I guess it's a company that can be exciting for people and take advantage again of its scale, its brands and its franchises, as well as some of the assets that probably aren't -- don't get as much -- don't get talked about as much, particularly in the Australian multimedia area.

Unknown Analyst

The -- we're $2.5 billion in cash. I think there was some press speculation around $3 billion. Are we in the ballpark in terms of what the balance sheet might look like at News Corp. coming out the gate?

Chase Carey

I'm not to get into the specifics of the balance sheet. I think actually, this month, we'll have some filings that provide visibility people have been looking for in a number variance like that. What I would say with this, I think we feel both these businesses have really exciting futures. We think it's important they both have balance sheets that enable them to fulfill the opportunities they have to build exciting long-term businesses.

Unknown Analyst

How should -- if shareholders of News Corp are going to get News Corp. and FOX shares, how should investors today think about how capital might be deployed at News Corp. once it's split off at the Publishing company?

Chase Carey

At the Publishing company? I think it is really going to be -- I mean, I think it'll be a well-capitalized business. And I think it'll be deployed opportunistically. I don't think it's a business that would be viewed as having necessary holes in it, but I think it's a business where they think there will be -- they believe, we believe -- I guess today, it's still we -- believe there'll be opportunities to grow exciting businesses. And I think we've always believed we should build over -- build rather than buy, although in some places, they're probably in businesses in the publishing side, in books and newspapers that have a degree of -- degrees of maturity that sort of would bode for potential consolidation in places. So I think you -- when you look at those businesses, they are businesses one could argue where we create value out of consolidation. But they're a leader. I mean, they're a unique leader in those places, and I think they'll -- with those franchises, I think they believe there'll be opportunities for them to build and grow exciting businesses and I think largely probably focused on digital media. There's no question that in the Publishing side, the business is clearly going to continue to gravitate from a print format to a digital format. It doesn't mean there won't be printed products for a long time, but the growth and the energy will really come out of digital side of those franchises.

Unknown Analyst

Yes, and maybe it's a harder question to answer. To some extent, you sort of already implied it in some of the comments you already made, but I think when we think about the cash level that might end up at News Corp., there's sort of 2 camps, right? One is the philosophy that Rupert wants to have maximum flexibility to invest in the business and to make acquisitions. There's the other camp that anticipates the stock is, given sort of the nature of the assets, likely to at least initially trade at a discount. If you have a bunch of cash, you have flexibility to buy back stocks and do deals. Any thoughts there?

Chase Carey

Well, again, I think -- that's why I just -- I'd use the phrase opportunistic. I think you see where it goes, I mean, to what degree. I think we'll try. Before the stock trades, we are going to go forward to provide more visibility to the company, its plans, its what we call a roadshow or what have you, but I think we will go out and give the market a better understanding of the vision, the plans for that business. And I think out of that, hopefully, it'll be a somewhat better understanding what we think the opportunities are and what we think where the values reside today. But I think it's a business you want to grow opportunistically. You want to have flexibilities, you want to create a balance sheet that lets it pursue the opportunities that make sense for you.

Unknown Analyst

So why don't we shift over sort of to the rest of the company, the FOX business.

Chase Carey

Sure.

Unknown Analyst

How do you think about driving value at FOX?

Chase Carey

I guess when I think about driving value, it starts with cash flow, sustainable long-term cash flow. I mean, I guess I always believe value is essentially measured best ultimately in the cash you generate out of a business. I think we think, certainly, it is important to focus on both short- and long-term cash flow, the ones we've talked about. I think within that, we want to make certain trade-offs short term, to make sure we have a long-term sustainable growth at our business, which is part of finding opportunities to invest and add new dimensions that add and enable us to maintain that long-term cash flow. I think beyond the growth in cash flow, it's to have an efficient capital structure. We've been moving in that direction and still not really -- still clearly not at the targets we set out but certainly, I think directionally making headway. And I think we'd like to have a company that is streamlined and simplified and focused. And a lot of that is the off-balance sheet assets we've had, which we've been dealing with, but some of that inherently comes from the split, but to have a business that has a focus, has a streamline. So I think the combination of cash flow, efficient capital structure and streamlining the organization are really the hearts of ultimately building long-term shareholder value, which is essentially what we're trying to do.

Unknown Analyst

So we'll go through each of the businesses. But as long as we've talked so much about structure already, why don't we just finish it off because you talked about sort of the optimal capital structure on what would be the FOX side and simplifying the business. You've done a lot of transactions to bring in minorities or sell minority stakes. You did I think another one yesterday with SKY Network's, right?

Chase Carey

Yes.

Unknown Analyst

Is there more to do? BSkyB is obviously a big one, a little bit more difficult because of its size and the fickle environment there. Ultimately, on BSkyB, do you think that you will see either it bought in or sold? Or are you happy with the position? Is there anything else in the portfolio left to be done?

Chase Carey

BSkyB is a big one. I mean, we have other assets, so it's not like -- it's just BSkyB, but there's no question that's the largest investment we have at that type out there. And that is one, first, we are happy with that investment. We think it's a great business. We do still think, over time, we should be either -- as with any of these and have said it before, we should either own or operate or monetize. But we're not going to put time frames to that. All that does is tie our hands. So our focus today is to continue to make sure that business grows, to be everything it can be, and we like that business. And obviously, that's indicative of the plans we had a couple years ago to acquire the business. I think it's essentially probably the best sign you have of our belief in it. But for now, I think we think the right thing, all things considered, is to focus elsewhere, to make sure we maximize that investment and, as time goes and as time evolves, see what happens and see where it takes us. I think we would view it as something that we'll continue to wrestle with as time goes along but again, not put a time frame to or not put certain parameters to that would -- that all it would do would end up being -- limit our opportunities to maximize the maximized value of that business for us. But it's something to deal with. We have lesser items that we're continuing to deal with. So again, there is an ongoing process to try and streamline and focus the business. And I think that clearly, again, the split will be up a meaningful step in that, and I think in some ways, hopefully, it will be a jump to really accelerate that process as we go.

Unknown Analyst

I think in the FOX side, you're going to have -- as you talked about a little more streamlining in terms of less minority interest, you'll be a little bit less ad-focused. Is there any change in your philosophy around how much leverage the FOX business should have post split?

Chase Carey

There's no question, I think we should -- I mean, once we get it split, then we can present the company on a stand-alone basis. We haven't done that yet, to be appropriate, to the markets, to the agencies, what have you. I think it's something we should revisit. I mean, you can certainly make a case that the company, once split, that the FOX business could sustain more leverage than you would've said would exist on the combined News Corp. business. I don't want to get too far in front. We haven't named the board for the FOX company yet and an array of things, that I think it's important to have in place and talk through philosophically where we're going. But certainly, think if you look at it with the cable networks at the heart of it and the long-term -- the stability of those businesses would bode for a business that could take more leverage than, again, News Corp. as structured today. And I think we should look at that. I do think -- I think we want to be an investment-grade company. But that being said, I think particularly in markets like this, we want to take advantage of an appropriate level of leverage. And I think that makes sense for us, and I think we should have an appropriate level of leverage.

Unknown Analyst

One of the questions we've been asking in this conference is with the rise in the stock prices, and we're at record M&A at least for a recent stretch in the U.S., are management teams thinking that perhaps pulling back the resources into the stock buyback and deploying them more in acquiring growth through M&A, is that becoming more appealing? So far, the answer from everybody has been no. Any sort of thoughts on the FOX side?

Chase Carey

Yes, I wouldn't -- I mean, first, I guess I said a little a couple minutes ago in a different context, but we'd rather build businesses than acquire businesses. It doesn't mean selectively. Obviously, we bought YES, so it doesn't mean there won't be places where we think there's an opportunity that fits in our portfolio, that we bring expertise to, that we can make a very attractive return on. But largely, I think our focus is to continue to try to build businesses, and I think that's what we're doing in -- certainly here in the U.S. right now in the cable network arena. Some networks were really launching it today or announcing today. We've done it overseas in terms of the sports business in Asia, some -- the channels in Latin America. So I think for us, we do think there are opportunities to continue to add dimensions to our business. We don't have any strategic holes, but we think there are things that fit nicely, that we bring expertise, we bring strength, we bring scale to, that fit within the businesses we're in. So I think that probably has been part of what we've been looking to do, where we'll continue to be. So I don't really see a shift in what we've been doing the last couple years looking forward.

Unknown Analyst

You mentioned sports, and I think that's a good place to start as we sort of walk through the operational side. I know it's fun sort of talking about structure for 15 minutes, but it is sort of important given the split of the company. On the sports side, let's say you were to announce the launch of FOX Sports 1 and FOX Sports 2 later today.

Chase Carey

We got to do something at 4:00 this afternoon.

Unknown Analyst

The -- and perhaps the press release just before that. The -- what would the opportunity be for News Corp. doing that?

Chase Carey

Well, we think for us, national sports is a natural fit. I mean, we've got -- Sports has been a huge part of the growth of FOX really for 15 years. In many ways, you could argue Sports has been a driving force in the growth of FOX, whether it's the FOX Network and the NFL and the baseball and the other sports that went on that, to really take the network to another level. In many ways, the regional sports business was our initial large foray into the cable networking business. And in some degree, the Sports business is, through to the network, through the regional businesses, have been a driving force as we've grown entertainment networks like FX, the FOX News network, which was built behind that, the National Geographic and the like. So as we built this channel business, Sports has been a huge force in it. And to some degree, as we look at the big event sports sitting on the network and the regional sports sitting over here, it's just a natural opportunity for us to have a national sports network that fits in that context. We could take advantage of those, take advantage of the rise, take advantage of platforms, take advantage of our reach, now our reach globally as we play in the sports business around the world. That really is just a place that we can bring expertise, we can bring synergies, we can bring -- that we really feel in many ways rounds out. And for us, it's very much a part of growing and adding a new dimension to our business. We -- Sports has been a very successful, very profitable business. I mean, there's no question we recognize that Sports is a double-edged sword. Certainly, the costs of sports, they kind of continue to be something you got to wrestle with. I think we've proven that we can navigate that, and there's some rights that make sense for us and there's some rights that we've passed on, that don't make sense for us. But sports, in the flip side, I think is ever more valuable, ever more unique in a world that continues to fragment and have technologies sort of turn these rights on our head. Sports just gets more and more unique and more and more important in the ability to have a vehicle that captures those rights that really could be at the heart of driving much more business. We think it is a great opportunity for us to really add an exciting dimension to our business.

Unknown Analyst

So I think if ask the guys at ESPN, they'd say, "Welcome to the market. We've got a 33-year headstart." How do you think about the competition in the national sports cable network market?

Chase Carey

We're not trying to beat ESPN. I mean, that wouldn't make sense. I mean, sports is a big huge arena. We think we've proven over the years that in FOX Sports, we can do some interesting and exciting things. We know how to take these rights, we know how to put things around these rights, we know how to produce sports that will excite and interest people. We think it's an arena that has a lot of room in it. We think it certainly has room for us to create a really exciting business. And we do think we'll probably enlarge the category and bring a new dimension to it, but we're not -- the key to success is not trying to beat ESPN. I mean, it's -- we're not going to do that. The key to success for us is to build an attractive business that resonates with consumers, and we think we can do that. We think we can enlarge the space, and we think there's plenty of room for us to create a really exciting business there.

Unknown Analyst

So I would think if you walk sort of into the distributors' offices, they would say, "You're taking some rights that you had over here at FOX, some rights that you had over here at the RSNs, maybe a little bit of this TV vision. And you're sort of repackaging and asking us to pay whatever the number is, $0.75." Does that make sense to them?

Chase Carey

Well, first, for us, there are -- and we've started down this path, you've really seen in the last year or so. So for FOX, wherever they resided and we put them in place since we didn't have a sports network to put them on today, but we have rights that we did not have. We have expanded baseball rights in terms of playoff, in terms of regular season, college football, college basketball, World Cup soccer, UFC, an array of rights that we've put together, that didn't reside anywhere in the FOX family, that will exist there. And really, it's about more than rights. I mean, in many ways, you can look at ESPN and say the most valuable franchise in ESPN is SportsCenter, and therefore, it is -- a 24/7 network is not simply a redistributor. I mean, there's no question, your -- the heart of your program is going to be the events you put on. But in many ways, the value added is how do you create a 24/7 network for -- in the sports world that is interesting to consumers out there. So I think our real job and challenge is to put together the right portfolio of rights first and then add dimension to that, that really resonate with consumers.

Unknown Analyst

So -- and I can't recall exactly if you were there when this happened, but FOX had a national sports program, and it was tough to get good viewership. Maybe that's partly the RSN structure, I think it was losing about $40 million a year, and ultimately, it was shut down. Do you think the marketplace or the approach of the company will be different this time?

Chase Carey

Yes, I think what they tried to do. I mean, it was sort of started up late '90s, when I was there from DIRECTV is fit it inside the regionals, and I think that's tough to do and sort of -- because you got a fish nor fowl. And I think for this -- this business is too -- today, too demanding and too unforgiving, and you can't sort of try and be all things to all people. And you had too many inherent conflicts in terms being great local and great national and then finding at various time frames, those things would clash with each other and they didn't blend. We make that national and local work on the Network business, but it sort of grew in a way that was coordinated. So I think the coordination was lacking, and there are too many inherent conflicts between local and national. And so I think what you really need is -- what we found is you need a true national network that really focuses on creating that national brand, that national brand's ubiquity across the country. And in a local network, you need a true local network that delivers the best of local sports and other content around that local sports that serves that local sports' needs. Then you start to try to mash the 2 things together and kind of again, you got a little bit of a hodgepodge. So I do think it's a very different approach, and I think that focus is important to be successful in today's marketplace.

Unknown Analyst

So a couple more sports questions because it's important, I think. The first is this is a relatively unique launch, right? You have the opportunity with renegotiations that you've had. As you said, you're sort of thinking about this and planning this for the last year or so to have some distribution in place. You also have already sort of amortized a lot of these sports rights across the existing network. So should investors think about the launch of these networks, to the extent it happens, as something that disrupts the flow of cable network profit growth in, say, fiscal 2014? So is that sort of in front of us or is this something that actually is sort of already baked?

Chase Carey

I mean, it is a unique launch, and I think today, in today's roamings -- because in some ways, the cable world is clearly mature and certainly, a number ways mature in the number of households, mature in many ways with the breadth of networks that exist out there. And so I think in the launch, you have to approach things differently than you might have 15 years ago. And what we did was take advantage of an existing network. What we're doing is to taking advantage of an existing network speed, that really had very broad distribution. And I think we equally had the view that these -- some of the networks that were too narrow and too niche-y really had limited opportunities and it was much more exciting to build a broader, bigger network in its place. So we're taking advantage of the speed distribution. For, I think, a network, we view it as too narrow to fulfill its opportunity. Convert that over to a national sports network that really has broad-based distribution, get rates that reflect the value with that programming, which will take a couple years to really -- so we're going to -- we will launch a network essentially with national distribution, which is clearly a very unique -- and for us, to some degree, with the franchise that we have, provide it that unique opportunity. That being said, there still will be -- certainly for a couple years, there'll be some losses we incur as we ramp up the rate with it. Nothing close to what it would be if we were trying to build a network from scratch. So having speed in place provides that foundation, provides a rate foundation, provides an ad base foundation, provides an audience foundation. But there still will be level a level of investment, but it'll be an investment that we think is very manageable when we look at an asset that we think is, 3 to 5 years down the road, is a multibillion dollar asset. So to some degree, the type of opportunity that I think really brings a new dimension to our business to have a couple years of manageable investment as we -- I guess we mostly ramp up the rate enough to convert over to a business that can really be a cornerstone for us and again, a multibillion dollar franchise.

Unknown Analyst

So I think we've covered sports pretty thoroughly. If we look to the rest of the cable network group, both sort of the domestic and international, obviously, sort of having terrific growth rates. Are they sustainable?

Chase Carey

For sure. I mean, I think we -- I mean, right now, if we look at our portfolio -- and again, I'd look at it as -- and obviously, talking domestically first and then international, and I think they're both sustainable. Domestically, we sort of compete in 4 areas: sports, news, entertainment and nonfiction, where National Geographic is the heart of it. And then separately, you've got the international channels group. In each of those places, we've got businesses that have the potential to really go to another level. I mean, FOX News, which is clearly a juggernaut in terms of ratings, we're about 50% through the process of resetting rates to reflect the continued success that business has had. FOX Business is just converting over to be profitable. So I think it's really a network that is increasingly -- as we've gotten distribution rounded at, and we're getting that business truly to the type of distribution that we'd look to have. That business is going to become a real -- a much bigger part of this overall FOX News story, so that business is sort of at early stage. FX has really done a fabulous job, and I think FX has carved out a position at the top of the pyramid in entertainment networks. It is still not a network that reflects -- that from a rate perspective is close to the peers that it competes with and beats today, so FX. And then we're adding dimensions to that entertainment network, the FOX Movie Channel, which was a little bit -- FX Movie channel, a little bit under the radar screen, has become a bigger vehicle for us. And we're adding another entertainment vehicle there. So we're adding new dimensions that we have both the unfulfilled proper -- the unfulfilled opportunities of FX in terms of rate reflect its importance today, as well as adding new dimensions to that in sports. Certainly, the national sports network, again, is going to be a major new initiative for us and a major new dimension to the sports businesses we have. And National Geographic is probably a franchise that is probably has the longest way to go and the biggest opportunity in terms of really -- and I've used it before saying it's -- and I'd say it to them, I mean, their goal is just to be Discovery to -- and I think that's who they can be with, when they have a P&L that looks like Discovery's, then they'll have achieved their role and their place and -- where they should be. So each of those businesses has potential to really take themselves to another level. And internationally, our business just -- we couldn't feel more excited about it. As we look at that business, particularly in developing markets like Asia and Latin America, we have leadership positions, and we're adding new dimensions, particularly in sports. That business continues to hit, and it's now beat every target we have out there for.

Unknown Analyst

On the international side as far as the sports investment, you've done cricket rights. You've brought in some of the sports networks. You launched a sports network down in Brazil. Is the sports sort of table set internationally? Is there still more to go to sort of accumulate the resources in the market?

Chase Carey

I say the focus now is going to be more in getting those businesses to their potential. So I think we sort of -- we're still launching things. We're actually just, in the next week or 2, announce launching FOX Sports Japan. And we just took control of the spot about -- of the sports business in the Netherlands. So I think there'll always be dimensions we add. But I'd say in many ways, the focus largely will be -- now that we've taken those businesses, we're investing some in -- in this year, there's been an investment in India in the sports rights, that in those businesses, it is really probably going to be more at moving those businesses to their full potential and letting them assume a position -- build a position of leadership that we think they should have.

Unknown Analyst

Should we think about the international growth being driven really now by the growth in pay-TV subs around the world? Is there also increased monetization, more network launches, everything?

Chase Carey

Yes, it is everything. I mean, it's -- if you have -- you clearly have pay television markets that are nowhere near -- I mean, I'll describe the U.S. business is in some ways being mature in a historical sense. I mean, there'll be dimensions in terms of digital and things that could be added into U.S. but certainly, in a pure historical household basis, mature in the U.S. and outside the U.S., including in developed markets. You have a lot of market growth to come, you have economic growth to come in places like Asia, where you still have very low-end ARPUs, and those will grow as the economic base in that country grows. I think competitively for us, we have a leadership position that enables us to continue to build on that and take share and strengthen our networks. In some ways, we've got a lot of networks out there. I think some would say it's been a real estate grab, and I think probably the focus starts to move as it did in the U.S. to improve the quality. And continue to build those networks into real tent-poles that we can build around. And I think having those tent-poles is part of what investing in sports is all about. But it's why the international market is really -- I think for us is uniquely attractive and probably be an area of unique focus for us is the combination of market growth yet to occur, unique strength and leadership we have in that business, a momentum we have in our existing franchises that really we think give us a lot of wind at our backs to continue to drive these businesses for a long time to come.

Unknown Analyst

And I think James put out some numbers last week, a target of $1.5 billion of EBIT by fiscal '16 or so for international, including STAR?

Chase Carey

Yes, I guess if you roll them in. I mean, I think if you -- I mean, we've talked about which -- right now, I think we've talked about 2015 as a year that the FOX International Channels, which doesn't include STAR, would be $1 billion plus. And right now, we're ahead of every target we've got. And in India, I think in the next 3 to 5 years, we look at that business being a $0.5 billion business. And realistically, the -- in India, in some ways, it's a 5- to 10-year story. I mean, India is really, in many ways, a business we're building as you look even further down the road. I mean, I think 5 years from now, India will still be in the second or third inning. Ultimately, what it's going to -- what -- the potential of what that marketplace can be, I mean you're still just moving to a more professional and sort of legitimate form of distribution and accounted. I mean, historically, you used to get 1 out of every 5 subs reported to you as satellites emerged. It's -- it had the business and the regulations put in place that have led to the business be a more professionally run business. And again, ARPUs and some of the fundamentals continue to grow. But still, as you look at it, it's very early stages, and India is really a place that I think, increasingly, as we look out over time, will be a bigger and bigger part of the story. But it's not going to drive our business in 3 years, but as we look out 5 to 10, it could be a real -- very much a core part of sort of our story in a longer term.

Unknown Analyst

Yes, sorry, we've been waiting for the transition to digital in India for a long time. It feels like it's finally arriving, which is pretty interesting. Why don't we sort of go through the broadcast network, and I think sort of the obvious question is with Idol fading, ratings have been pretty tough, is it sort of just bad luck, is the broadcast business changed and it's difficult to launch new shows? How do you think about it?

Chase Carey

Look, it's probably a little bit of everything. I mean, we didn't have a good fall. I mean, it has not been a year where we achieved what we set out to be. So it's -- we believe in that team. It's always a business that has a bit of ups and downs, so it's not a business we're new to. So we understand the volatility that comes with the entertainment business. But that being said, certainly, that team, we'd agree, it's not been a -- it was not a year where we achieved what we set out to. But clearly, the business is also going through fundamental changes. I mean, viewership is changing. An increasing level of viewership is really caught across not in the linear channel but in all these digital formats. That's why, again, you need to continue to look at sort of how do you measure audiences, what's the right time frames, C3 versus C7. All of these things have to continue to evolve, be able to measure them on multiple platforms as people watch things on mobile devices and the like. So to some degree, we need to continue to grow with the technologies that are changing the business. I think we also need to recognize that as people get more and more choices and fragmentation, you probably do think a bit about the types of shows and what is it that is going to make a show a success. And when you look at it, for us, the most successful new launch we've had this year is The Following, and it's probably not -- The Following is probably a show that when you looked at the portfolio of shows, this is one that clearly jumped out as being unique, distinct and something that grabs you a bit. And I think it tells you in -- to some degree that you increasingly need shows that are going to -- in a world where everybody has more and more choices, you need shows that sort of stand out. I think they stand out because they're great shows. At the end of the day, everybody isn't talking about formats and sort of if you prime-produce in this type of format or that type of format. I think at the end of the day, you produce great shows. And the minute you sort of try and start to make it formulaic, you probably -- you're putting yourself behind an 8 ball because I think that it's core. It's not a business based on formulas, which is sort of probably what makes the content-creation business unique. It's about finding great ideas or finding or -- and executing on great ideas. And we need to continue to invest, take the right shots in the business, where you have to take intelligent risks to try to find those shows that excite people. But there's no question, the business is changing. I do you think you need to continue to -- need to grow and look at a world with the technology and the fragmentation that exists and how does that -- how do you approach the type of shows. Does it make sense to produce 100 pilots, throw them against the wall, turn them into series that, at the end of the day, 1 or 2 of them roll forward into a second year. Does it make sense to put everything on in September? Does it make sense to continue to do all these -- do sweeps make sense? Do -- are we still too trapped in some of the rules and practices that have existed for past decades? And I think the answer -- the obvious answer is probably yes. It's a big industry with a lot of players, so I think you have to be smart about how you try and change that dynamic. But I think there are opportunities to change it to our benefit, and I think we need to aggressive and focus on how we do that.

Unknown Analyst

One thing that has been driving FOX, you mentioned earlier sports, and there's still a lot of viewers in the entertainment side as well, and so that's led to some pretty healthy retrans growth. And you've been a leader in pushing prices there. And Les was here yesterday, and we talked a bit about the old price was $1, and maybe the new price is going to be $2. And this is obviously in the out-years, but the shape of the curve for retrans continues to be pretty aggressive. Is that sort of a conversation that makes sense to the folks over at News Corp.?

Chase Carey

What is clear -- I'll come back when -- so we started the first round on retrans and still believe, and it wasn't said facetiously, if a channel like ESPN is worth $5, then one of these networks is worth every bit of that, if not more, when you look at what sits on those networks. We're obviously not getting that. We went out to get what we thought was a meaningful level of second revenue that we thought the system distributors may not agree but a level of revenue that we thought the system could absorb. We're not trying to blow up the ecosystem. It's why we're supporting TV Everywhere. We think this is an ecosystem that really is great and included consumers. And we think, for consumers, the quality of the television experience you get in your home today is mind-boggling. I mean, realistically, it's why theaters and arenas have problems today because for some, sitting at home in front of your television is a much better experience than you can get anywhere else, much -- it is a fabulous experience that exists there. And for the marketplace and for the consumers, we think there's tremendous value. We need to continue to find ways to make that a richer and richer and better experience for those consumers because in some ways, you got to continue to sort of meet their expectations for what's new and good. But if we do that, we think there's a lot of legs to that. But as we look at all of that, the most valuable programming is the broadcast networks, and we're not getting -- so do we expect that to continue to go up, the value of our networks continue to move towards its true value? Yes, it's doing very well. It's past $5, so I don't want to shock everybody. But it certainly means our networks are not getting, at any competitive sense, the broadcast network's -- what they're worth in the marketplace. And we will continue to try to achieve that but achieve it in a constructive way, which I think is what we've tried to do. And to-date, we've -- in that regard, we've tried to keep our agreements reasonably short so that we can continue to have the opportunity to revisit what we think is fair value for our programming. And really that programming across the board, we do provide that programming in -- across an array of channels, and that's the way we distribute it, and we think we have created a unique set of channels with, in many ways, the FOX Network sitting at the top of it.

Unknown Analyst

Do you think we'll see growth out of the film business? And as part of that, are we getting an inflection point from home video where it returns to growth?

Chase Carey

Yes, actually, I think you're -- I mean, I wouldn't say it's growing. I mean, it went -- what it seems to have done is sort of stabilize, that you went through a period the last few years, where clearly, the home video came off its period of real growth through the prior decade, and the business had to absorb that sort of resettling of the home entertainment business. I think the digital formats now are truly starting to emerge in a way that can reenergize the business. I think the international business continues to be an area of just across-the-board growth. So I think that dimension probably is a more multidimensional level of growth when you look at countries that weren't -- that really weren't that material that long ago, a Russia, or a country where you really couldn't even get your films in, like China, that has become a much more meaningful player. So there's a lot of growth internationally, but I do think domestically, you're sort of getting to that inflection point. It's sort of stabilized in the last year, and I think you're getting to that place where these digital opportunities can start to provide opportunities to grow and build the business. Not over 12 months but as you look out over the next 2 to 3 or 4 years. Yes, I think these digital technologies had probably been more talk than action in all these fronts, whether it's TV Everywhere, digital distribution of movies and the like. There have been a lot of talk and not a lot of action to-date. I think you're actually starting -- getting to a place where there's going to be more traction and I think better, more coordinated, more meaningful efforts to try to really develop those opportunities into something exciting.

Unknown Analyst

On the TV production side, I think you have a pretty good pipeline, like Glee, Modern Family, Cleveland Show, On Dream, First Cycle, that's a business that has seen a lot of growth from [indiscernible], a lot of growth from international pricing. Are we sort of reaching a stable level or is there another leg of growth for TV production?

Chase Carey

Well, I don't think -- I mean, still I don't think we're reaching a stable level in digital. I mean, I think digital technology is going to keep growing. I mean, I think it may not grow a straight line, but in there the question is, are we going to have more players that want to be players in these digital technologies. And all these digital technologies require a unique content. So if you got a unique content, I think you're going to find more and more players competing and looking for product. It -- for us, the TV production business has been a great area for -- I mean, we've truly been leaders. The team there has done a great job in terms of creating product. And you're right, we have a good pipeline, and then we have some other things coming, The Simpsons cycle, which Simpsons has never gone into cable, and we're getting close to a place where we can sort of try and exploit the cable syndication side of that. Some other shows like New Girl that I think is a show that's sort of right on the bubble to potentially take that leap to the next level. So we -- the TV business for us has been a great area of strength.

Unknown Analyst

And then last area of focus, SKY Italia, a little bit of challenge in terms of the economy in Italy. You talked in the last conference call about getting margins back up I think double digit, which, if I did the math right, was $200 million, $300 million of EBIT improvement from where we are today.

Chase Carey

Look, I think, I mean, there's no question, the economic challenges today in Italy have really hit that business and hit it hard. We need to take costs that -- and I don't think we assume in the short term -- certainly, the elections didn't -- don't give you great confidence that the short-term economic situation in Italy is going to improve materially. So we've got to get that business to a place that can be healthy in today's economy. I mean, the positive is competitively, we've probably never been stronger, so I think we have the strength to do it. It really means we have to take costs out. Costs, first and foremost means programming, that we've got to take $200 million plus of programming out of that business in the next couple years. Fortunately, we have a fair number of agreements that come up, so it won't happen in 6 months. But in a couple years, we can take those costs out, and I do think that's a business that has enough demand and enough -- there's -- and I think pay television had enough inherent strength that we should be able to get that business to up to a low double-digit margin business and in strength get that business to double that. And -- but that is down the road when the economy improves. But as a fundamental target, we need to take enough costs, we need to take some real costs out of that business, not strikingly big, but the biggest block, it will be programming. There are some rights there that we just -- don't add enough value to us. And we need to deal with that and get that business to a place that enables it to be a nice solid business even in an economy like this, which it can and should be, and we'll get there.

Unknown Analyst

I'm curious, the sports rights, entertainment rights, both?

Chase Carey

It's a little bit of both. But clearly, sports would be a meaningful part of it there. I think particularly, as you get to some of the one -- I think for a platform like that, as you get -- that some of the one-off rights are probably the ones that -- sort of what adds the most value to a platform. I think those one-off rights, as opposed to rights that are there every year for 6 months, are different than rights that come in every 2 to 4 years for x weeks and then they are gone. So I think they're clearly rights that have different degrees of value. But certainly, it's across the board, but sports would be a meaningful part of it.

Unknown Analyst

So we ran out the clock on sports and structure, sorry, we can't take any questions from the audience. Chase, any closing comments? It's been a busy year.

Chase Carey

No. Hopefully, I think it will be a busier year next year, and we look forward to it. We think we got some exciting stuff going on.

Unknown Analyst

Thanks so much for coming.

Chase Carey

Thanks a lot.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: News Corp.'s Management Presents at Deutsche Bank's DbAccess 21st Annual Media and Telecom Conference (Transcript)
This Transcript
All Transcripts