Okay, good morning everyone. Welcome to the next session at the Morgan Stanley TMT Conference. Firstly, some official disclosures. For further information on the relevant disclosures to this presentation, please refer to the Morgan Stanley website at www.morganstanley.com forward slash disclosures. My name is Andrew McLeod, Head of TMT Research at Morgan Stanley's Australian research team. I'm joined on stage by my colleague, Mr. Sean Diffley over there, recently assuming the role of Head of Media and Entertainment Research for US. It takes two of us to talk to Robert Thompson and assess all the bits and pieces of the News Corp business. So, Robert, thank you for joining us again at the Morgan Stanley TMT Conference. We've got a good sequence of years here, and it's always a fascinating discussion.

Actually, I was at the US Business Council on Friday, and they've got new research showing that CEOs' longevity is increasingly short. So the fact that one goes to successive Morgan Stanley conferences is really a sign of strength and uniqueness.

I like to think the same about research analysts as well. Time in seat is valuable. So thank you for joining us. I thought, just to kick us off, Robert, a big-picture question. You've been, since the separation into Fox and News Corp, it's been a journey of refining the portfolio of businesses. You've been active on that front in the sort of 10 years plus that I followed that journey. Just to start with, how do you feel about the portfolio of businesses you've got now? You must be pleased with the earnings momentum you've had in the last couple of quarters. How do you feel about the portfolio of businesses you've got now and where are you spending the most time at the moment in looking for how you want more refinement out of that portfolio of businesses?

Yeah, obviously it's a very different company now to that which was in existence at the time of the split. And it's been a conscious policy with Ribbit and Lachlan's support to really, as you say, refine the assets, focus on digital growth, focus on growth engines, in particular, Dow Jones, digital real estate and publishing, HarperCollins that is. And that has borne fruit as we had hoped and we've got great businesses with great teams leading them. So we've had 11 successive quarters of EBITDA growth year on year. We had, on continuing operations, a record year last fiscal, earnings up about 14% to $1.4 billion. I said on the recent earnings call this year, particularly the second half of this year, is looking auspicious. The third quarter feels particularly strong, as we indicated, and so that trajectory is very positive into the future. and that refinement is not stopping and nor can it because clearly the business environment is changing the global macro environment is changing and unless a company is responsive to those changes and not only reactive but creative in dealing with those changes then you're not only putting yourself at risk but you're failing to identify emerging opportunities and one of the benefits we have is the ability of our leaders and our businesses to compare and contrast experiences. On the one hand, we're a complicated company. On the other hand, we have that unique advantage that we can see what's happening with digital media in Australia relative to UK to here. We can see what's happening in digital real estate across jurisdictions. And with Dow Jones itself, an international company, we can very quickly identify emerging opportunity. And so we're a different company. We've changed. We'll continue to change. and we're doing so in a way that's increasingly profitable. We had record profits last fiscal. We're frankly on track for record profits this fiscal. And we're very conscious of our obligation to the investors that have stayed with us on the journey. And over time, they have indeed been rewarded, but we feel that that journey is far from over.

The key takeaway I took from there is the continual refinement of the portfolio and continued growth from the existing portfolio of assets.

Particularly in the age of AI.

Yeah, new opportunities. Sean?

That's a perfect segue. Thank you, Robert. So we wanted to talk about both the risk and opportunities that you see as it relates to AI. Obviously, the market's very concerned about businesses like risk and compliance and marketplaces broadly. At the same time, you have a number of partnerships and deals with big LLM companies. So maybe you could walk us through the puts and takes, both as you see it, the risks and opportunities from AI as it relates to new schools. There is a bit of a misconception generally about the company.

The opportunities far exceed the risks. You have to look at what is AI, get back to basics, that almost existential question. And we're essentially an input company. and the great threat in the age of AI is going to be to what I call output companies. We're an input in the way that semiconductors are an input, in the way that data centres are an input, in the way that energy is an input and so you look at breaking news, you look at unique real estate information. Listings, yep, they're public but it's what you do with those listings. You look at books, there are so many elements of the company that increasingly are being recognised as valuable. As you say, we already have a significant deal with OpenAI. We have a deal with Bloomberg. And what you're going to see are two types of deals where people are acquiring our content to heighten the value of their own operations. You'll have the horizontal LLMs, and now what people are obviously focused on are the verticals and the threat that verticals might pose to financial services or legal research or whatever. Now, as I say, we have one very public horizontal deal. It's fair to say we're at an advanced stage with other negotiations and you won't have too long to stay tuned, but you won't have too long to wait. And what we are also finding is that more of these vertical specialists are coming to us because the data and the information and the news that they input has to be reliable. And it's hard to beat the Times of London or the Australian or Dow Jones, obviously, as an input. And it might be agricultural information. We own the Weekly Times in Australia, the best known agricultural masthead. And if you're interested in creating an agricultural vertical of some kind, you need reliable information. And there's another concept that people need to bear in mind which is what you might call passive content and active content so as a reader it's it's passive content it's I mean you may be an engaged reader but essentially it's a passive relationship what these companies now recognize as they productize content essentially that's active content and so the value of active content requires a premium in the purchase of it so I think you you will actually see the dramatic change in the appreciation of the value of our assets over time, simply because more and more people will be coming to us in the financial sector, in energy, in rural services, in general news, in business generally, related services, because they've come up with an idea for a product. They want a reliable base of data, but also, what do we have? Updates. Because that's the third thing that people misunderstand about data, news, analysis in the age of AI, AI is essentially retrospective. It's based on pre-existing patterns. If you want to be contemporary, you have to have immediacy. And as a company that's minute after minute, hour after hour, generating fresh immediacy, we have something that these companies not only want but need.

Yeah, I like the way you frame that. I haven't quite heard that expression before in terms of that news content being a critical input for a lot of the AI platforms. That's an interesting way to think about it.

And we're feeling it already in the sense that people are now coming to us. The other thing that we've obviously noticed, we have what you might call a woo and a sue strategy. Well, we'd like you to be our partner, but if you're stealing our stuff, we are going to sue you. And if you look at a lot of the, and we track them, you have to track them. If you look at a lot of the bots coming in, scraping our stuff, they're already, and they're using our material in new AI verticals, well, we're coming for you. I mean, we can see you're doing it. We'll get round to you eventually. So there'll be a discount for those who hand themselves in. properly and there'll be a penalty for those that resist but it is interesting that the sentiment we see at the front end is already changing and the fact that people either legitimately or illicitly are already using our content tells us that there's an emerging market that is not yet

fully appreciated. Maybe just a final follow-on point to Sean's question on AI because you struck one of the earlier agreements with your one partner, I'm sure you don't want to talk in detail about specific agreements, but because it was so early, I imagine it's one of those partnerships that evolves over time, right? You're probably doing different things than perhaps you first envisaged when you struck that agreement. Can you maybe provide a little bit of colour as to how those relationships have grown versus your expectations over time?

Yeah, it's a really good question because it was a relatively early deal and essentially it was agreed in principle between Sam and I and then, as you must, you allow the lawyers to work out the details. But that principle and agreement was kept to and that's a sign of the honour of that company and of Sam personally because the world had changed so much, either of us could have gone back and wanted to renegotiate it. It didn't happen. But at that time, we were both trying to visualise products that hadn't been created, which I think speaks to your point. And each of us was looking for opportunity and each of us was concerned about potential threat that hadn't properly been perceived at that time. And so for us, for example, one of the key core asks was that we didn't want to create a cannibalisation engine. And that was understood across news, across books, and across digital real estate. and at the same time there's always this debate among news companies about well how quickly do you allow a partner to use your content does it undermine the core integrity of your own content set and so I think we had a very good internal debate about not holding things back because in a way you want open AI to have the opportunity to highlight your content create links which which OpenAI does, and therefore have the confidence that your content is better than somebody else's content. So it has evolved, is evolving. We're planning to take advantage of the ad opportunities that OpenAI and so our teams are talking about, and obviously we have some experience in advertising, and we will be a proud launch partner there. But at the same time, we'll be providing them with feedback about, you know, that works, that doesn't work. Have you thought of this font? Are you making enough distinction between the answer and the ad? Are those lines too blurred? What is the long-term impact of displaying modules in a certain way? We've obviously got centuries of experience of that, and we're happy to share that experience with OpenAI.

Yeah, it sounds like a genuine partnership.

I'm seeing Sam tonight, so if there are any disagreements, I'll let you know. If we need to issue an update, that would be helpful.

And you mentioned earlier that you are in discussions with other partners as well. So I guess what people should take away is that you've got almost like a cornerstone relationship with one party and OpenAI, but there's room for many others in other capacities, I imagine, as well.

I think ultimately what you might call the big horizontal ones, whether it be Anthropic or Perplexity or OpenAI, we'll need to partner with us in one form or another. we're part of the Anthropics book settlement, which is $1.5 billion. We will, at HarperCollins, being the size it is, and on behalf of our authors, we expect to get a sizable chunk of that. That may come late this fiscal. It will almost certainly come this calendar.

I wanted to delve into one of your major investments, REA Group, which is something I follow closely in Australia as well. I'd love to get your perspective, Robert, as someone who knows that business intimately as well and have owned it through many years. How do you feel that business is positioned? It's been one of the stocks we cover in Australia that's seen a de-rating. The market has taken a view that there's a higher risk to medium and longer-term earnings. I think, from my perspective, it's a very well-positioned and unique business. But people are more interested in your view than my view. What do you think maybe people misunderstand or may not fully appreciate about the strength of that business and how do you think it navigates this environment?

Well, you won't be surprised to hear that I agree with you, that it is really a fundamental misunderstanding. And I'll talk more generally about digital real estate because it also involves realtor. And we have a great team at REA with Cam McIntyre, the new chief executive, and I've been very impressed by the way that he is showing leadership, his approach to business culture, and his competitive instinct. Cam wants to win, and I wouldn't bet against him. It comes back to that question around inputs, outputs, that there's a perception that REA, conceptually, is an output company, and that other people can create alternatives very quickly. But when you look at both REA and realtor, But what we've done is to try to create, and successfully so, may I say, a holistic real estate experience. And so, for example, at Realtor, we're now the largest residential news site in the country. What does that mean? It means that you have much more engagement. You also have, you're creating inputs. We could resell some of that content to somebody who we wouldn't perceive to be a threat, but wants to get into property services generally, not so much property news or property listings. but there are so many adjacencies that we may or may not be interested in. So that's actually creating a store of value of itself. And REA is learning the lesson of Realtor in that case. Realtor has learned a lot from REA. And you see, for example, with the Realtor metrics, that the average unique user comes to Realtor 4.8 times a month. at Zillow it's around 3.5, 3.6 at homes.com around 2.5 and the other thing you note not only do they come more frequently as a unique user, they view more pages because there is more to view and that comes down in part to that real estate news section so it's a much greater level of engagement and then it's not just what is the threat of AI, it's how You use AI intelligently to enhance our services, both for somebody trying to buy or sell a house or for one of our agent customers, our realtor customers. And it's important that we be ultra competitive in that regard because are there going to be more services offered? But can we provide with our array of content and data and analytics and expertise, can we provide a much more holistic experience? That's what we're aiming to do, and that's what we will do.

And I guess just another angle on REA, which is appearance in the Australian market, buying the number two site down there, Domainly. So you've got experience with combat, with costar and homes.com in the US market. How do you feel with the experience you've got now, having seen in the US? Firstly, how has that played out versus expectations a year or two ago? And secondly, is that helpful for REA as well in Australia, do you think?

Well, look, I don't really want to comment too much on a competitor. You can see that CoStar has spent a lot of money on marketing here without much impact. And you look at how well Realtor is doing. Revenue was up 10% last quarter, year on year. in a real estate market that is nearing historic lows still in terms of turnover. So existing home sales in 2021 were above 6 million. Existing home sales since then annually have hovered around 4 million. That's a 50% reduction. Now, what's normal? Is 6 million normal? Is 5.5 million normal? The upside for realtor is going to be phenomenal as interest rates come down. And as people in this room, being specialists, well know, last week, the 30 year fixed, dipped below 6% for the first time in a long time. And we were just talking to those who specialise in the mortgage market. They already see refinance activity increase every time that rate dips. And as long as potential buyers, potential sellers feel confident in the trajectory of that number, inevitably, you are going to see a lot more turnover, a lot more liquidity, and a lot more revenue at real time.

So you feel confident about it?

I do. And CoStar obviously has some internal contradictions that they will need to resolve with their board, for example.

So we wanted to spend a couple minutes on Dow Jones. And Mike reminds us that you have an investor day coming up. So maybe you want to provide us with a teaser on what we could expect there. I would argue some investors think that your Dow Jones and Wall Street Journal business is very undervalued versus some other news assets out there. We obviously just heard from Lachlan on the Fox side, obviously, this blistering news cycle is helping some news properties. Just walk us through some of the things you're most excited about within Dow Jones at the moment.

you're exactly right about the news cycle and this will probably be quite a long news cycle and already we see it in terms of traffic over the last couple of days a dramatic increase people want to know what's going on this particular conflict is very much in the wheelhouse of Dow Jones with energy at Opus with global expertise with a vast array of talented correspondents around the world which is what you need to make sense of what's going on. These are very brave journalists who are in harm's way. There's a lot of focus, as there should be really, on the professional information business at Dow Jones, risk and compliance. Risk and compliance revenue last quarter was up 20% year on year. We've recently acquired two companies there called Oxford Analytica and Dragonfly. And the value of that acquisition was proven at the weekend when Dragonfly put out an alert to subscribers more than two hours before the confirmation of the death of the Ayatollah Khomeini, that he was dead. And it tells you that they have deep intelligence links, they have deep insight, and they are a welcome addition to the suite of Intel-related products. So will we make more acquisitions? We're not necessarily going to talk about that on Investor Day, but what we will be talking about and explaining is not only how much that company has changed over time. And, you know, for example, even digital advertising at Dow Jones was a record in Q2. It was up 12% year-on-year. Not only how much it's changed, but how much it will change and the potential of it. And I think, to your point, that potential is sometimes not understood or misunderstood, but it, in particular, is likely to benefit from the emerging AI input culture, what you might call the raising of content consciousness and the realisation that there are only few companies, really, that can provide the essential ingredients in the age of AI, and Dow Jones is certainly one of them.

I think to your point, you mentioned how well risk and compliance has been doing, double-digit growth. I think the fear is on a go-forward basis, things like Cloud Cowork and other emerging tools could diminish the moat that you might have there. Maybe just spend a moment talking about why you feel so confident about the growth trajectory from here.

Yeah, well, we have a moat. It has crocodiles, it has piranha, it has stingrays in it. It's a powerful mode in the sense that these are unique content sense, that they are refreshed immediately, instantaneously, in a way that a non-user organisation can't. The minute something happens and you're getting some generic general reply to something through your AI engine, you're out of date, right? And if you want to pay money to be out of date, feel free. If you want to pay money to be properly, immediately briefed about important developments in the world, you are going to have to come to us. Now, you do have lists, right? Know your client-related lists. You can find that list now. You've always been able to find that list. The crucial thing about those sorts of lists is the value add, the unique proprietary data that you've built around Names companies. China-related trade, Iran-related sanctions, because you're going to get an incomplete picture. Now, again, if you want to pay for an incomplete picture, fine. But risk and compliance is about minimizing risk and maximizing compliance, and to do that, you have to subscribe to Dow Jones.

And maybe you could talk a moment about the Wall Street Journal, how you think about trade-off between price and subscribers.

Yeah, look, it's an interesting question. you look at ARPU at the Wall Street Journal and it has come down slightly and it's a good question to ask why is that? And it's essentially because the team has done more enterprise deals what does that mean? That means you have a larger number of subscribers, the cost of acquisition is much lower the turnover rate is much lower and so over time that will show up in your margins, even though in the shorter term, you see a slight decline in ARPU. And the other thing about journal subscribers, and it's true of Barron's and Investor Business Daily and Market Watch, is we've always talked about dynamic pricing. And there's never really been full dynamic pricing. And the whole concept of dynamic pricing, not just for us, but I think for many businesses is going to change in the age of AI because we can really track now how much people read, what they read. Are they business readers for whom the journal is an essential professional tool? Are they general readers who are interested in Jason Gay as much as they are in Japanese commodity prices? The former, very sticky. We have price elasticity. The latter, a little bit less the elasticity to be to be honest but but that's the advantage we have over time and the the other area you can target is when somebody's not quite reading enough now we may not be the be the right service for them but but often it's because we've made it difficult for people to find things that they're interested in whether it be discretionary or required reading and what we will find over time is that different cohorts will be paying different prices. Not that you're exploiting people who are reading more, but you're actually reflecting the real value of that reading experience to them. And they'll be fine with that. And secondly, that you'll have a longer tail of readers who are focusing on different content sets, which you could argue in the hierarchy of content have a less premium value. So the ability of Dow Jones, of actually all of our news media properties, to take advantage of the sort of tools that we're working on now. And have we perfected them yet? Absolutely not. But in the age of AI, can you see how that individualization, not only of the reading experience, but of what you might call a subscriber mechanic, is that realizable? Absolutely.

Can you also talk about how your content interacts with social platforms like Facebook Meta and Twitter X? I know that's been an area of focus for you in the past. How do you think about how that evolves over time?

Yeah, it's different from company to company. We have a good relationship with Meta. Mark and I converse on a pretty regular basis across WhatsApp, obviously, most of the time. and Twitter, you know, I think Elon's view of content and who knows who what is, you know, I think evolving over time. He knows that he needs reliable news, that his users need reliable news. But I think more generally, you know, platform aside, there will be a realisation about this dichotomy of inputs and outputs. and if you look closely at the sorts of sectors that have been most bruised without understanding that it's what you might call an output sector that's what people are focused on but if you as an output company want to improve the quality of that output what do you need in terms of inputs to ensure the integrity, the reliability the uniqueness of that output experience So that relates obviously to the LLMs, but to a certain extent it also relates to the social media platforms.

Robert, can I ask you a question on DAZN? I think it's part of your simplification process. I think the market thought that was a good outcome, the exit from Foxtel at an attractive price. In return, you've got some equity in DAZN, which is, I feel, an asset that doesn't necessarily get discussed much, but maybe you can share, and probably it's because we don't as an investment community know a lot about DAZN. I'd love to hear your thoughts on what you find interesting about that collection of assets and what your medium to long-term strategy may be for that investment.

Yeah, well, look, we're happy to partner with DAZN. I was with Len Blavatnik on Saturday teaching him the rules of rugby league in Las Vegas. Of course.

How did that conversation go?

He claims to understand. But I'm not sure I understand the problem. But that is a very good relation. I think Len is clearly proud of the Foxtel team. Our papers in Australia are still great partners with DAZN and with Foxtel. We received $380 million in cash back from the sale. We have 6.5% of the zone. And clearly, we will help the zone build up its profile. And I think you're right. In this country, it's not particularly well known. I can assure you that's something that Len and his team are very focused on. But what we saw in them is the ability to make a good company, Foxtel, a great company in that they, better than anyone on a global level, have been able to understand the value of sports rights, which is a complicated art, and maximise the monetisation of those sports rights while using a common tech platform, common software. And so it has truly created a company that when a sports right comes up for auction here or in Europe or in Asia or in Africa, for that matter, they have a real ability very quickly to judge what that's worth, what it will cost them, not only to buy the right but to exploit the right, and the potential in monetisation. And so I think it's up to the DAZN board to decide what they want to do, obviously, but I think they're poised with poise. Poised with poise.

So in the last few minutes here, we wanted to hit on a couple of quick topics. So we didn't talk about HarperCollins, your book's business. We also wanted to talk about capital allocation. So maybe first on Harper, the business is becoming more and more digital. You also have a partnership with Spotify that's driving kind of audiobooks adoption. How is that tracked relative to your expectations?

Yeah, look, the Spotify partnership is a great one. And the good thing about Spotify is that they're constantly innovating in audiobooks. You're not seeing now the 25%, 30% surge in audiobook revenues year-on-year that you did a couple of years ago, but that's not unusual. What you are seeing at Spotify is constant innovation and experimentation with types of subscription offerings, enhancing the audio experience in who's reading the books. What more can you add to an audiobook so that it becomes of itself a real entertainment experience? And we'll be working with them on that. You see with the Heated Rivalry books, Rachel Reid, Game Changers, the series, but the Heated Rivalry is the TV series. The ability still of IP to generate huge social interest, particularly in that Heated Rivalry, but to gay ice hockey players it's had not only a literary impact but a social impact and a commercial impact and so that of itself is a lesson to us about the value of our IP and how to make the most of it it's interesting also that e-books have come back to a certain extent after having tailed off and look, people are just making up their mind still in the contemporary world how they're going to consume content. You know, what is best for them? How many paperbacks do they want piling up on the bedside table versus, you know, the convenience of the e-book? And e-books themselves are becoming more of an event. So none of these things is really a frozen frame of evolution. It's a continual e-evolution of the experience.

Great. And we wanted to close on the last minute on capital allocation. You've obviously stepped up the pace of your buyback. I think that's clear signaling that you think your shares are undervalued. How do you think about capital allocation going forward and strategic permutations in the industry broadly?

Yeah, we added another billion to the buyback. The rate of buyback is, last quarter, four times higher than a year ago. We agree with you about the share price, that it is somewhat undervalued and a company underappreciated, but I think it's up to us to explain in the age of AI what the company will become and what is the actual residual revenue value there, what is our resource. Then we look at when we... You can easily overpay for assets. That is the easiest thing in the world. We've been pretty careful with Opus, with CMA, with Dragonfly, with Oxford Analytica at Dow Jones. and the impact there has been profound. So we have Dow Jones Energy has grown double-digit virtually every quarter, year on year, year after year, and we certainly didn't overpay for those assets. At HarperCollins, we've just acquired some of the manga rights of Crunchyroll. We can see there with AI and our own existing manga business in Japan where we're quite large through the Harlequin brain, our ability to turn that into multimedia experiences, is it's just much cheaper to do it now with AI, but you have to have the initial IP, which we do. So we're quite excited about the Munger market. And then whether it be Zenlist at Realtor, which enhances the relationship between agents and buyers and sellers, or whether it be the mortgage business acquisitions at REA, we look for intelligent adjacencies that are intelligently priced. But overall, what we're focused on is ensuring that both short and longer term, that we're looking out for our investors because we're very conscious of our role as custodians of their money.

And do you want to give a quick plug for the California Post, given that we're in San Francisco?

Well, if you haven't been reading the California Post, you're out of touch, you're out of date. So download the app. I mean the app downloads are twice what we thought they would be we'll be able to release the metrics the next earnings call but look the California post captures the spirit of California in a new sense it was a desert but we're now the desert flower so please download the app

perfect place Dan, thank you so much Robert thank you