News Corp Earnings 2020-06-30
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One)
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the fiscal year ended June 30, 2020
Or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission file number 001-35769
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(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of
incorporation or organization)
(Address of principal executive offices)
(I.R.S. Employer
Identification No.)
(Zip Code)
Registrant’s telephone number, including area code (212 ) 416-3400
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of December 27, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s Class A Common Stock, par value $0.01 per share, held by non-affiliates was approximately $5,467,583,475 , based upon the closing price of $14.15 per share as quoted on The Nasdaq Stock Market on that date, and the aggregate market value of the registrant’s Class B Common Stock, par value $0.01 per share, held by non-affiliates was approximately $1,748,442,686 , based upon the closing price of $14.47 per share as quoted on The Nasdaq Stock Market on that date.
As of August 3, 2020, 388,993,708 shares of Class A Common Stock and 199,630,240 shares of Class B Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required for Part III of this Annual Report on Form 10-K is incorporated by reference to the News Corporation definitive Proxy Statement for its 2020 Annual Meeting of Stockholders, which shall be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, within 120 days of News Corporation’s fiscal year end.
TABLE OF CONTENTS
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PART I
ITEM 1. BUSINESS
OVERVIEW
The Company
News Corporation (the “Company,” “News Corp,” “we,” “us,” or “our”) is a global diversified media and information services company focused on creating and distributing authoritative and engaging content and other products and services to consumers and businesses throughout the world. The Company comprises businesses across a range of media, including digital real estate services, subscription video services in Australia, news and information services and book publishing, that are distributed under some of the world’s most recognizable and respected brands, including The Wall Street Journal, Barron’s, Dow Jones, The Australian, Herald Sun, The Sun, The Times, HarperCollins Publishers, Foxtel, FOX SPORTS Australia, realestate.com.au, realtor.com®, talkSPORT and many others.
The Company’s commitment to premium content makes its properties a premier destination for news, information and entertainment. The Company distributes its content and other products and services to consumers and customers across various platforms consisting of traditional print and television, as well as an array of digital platforms including websites, applications for mobile devices and tablets, social media and e-book devices. The Company believes that the increasing number of media choices and formats will allow it to continue to deliver its content and other products and services in a more engaging, timely and personalized manner and provide opportunities for more effective monetization via strong consumer and customer relationships, licensing arrangements and more compelling and engaging advertising solutions. The Company is pursuing multiple strategies to exploit these opportunities, including sharing technologies and practices across geographies and businesses and bundling selected offerings to provide greater value to consumers, customers and advertising partners.
The Company’s diversified revenue base includes recurring subscriptions, circulation sales, advertising sales, sales of real estate listing products, licensing fees and other consumer product sales. Headquartered in New York, the Company operates primarily in the United States, Australia and the U.K., with its content and other products and services distributed and consumed worldwide. The Company’s operations are organized into six reporting segments: (i) Digital Real Estate Services; (ii) Subscription Video Services; (iii) Dow Jones; (iv) Book Publishing; (v) News Media; and (vi) Other, which includes the Company’s general corporate overhead expenses, corporate Strategy Group and costs related to the U.K. Newspaper Matters (as defined in “Item 3. Legal Proceedings”). Effective with the fourth quarter of fiscal 2020, the Company is reporting financial information for its Dow Jones business in a separate segment. Previously, the financial information for this segment was aggregated with the businesses within the News Media segment and, together, formed the News and Information Services reportable segment. Following the sale of its News America Marketing business in the fourth quarter of fiscal 2020 and in conjunction with the Company’s annual budgeting process, the Company determined that aggregation was no longer appropriate as certain of the remaining businesses no longer shared similar economic characteristics.
The Company maintains a 52-53 week fiscal year ending on the Sunday nearest to June 30 in each year. Fiscal 2020, fiscal 2019 and fiscal 2018 each included 52 weeks. Unless otherwise noted, all references to the fiscal periods ended June 30, 2020, June 30, 2019 and June 30, 2018 relate to the fiscal periods ended June 28, 2020, June 30, 2019 and July 1, 2018, respectively. For convenience purposes, the Company continues to date its financial statements as of June 30.
Corporate Information
News Corporation is a Delaware corporation originally organized on December 11, 2012 in connection with its separation (the “Separation”) from Twenty-First Century Fox, Inc. (formerly named News Corporation) (“21st Century Fox”), which was completed on June 28, 2013 (the “Distribution Date”). In connection with the Separation, the Company assumed the name “News Corporation.” Unless otherwise indicated, references in this Annual Report on Form 10-K for the fiscal year ended June 30, 2020 (the “Annual Report”) to the “Company,” “News Corp,” “we,” “us,” or “our” means News Corporation and its subsidiaries. The Company’s principal executive offices are located at 1211 Avenue of the Americas, New York, New York 10036, and its telephone number is (212) 416-3400. The Company’s Class A and Class B Common Stock are listed on The Nasdaq Global Select Market (“Nasdaq”) under the trading symbols “NWSA” and “NWS,” respectively, and CHESS Depositary Interests (“CDIs”) representing the Company’s Class A and Class B Common Stock are listed on the Australian Securities Exchange (“ASX”) under the trading symbols “NWSLV” and “NWS,” respectively. More information regarding the Company is available on its website at www.newscorp.com, including the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are available, free of charge, as soon as reasonably practicable after the material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The
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information on the Company’s website is not, and shall not be deemed to be, a part of this Annual Report or incorporated into any other filings it makes with the SEC.
Special Note Regarding Forward-Looking Statements
This document and any documents incorporated by reference into this Annual Report, including “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contain statements that constitute “forward-looking statements” within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act of 1933, as amended. All statements that are not statements of historical fact are forward-looking statements. The words “expect,” “estimate,” “anticipate,” “predict,” “believe” and similar expressions and variations thereof are intended to identify forward-looking statements. These statements appear in a number of places in this document and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things, trends affecting the Company’s financial condition or results of operations, including expected impacts from the ongoing novel coronavirus (“COVID-19”) pandemic and related public health measures, the Company’s strategy and strategic initiatives and the outcome of contingencies such as litigation and investigations. Readers are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those related to COVID-19. More information regarding these risks and uncertainties (many of which may be amplified by COVID-19) and other important factors that could cause actual results to differ materially from those in the forward-looking statements is set forth under the heading “Item 1A. Risk Factors” in this Annual Report. The Company does not ordinarily make projections of its future operating results and undertakes no obligation (and expressly disclaims any obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Readers should carefully review this document and the other documents filed by the Company with the SEC. This section should be read together with the Consolidated Financial Statements of News Corporation (the “Financial Statements”) and related notes set forth elsewhere in this Annual Report.
COVID-19 Impact
The ongoing COVID-19 outbreak has led to the implementation of unprecedented and wide-ranging measures by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of the virus. The impact of COVID-19 and measures to prevent its spread have, in turn, created significant economic volatility, uncertainty and disruption and have affected the Company’s businesses in a number of ways as described elsewhere in this Annual Report.
Despite these challenges, the Company has been focused on supporting its communities, customers, employees, stockholders and other constituents by:
•providing trusted news, data and analysis, including free access to COVID-19-related news coverage, which it believes is critical during these uncertain times;
•assisting its real estate customers with business support and relief measures;
•providing expanded access to Foxtel content to keep customers entertained, informed and connected while sheltering in place;
•implementing cost-savings initiatives across its businesses and accelerating its digital transformation, including the transition of certain newspaper operations to digital-only; and
•instituting remote working arrangements for a substantial majority of its employees in order to protect their well-being while maintaining the continuity of its business operations.
For additional information regarding the impact of COVID-19 on the Company’s business, results of operations, financial condition and other related risks and uncertainties see “ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 1A. Risk Factors” in this Annual Report.
BUSINESS OVERVIEW
The Company’s six reporting segments are described below. For information regarding revenues generated by the principal products and services of each segment, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
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| For the fiscal year ended June 30, 2020 | |||||||||||
| Revenues | Segment EBITDA | ||||||||||
| (in millions) | |||||||||||
| Digital Real Estate Services | $ | 1,065 | $ | 345 | |||||||
| Subscription Video Services | 1,884 | 323 | |||||||||
| Dow Jones | 1,590 | 236 | |||||||||
| Book Publishing | 1,666 | 214 | |||||||||
| News Media | 2,801 | 53 | |||||||||
| Other | 2 | (158) | |||||||||
Digital Real Estate Services
The Company’s Digital Real Estate Services segment consists of its 61.6% interest in REA Group, a publicly-traded company listed on ASX (ASX: REA), and its 80% interest in Move. The remaining 20% interest in Move is held by REA Group.
REA Group
REA Group is a market-leading digital media business specializing in property, with operations focused on property and property-related advertising and services, as well as financial services.
Property and Property-Related Advertising and Services
REA Group advertises property and property-related services on its websites and mobile apps across Australia and Asia. REA Group’s Australian operations include leading residential, commercial and share property websites realestate.com.au, realcommercial.com.au and Flatmates.com.au. Additionally, REA Group operates media display and data services businesses, serving the display media market and markets adjacent to property, respectively. For the year ended June 30, 2020, average monthly visits to realestate.com.au were more than 90.3 million. Launches of the realestate.com.au app increased 25% to 36.8 million average monthly launches in fiscal 2020 as compared to the prior year, with consumers spending more than 4.1 times longer on the app than any other property app in Australia according to Nielsen Digital Content Ratings. Realcommercial.com.au remains Australia’s leading commercial property site across website and app. In fiscal 2020, the realcommercial.com.au app was launched 8.6 times more than the nearest competitor, and consumers spent more than 7.0 times longer on the realcommercial.com.au app based on Nielsen Digital Content Ratings data. Flatmates.com.au is the largest site for share accommodation in Australia, with average monthly visits of more than 2.8 million and more than 400,000 new members during fiscal 2020.
Realestate.com.au and realcommerical.com.au derive the majority of their revenue from their core property advertising listing products and monthly advertising subscriptions from real estate agents and property developers. Realestate.com.au and realcommercial.com.au offer a product hierarchy which enables real estate agents and property developers to upgrade listing advertisements to increase their prominence on the site, as well as a variety of targeted products, including media display advertising products. Flatmates.com.au derives the majority of its revenue from advertising listing products and membership fees. The media business offers unique advertising opportunities on REA Group’s websites to property developers and other relevant markets, including utilities and telecommunications, insurance, finance, automotive and retail. REA Group also provides residential property data services to the financial sector through its Hometrack data services business.
REA Group’s international operations consist of property sites throughout Asia, including the leading property portal in Malaysia, and prominent portals in Hong Kong, China and Thailand. In Malaysia, REA Group recently launched iProperty Pro, a new mobile-first customer platform, which allows property agents to manage and advertise property listings on-the-go and delivers improved market analytics and customer reporting. Following the success of the launch, REA Group expects to roll out iProperty Pro across the region. REA Group also operates Chinese site myfun.com, which supports REA Group’s businesses in other geographic markets by showcasing residential property listings to Chinese buyers and investors, and delivers leads to agents. In addition, during fiscal 2020, REA Group established a joint venture with 99.co, which combined REA Group’s Singapore and Indonesian property portals with 99.co’s existing businesses to provide an opportunity to strengthen its competitive position in Singapore and Indonesia. REA Group owns a 27% interest in the joint venture and is the largest shareholder. REA Group’s other assets include an approximate 13% interest in Elara Technologies Pte. Ltd., a leading digital real estate services provider in India that owns and operates PropTiger.com and Housing.com, and a 20% interest in Move, as referenced above.
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Financial Services
REA Group’s financial services business encompasses an end-to-end digital property search and financing experience and mortgage broking services under its Smartline – personal mortgage advisers brand. The financial services business generates revenue primarily through fees and commissions from lenders, mortgage brokers and other customers.
Move
Move is a leading provider of digital real estate services in the U.S. Move primarily operates realtor.com®, a premier real estate information and services marketplace, under a perpetual agreement and trademark license with the National Association of Realtors® (“NAR”). Through realtor.com®, consumers have access to over 140 million properties across the U.S., including an extensive collection of homes and properties listed and displayed for sale and a large database of “off-market” properties. Realtor.com® and its related mobile apps display approximately 98% of all Multiple Listing Services (“MLS”)-listed, for-sale and rental properties in the U.S., which are primarily sourced directly from relationships with MLSs across the country. Approximately 96% of its for-sale listings are updated at least every 10 minutes, on average, with the remaining listings updated daily. Realtor.com®’s content attracts a highly engaged consumer audience. Based on internal data, realtor.com® and its mobile sites had 80 million average monthly unique users during the quarter ended June 30, 2020. See “Part I. Business—Explanatory Note Regarding Certain Metrics.” These users viewed an average of over four billion pages and spent an average of over two billion minutes on the realtor.com® website and mobile apps each month.
Realtor.com® generates the majority of its revenues through the sale of listing advertisement products, including ConnectionsSM Plus and AdvantageSM Pro, as well as its real estate referral-based services. Listing advertisement products allow real estate agents, brokers and franchises to enhance, prioritize and connect with consumers on for-sale property listings within the realtor.com® website and mobile apps. Listing advertisements are typically sold on a subscription basis. The real estate referral-based business model leverages Move’s proprietary technology and platform to connect real estate professionals and other service providers, such as lenders and insurance companies, to pre-vetted consumers who have submitted inquiries via the realtor.com® website and mobile apps, as well as other online sources. The real estate referral-based services that connect real estate agents and brokers with these consumers typically generate fees upon completion of the associated real estate transaction, while the referral-based services that give service providers access to the same highly qualified home shoppers are generally provided on a subscription basis. Realtor.com® also derives revenue from sales of non-listing advertisement, or Media, products to real estate, finance, insurance, home improvement and other professionals that enable those professionals to connect with realtor.com®’s highly engaged and valuable consumer audience. Media products include sponsorships, display advertisements, text links, directories and other advertising and lead generation services. Non-listing advertisement pricing models include cost per thousand, cost per click, cost per unique user and subscription-based sponsorships of specific content areas or targeted geographies.
In addition to realtor.com®, Move also offers a number of professional software and services products. These include the Top Producer® productivity and lead management tools and services, which are tailored to real estate agents and sold on a subscription basis, as well as the ListHubTM service, which syndicates for-sale listing information from MLSs and other reliable data sources, such as real estate brokerages, and distributes that content to an array of websites. Listing syndication pricing includes fixed- or variable-pricing models based on listing counts, while ListHubTM’s advanced reporting products are sold on a monthly subscription basis.
The Company’s digital real estate services businesses operate in highly competitive markets that are evolving rapidly in response to new technologies, business models, product and service offerings and changing consumer and customer preferences. The success of these businesses depends on their ability to provide products and services that are useful for consumers and real estate, mortgage and financial services professionals and attractive to their advertisers, the breadth, depth and accuracy of information they provide and brand awareness and reputation. These businesses compete with companies that provide real-estate focused technology, products and services in their respective geographic markets, including other real estate and property websites such as domain.com.au in Australia and zillow.com and trulia.com in the United States.
Subscription Video Services
The Company’s Subscription Video Services segment provides video sports, entertainment and news services to pay-TV subscribers and other commercial licensees, primarily via cable, satellite and internet distribution. This segment consists of (i) the Company’s 65% interest in NXE Australia Pty Limited, which is referred to herein as “Foxtel” (the remaining 35% interest in Foxtel is held by Telstra Corporation Limited), and (ii) Australian News Channel (“ANC”).
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Foxtel
Foxtel is the largest pay-TV provider in Australia, delivering nearly 200 channels (including standard definition channels, high definition versions of those channels, audio channels and one 4K Ultra HD channel) covering sports, general entertainment, movies, documentaries, music, children’s programming and news. Foxtel offers the leading sports programming content in Australia, with unique rights across key sports and a suite of channels that includes FOX LEAGUE, FOX SPORTS 503, FOX FOOTY, FOX SPORTS 505, FOX SPORTS 506, FOX SPORTS MORE, FOX SPORTS NEWS and FOX CRICKET. Foxtel’s channels together broadcast approximately 15,000 hours of live sports programming per year, encompassing both live national and international licensed sports events such as National Rugby League, Australian Football League, Cricket Australia, the domestic football league, the Australian Rugby Union and various motorsports programming, as well as other featured original and licensed premium sports content tailored to the Australian market. Foxtel’s premium entertainment and news content includes television programming from HBO, FOX, NBCUniversal and Warner Bros., as well as Foxtel-produced dramas, and 30 channels owned and operated by Foxtel, including general entertainment and movie channels (which provide an extensive range of movie programming sourced through arrangements with major U.S. studios).
Foxtel’s content is available through channels and on-demand and is currently distributed to broadcast subscribers using either cable networks accessed through Telstra or Optus’s satellite platform via Foxtel’s set-top boxes, including the iQ4 (satellite only) and iQ3. Foxtel intends to migrate all broadcast subscribers to satellite or internet delivery over the next several years. Broadcast subscribers can also access Foxtel’s content using a companion service app on mobile devices and tablets. In addition, as part of its strategy to reach new segments of the Australian population, Foxtel offers its pay-TV service via the internet through Foxtel Now, an over-the-top, or OTT, television service that provides access across Foxtel’s live and on-demand content and is available on a number of devices (including the Foxtel Now box, mobile devices, tablets, personal computers, gaming consoles and streaming devices), Kayo, its sports OTT service that allows subscribers to stream top international and domestic sports live and on demand, and Binge, its recently launched on-demand entertainment OTT service that provides subscribers with access to over 10,000 hours of top local and international content across premium drama, lifestyle, reality and movies. Foxtel also offers a bundled broadband product, which consists of Foxtel’s existing broadcast pay-TV service, sold together with an unlimited broadband service (predominantly on the national broadband network), and an option for customers to add home phone services. In addition to its pay-TV services, Foxtel operates foxsports.com.au, a leading general sports website in Australia, and Watch NRL and Watch AFL, subscription services that provide live streaming and on-demand replays of National Rugby League and Australian Football League matches internationally.
Foxtel generates revenue primarily through subscription revenue as well as advertising revenue. Foxtel’s business generally is not highly seasonal, though results can fluctuate due to the timing and mix of its local and international sports programming, as expenses associated with licensing certain programming rights are recognized during the applicable season or event. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information regarding certain key performance indicators for Foxtel.
Foxtel competes primarily with a variety of other video content providers, such as traditional Free To Air (“FTA”) TV operators in Australia, including the three major commercial FTA networks and two major government-funded FTA broadcasters, and new content providers that deliver video programming over the internet. These providers include Internet Protocol television, or IPTV, and subscription video-on-demand, or SVOD, providers such as Fetch TV, Netflix, Stan and Amazon Prime Video; streaming services offered through digital media providers, such as YouTube and Facebook; as well as programmers and distributors, such as CBS, Disney and the FTA networks, that provide content, including smaller, lower-cost or free programming packages, directly to consumers over the internet. The Company believes that Foxtel’s premium and exclusive content, wide array of products and services, set-top box features that enable subscribers to record, rewind, discover and watch content, its investment in On Demand capability and programming and benefits through broadband bundling enable it to offer subscribers a compelling alternative to its competitors. In addition, Foxtel continues to develop new features and products to improve the value proposition of its broadcast television packages and expand its subscriber base, including its iQ4 set-top box, 4K Ultra HD service, upgrades to its user interface to make content discovery easier and integrate third-party apps, and its OTT services such as Foxtel Now, Kayo and Binge.
Australian News Channel
ANC operates nine channels and has carriage rights for two additional channels in Australia featuring the latest in news, politics, sports, entertainment, public affairs, business and weather. ANC is licensed by Sky International AG to use Sky trademarks and domain names in connection with its operation and distribution of channels and services. ANC’s channels consist of Fox Sports News, Sky News Live, Sky News Weather, Sky News Extra, Sky News Extra 1, Sky News Extra 2, Sky News Extra 3, Sky News New Zealand and Sky News on WIN. ANC channels are distributed throughout Australia and New Zealand and available on Foxtel and Sky Network Television NZ. Sky News on WIN is available on the regional FTA WIN network in Australia. ANC
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also owns and operates the international Australia Channel IPTV service and offers content across a variety of digital media platforms, including web, mobile and third party providers. ANC primarily generates revenue through monthly affiliate fees received from pay-TV providers based on the number of subscribers and advertising.
ANC competes primarily with other news providers in Australia and New Zealand via its subscription television channels, third party content arrangements and free domain website. Its Australia Channel IPTV service also competes against OTT and IPTV subscription-based news providers in regions outside of Australia and New Zealand.
Dow Jones
The Company's Dow Jones segment is a global provider of news and business information, which distributes its content and data through a variety of media channels including newspapers, newswires, websites, applications, or apps, for mobile devices, tablets and e-book readers, newsletters, magazines, proprietary databases, live journalism, video and podcasts. This segment consists of the Dow Jones business, whose products target individual consumers and enterprise customers and include The Wall Street Journal, Factiva, Dow Jones Risk & Compliance, Dow Jones Newswires, Barron’s and MarketWatch. Dow Jones’s revenue is diversified across business-to-consumer and business-to-business subscriptions, circulation, advertising, including custom content and sponsorships, licensing fees for its print and digital products and participation fees for its live journalism events. Advertising revenues at the Dow Jones segment are subject to seasonality, with revenues typically highest in the Company’s second fiscal quarter due to the end-of-year holiday season.
Consumer Products
Through its premier brands and authoritative journalism, Dow Jones’s products targeting individual consumers provide insights, research and understanding that enable consumers to stay informed and make educated financial decisions. Dow Jones continues to capitalize on new digital distribution platforms, technologies and business models for these products as consumer preferences for content consumption evolve. With a focus on the financial markets, investing and other professional services, many of these products offer advertisers an attractive consumer demographic. Products targeting consumers include the following:
•The Wall Street Journal (WSJ). WSJ, Dow Jones’s flagship product, is available in print, online and across multiple mobile, tablet and e-book devices. WSJ covers national and international news and provides analysis, commentary and opinions on a wide range of topics, including business developments and trends, economics, financial markets, investing, science and technology, lifestyle, culture and sports. WSJ’s print products are printed at plants located around the U.S., including seven owned by the Company. WSJ sells regional advertising in three major U.S. regional editions (Eastern, Central and Western) and 21 smaller sub-regional editions. WSJ’s digital products offer both free content and premium, subscription-only content and are comprised of WSJ.com, WSJ mobile products, including a responsive design website and apps for multiple mobile devices (WSJ Mobile), and live and on-demand video through WSJ.com and other platforms such as YouTube, internet-connected television and set-top boxes (WSJ Video), as well as podcasts. WSJ also distributes content through licensing arrangements with third party subscription and non-subscription platform providers, such as Apple News+ and Facebook, which is referred to as off-platform distribution. For the year ended June 30, 2020, WSJ Mobile (including WSJ.com accessed via mobile devices, as well as apps, and excluding off-platform distribution) accounted for approximately 63% of visits to WSJ’s digital news and information products according to Adobe Analytics.
•Barron’s Group. The Barron’s Group focuses on Dow Jones consumer brands outside of The Wall Street Journal franchise, including Barron’s and MarketWatch, among other properties.
Barron’s. Barron’s, which is available to subscribers in print, online and on multiple mobile, tablet and e-book devices, delivers news, analysis, investigative reporting, company profiles and insightful statistics for investors and others interested in the investment world.
MarketWatch. MarketWatch is an investing and financial news website targeting active investors. It also provides real-time commentary and investment tools and data. Products include mobile and tablet apps, a mobile site and MarketWatch Premium Newsletters, and revenue is generated primarily through the sale of advertising.
•The Wall Street Journal Digital Network (WSJDN). WSJDN offers advertisers the opportunity to reach Dow Jones’s audience across a number of brands, including WSJ, Barron’s and MarketWatch.
•Live Journalism. Dow Jones offers a number of conferences and events each year, including WSJ Tech D-Live, its C-suite conferences such as CEO and CFO Council, the Women In series, the Future Of series, Global Food Forum and Barron’s Summits. These live journalism events offer advertisers and sponsors the opportunity to reach a select
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group of influential leaders from industry, finance, government and policy. Many of these programs also earn revenue from participation fees charged to attendees.*
* Due to the impacts of COVID-19, certain live journalism events that were scheduled to take place in person have instead been offered as interactive virtual events and others have been postponed or cancelled.
The following table provides information regarding issue sales and subscriptions (excluding off-platform distribution) for certain Dow Jones consumer products and for all consumer subscription products:
The Wall Street Journal(1) | Barron’s(1) | Total Consumer(1)(2) | |||||||||||||||||||||||||||||||||
(in 000’s) | Average Global Issue Sales(3) | Average Global Subscriptions(4) | Average Global Issue Sales(3) | Average Global Subscriptions(4) | Average Global Issue Sales(3) | Average Global Subscriptions(4) | |||||||||||||||||||||||||||||
Print(5) | 830 | 754 | 229 | 221 | 1,063 | 978 | |||||||||||||||||||||||||||||
Digital-only(5) | 2,256 | 2,244 | 451 | 451 | 2,812 | 2,800 | |||||||||||||||||||||||||||||
| Total | 3,086 | 2,998 | 680 | 672 | 3,875 | 3,778 | |||||||||||||||||||||||||||||
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(1)Based on internal data for the period from March 30, 2020 to June 28, 2020, with independent assurance over global total sales and subscriptions provided by PricewaterhouseCoopers LLP UK.
(2)Total Consumer consists of The Wall Street Journal, Barron’s, MarketWatch newsletters and Financial News, including Private Equity News.
(3)Average Global Issue Sales includes subscription and non-subscription categories. Non-subscription categories include, but are not limited to, single copy (newsstand) sales and copies purchased by hotels for distribution to guests.
(4)Subscriptions include individual consumer subscriptions, as well as subscriptions purchased by companies, schools, businesses and associations for use by their respective employees, students, customers or members. Subscriptions exclude single-copy sales and copies purchased by hotels, airlines and other businesses for limited distribution or access to customers.
(5)For some publications, including The Wall Street Journal and Barron’s, Dow Jones sells bundled print and digital products. For bundles that provide access to both print and digital products every day of the week, only one unit is reported each day and is designated as a print subscription. For bundled products that provide access to the print product only on specified days and full digital access, one print subscription is reported for each day that a print copy is served and one digital subscription is reported for each remaining day of the week.
The following table provides information regarding the digital platforms (excluding off-platform distribution) for certain Dow Jones consumer products:
FY2020 Average Monthly Visits(1) | FY2020 Average Monthly Page Views(2) | FY2020 Average Monthly Unique Users(3) | |||||||||||||||
| WSJ | 122 million | 320 million | 53 million | ||||||||||||||
| MarketWatch | 113 million | 263 million | 50 million | ||||||||||||||
| WSJDN | 252 million | 617 million | 114 million | ||||||||||||||
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(1)Includes visits via websites and mobile device and tablet apps based on Adobe Analytics for the 12 months ended June 30, 2020.
(2)Includes page views via websites and mobile device and tablet apps based on Adobe Analytics for the 12 months ended June 30, 2020.
(3)Includes aggregate unique users accessing websites and mobile device and tablet apps based on Adobe Analytics for the 12 months ended June 30, 2020. See “Part I. Business—Explanatory Note Regarding Certain Metrics” for more information regarding the calculation of unique users.
Professional Information Products
Dow Jones’s professional information products, which target enterprise customers, combine news and information with technology and tools that inform decisions and aid awareness, research and understanding. These products consist of its Knowledge & Insight, Dow Jones Risk & Compliance and Dow Jones Newswires products. Specific products include the following:
•Knowledge & Insight. Dow Jones Knowledge & Insight products consist primarily of Factiva, a leading provider of global business content, built on an archive of important original and licensed publishing sources. Factiva offers
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content from approximately 33,000 global news and information sources from over 200 countries and territories and in 28 languages. This combination of business news and information, plus sophisticated tools, helps professionals find, monitor, interpret and share essential information. As of June 30, 2020, there were approximately 1.1 million activated Factiva users, including both institutional and individual accounts.
•Dow Jones Risk & Compliance. Dow Jones Risk & Compliance products provide data solutions for customers focused on anti-bribery and corruption, anti-money laundering, counter terrorism financing, monitoring embargo and sanction lists and other compliance requirements. Dow Jones’s solutions allow customers to filter their business transactions and third parties against its data to identify regulatory, corporate and reputational risk, and request follow-up reports to conduct further due diligence. Products include online risk data and negative news searching tools such as RiskCenter Financial Crime Search and RiskCenter Financial Crime Screening and Monitoring for bulk screening. Dow Jones also provides an online solution for supplier risk assessment, RiskCenter Third Party, which provides customers with automated risk and compliance checks via questionnaires and embedded scoring. Feed services include PEPs (politically exposed persons), Sanctions, Adverse Media and other Specialist Lists. In addition, Dow Jones produces customized Due Diligence Reports to assist its customers with regulatory compliance.
•Dow Jones Newswires. Dow Jones Newswires distributes real-time business news, information, analysis, commentary and statistical data to financial professionals and investors worldwide. It publishes, on average, over 16,000 news items each day, which are distributed via Dow Jones’s market data platform partners, including Bloomberg and FactSet, as well as trading platforms and websites reaching hundreds of thousands of financial professionals. This content also reaches millions of individual investors via customer portals and the intranets of brokerage and trading firms, as well as digital media publishers. Dow Jones Newswires is also increasingly used as an input for algorithms supporting automated trading.
Dow Jones competes with a wide range of media businesses, including print publications, digital media and information services.
Dow Jones’s consumer products, including its newspapers, magazines, digital publications and podcasts, compete for consumers, audience and advertising with other local and national newspapers, web and app-based media, magazines, social media sources and podcasts, as well as other media such as television, radio stations and outdoor displays. Competition for subscriptions and circulation is based on news and editorial content, subscription pricing, cover price and, from time to time, various promotions. Competition for advertising is based upon advertisers’ judgments as to the most effective media for their advertising budgets, which is in turn based upon various factors, including circulation volume, readership levels, audience demographics, advertising rates, advertising effectiveness and brand strength and reputation. As a result of rapidly changing and evolving technologies, distribution platforms and business models, the consumer-focused businesses within Dow Jones continue to face increasing competition for both circulation and advertising revenue, including from a variety of alternative news and information sources. These include both paid and free websites, digital apps, news aggregators, blogs, podcasts, search engines, social media networks, digital advertising networks and exchanges, bidding and other programmatic advertising buying channels, as well as other emerging media and distribution platforms, including off-platform distribution of its products. Shifts in consumer behavior, including the widespread adoption of mobile phones, tablets, e-book readers and other portable devices as platforms through which news and information is consumed, require the Company to continually innovate and improve upon its own products, services and platforms in order to remain competitive. The Company believes that these changes will continue to pose opportunities and challenges, and that it is well positioned to leverage its global reach, brand recognition and proprietary technology to take advantage of the opportunities presented by these changes.
Dow Jones professional information products that target enterprise customers compete with various information service providers, compliance data providers and global financial newswires, including Reuters News, LexisNexis and Refinitiv, as well as many other providers of news, information and compliance data.
Book Publishing
The Company’s Book Publishing segment consists of HarperCollins, the second largest consumer book publisher in the world based on global revenue, with operations in 17 countries. HarperCollins publishes and distributes consumer books globally through print, digital and audio formats. Its digital formats include e-books and downloadable audio books for tablets, e-book readers and mobile devices. HarperCollins owns more than 120 branded imprints, including Harper, William Morrow, HarperCollins Children’s Books, Avon, Harlequin and Christian publishers Zondervan and Thomas Nelson.
HarperCollins publishes works by well-known authors such as Harper Lee, Chip and Joanna Gaines, David Walliams, Angie Thomas, Sarah Young and Agatha Christie and popular titles such as The Hobbit, Goodnight Moon, To Kill a Mockingbird, Jesus Calling and The Hate U Give. Its print and digital global catalog includes more than 200,000 publications in different formats, in
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16 languages, and it licenses rights for its authors’ works to be published in more than 50 languages around the world. HarperCollins publishes fiction and nonfiction, with a focus on general, children’s and religious content. Additionally, in the U.K., HarperCollins publishes titles for the equivalent of the K-12 educational market.
As of June 30, 2020, HarperCollins offered approximately 125,000 publications in digital formats, and nearly all of HarperCollins’ new titles, as well as the majority of its entire catalog, are available as e-books. Digital sales, comprising revenues generated through the sale of e-books as well as downloadable audio books, represented approximately 23% of global consumer revenues for the fiscal year ended June 30, 2020. With the widespread adoption of electronic formats by consumers, HarperCollins is publishing a number of titles in digital formats before, or instead of, publishing a print edition.
During fiscal 2020, HarperCollins U.S. had 140 titles on the New York Times print and digital bestseller lists, with 21 titles hitting number one, including Girl, Stop Apologizing by Rachel Hollis, Inside Out by Demi Moore, Magnolia Table, Volume 2 by Joanna Gaines, Open Book by Jessica Simpson, Pete the Cat: Big Easter Adventure and Pete the Cat: The Great Leprechaun Chase by James Dean, Sapiens by Yuval Noah Harari, Strange Planet by Nathan W Pyle, The Boy, The Mole, The Fox and The Horse by Charlie Mackesy, The Hate U Give by Angie Thomas, The New Girl by Daniel Silva, The One and Only Bob and The One and Only Ivan by Katherine Applegate, The Pioneer Woman Cooks: The New Frontier by Ree Drummond, The Subtle Art of Not Giving a F*ck by Mark Manson and The Tattooist of Auschwitz by Heather Morris.
HarperCollins derives its revenue from the sale of print and digital books to a customer base that includes global technology companies, traditional brick and mortar booksellers, wholesale clubs and discount stores, including Amazon, Apple, Barnes & Noble and Tesco. Revenues at the Book Publishing segment are significantly affected by the timing of releases and the number of HarperCollins’ books in the marketplace, and are typically highest during the Company’s second fiscal quarter due to increased demand during the end-of-year holiday season in its main operating geographies.
The book publishing business operates in a highly competitive market that is quickly changing and continues to see technological innovations. HarperCollins competes with other large publishers, such as Penguin Random House, Simon & Schuster and Hachette Livre, as well as with numerous smaller publishers, for the rights to works by well-known authors and public personalities; competition could also come from new entrants as barriers to entry in book publishing are low. In addition, HarperCollins competes for consumers with other media formats and sources such as movies, television programming, magazines and mobile content. The Company believes HarperCollins is well positioned in the evolving book publishing market with significant size and brand recognition across multiple categories and geographies. Furthermore, HarperCollins is a leader in children’s and religious books, categories which have been less impacted by the transition to digital consumption.
News Media
The Company’s News Media segment consists primarily of News Corp Australia, News UK and the New York Post. This segment also includes Wireless Group, operator of talkSPORT, the leading sports radio network in the U.K., and Virgin Radio, and Storyful, a social media content agency that enables the Company to source real-time video content through social media platforms. The News Media segment generates revenue primarily through sales of print and digital advertising and circulation and subscription sales of its print and digital products. Advertising revenues at the News Media segment are subject to seasonality, with revenues typically highest in the Company’s second fiscal quarter due to the end-of-year holiday season in its main operating geographies.
News Corp Australia
News Corp Australia is one of the leading news and information providers in Australia by readership, with both print and digital mastheads covering a national, regional and suburban footprint. During the year ended March 31, 2020, its daily, Sunday, weekly and bi-weekly newspapers were read by over 6.9 million Australians on average every week. In addition, its digital mastheads are among the leading digital news properties in Australia based on monthly unique audience data and had approximately 648,000 aggregate closing subscribers as of June 30, 2020.
News Corp Australia’s news portfolio includes The Australian and The Weekend Australian (National), The Daily Telegraph and The Sunday Telegraph (Sydney), Herald Sun and Sunday Herald Sun (Melbourne), The Courier Mail and The Sunday Mail (Brisbane) and The Advertiser and Sunday Mail (Adelaide), as well as paid digital platforms for each. In addition, News Corp Australia owns a large number of community mastheads in all major capital cities and leading regional publications in Geelong, across the state of Queensland and in the capital cities of Hobart and Darwin.
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The following table provides information regarding key properties within News Corp Australia’s portfolio:
Average Daily Paid Print Circulation(1) | Total Paid Subscribers for Combined Masthead (Print and Digital)(2) | Total Monthly Audience for Combined Masthead (Print and Digital)(3) | |||||||||||||||
| The Australian (Mon – Fri) | 74,027 | 199,880 | 6.2 million | ||||||||||||||
The Weekend Australian (Sat) | 201,918 | ||||||||||||||||
The Daily Telegraph (Mon – Sat) | 144,366 | 114,720 | 6.5 million | ||||||||||||||
The Sunday Telegraph | 271,457 | ||||||||||||||||
Herald Sun (Mon – Sat) | 213,964 | 125,508 | 4.8 million | ||||||||||||||
Sunday Herald Sun | 270,952 | ||||||||||||||||
The Courier Mail (Mon – Sat) | 90,667 | 94,335 | 3.4 million | ||||||||||||||
The Sunday Mail | 206,073 | ||||||||||||||||
The Advertiser (Mon – Sat) | 88,436 | 92,783 | 2.4 million | ||||||||||||||
Sunday Mail | 142,120 | ||||||||||||||||
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(1)For the year ended June 30, 2020, based on internal sources.
(2)As of June 30, 2020, based on internal sources.
(3)Based on Enhanced Media Metrics Australia (“EMMA”) average monthly print readership data for the year ended March 31, 2020 and Nielsen desktop, mobile and tablet audience data for March 2020. EMMA data incorporates more frequent sampling and combines both online usage derived from Nielsen data and print usage into a single metric that removes any audience overlap.
News Corp Australia’s broad portfolio of digital properties also includes news.com.au, one of the leading general interest sites in Australia that provides breaking news, finance, entertainment, lifestyle, technology and sports news and delivers an average monthly unique audience of approximately 10.3 million based on Nielsen monthly total audience ratings for the year ended June 30, 2020. In addition, News Corp Australia owns other premier properties such as taste.com.au, a leading food and recipe site, and kidspot.com.au, a leading parenting website, as well as various other digital media assets. As of June 30, 2020, News Corp Australia’s other assets included a 14.8% interest in HT&E Limited, which operates a portfolio of Australian radio and outdoor media assets, and a 30.2% interest in Hipages Group Pty Ltd., which operates a leading on-demand home improvement services marketplace.
News UK
News UK publishes The Sun, The Sun on Sunday, The Times and The Sunday Times, which are leading newspapers in the U.K that together accounted for approximately one-third of all national newspaper sales as of June 30, 2020. The Sun is the most read national paid print news brand in the U.K., and The Times and The Sunday Times are the most read national newspapers in the U.K. quality market. Together, across print and digital, these brands now reach 77% of adult news readers in the U.K., or approximately 41 million people, based on PAMCo data for the year ended March 31, 2020. News UK’s newspapers (except some Saturday and Sunday supplements) are printed at News UK’s world-class printing facilities in England, Scotland and Ireland. In addition to revenue from advertising, circulation and subscription sales for its print and digital products, News UK generates revenue by providing third party printing services through these facilities and is one of the largest contract printers in the U.K. News UK also distributes content through its digital platforms, including its websites, thesun.co.uk, thetimes.co.uk and thesundaytimes.co.uk, as well as mobile and tablet apps. In addition, News UK has assembled a portfolio of complementary ancillary product offerings, including betting and gaming products. The following table provides information regarding News UK’s news portfolio:
Print Average Issue Readership(1) | Average Daily Paid Print Circulation(2) | Paid Subscribers(3) | Monthly Global Unique Users(5) | ||||||||||||||||||||
The Sun (Mon – Sat) | 2,257,000 | 1,093,861 | N/A | 133 million | |||||||||||||||||||
The Sun on Sunday | 1,918,000 | 934,247 | N/A | ||||||||||||||||||||
The Times (Mon – Sat) | 846,000 | 322,117 | 151,000 (print)(4) 335,000 (digital) | N/A | |||||||||||||||||||
The Sunday Times | 1,504,000 | 609,162 | 220,000 (print)(4) 336,000 (digital) | N/A | |||||||||||||||||||
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(1)Based on Publishers Audience Measurement Company (“PAMCo”) data for the 12 months ended March 31, 2020.
(2)For the six months ended June 30, 2020, based on internal sources.
(3)As of June 30, 2020, based on internal sources.
(4)In addition to their print and digital-only products, The Times and The Sunday Times sell print and digital products bundled into one subscription, which is counted only once, under “print,” in the table above.
(5)Includes aggregate unique users accessing websites and mobile device and tablet apps based on Google Analytics data for the month ended June 30, 2020. See “Part I. Business—Explanatory Note Regarding Certain Metrics.”
New York Post
NYP Holdings (“NYP”) is the publisher of the New York Post (the “Post”), NYPost.com, PageSix.com, Decider.com and related mobile and tablet apps and social media channels. The Post is the oldest continuously published daily newspaper in the U.S., with a focus on coverage of the New York metropolitan area. The Post provides a variety of general interest content ranging from breaking news to business analysis, and is known in particular for its comprehensive sports coverage, famous headlines and its iconic Page Six section, an authority on celebrity news. The print version of the Post is primarily distributed in New York, where it is printed at its Bronx printing facility, as well as throughout the Northeast, Florida and California, where it uses Dow Jones’s printing facilities and third party printers. For the three months ended June 30, 2020, average weekday circulation based on internal sources, including mobile and tablet app digital editions, was 396,261. In addition, the Post Digital Network, which includes NYPost.com, PageSix.com and Decider.com, reached approximately 177.9 million unique users on average each month during the quarter ended June 30, 2020 according to Google Analytics. See “Part I. Business—Explanatory Note Regarding Certain Metrics” for information regarding the calculation of unique users.
The News Media segment’s newspapers, magazines, digital publications, radio stations and podcasts generally face competition from similar sources, and compete on similar bases, as the consumer products within the Dow Jones segment, particularly in their respective operating geographies. See “Item 1. Business – Business Overview – Dow Jones” above for further information.
Other
The Other segment includes the Company’s general corporate overhead expenses, corporate Strategy Group and costs related to the U.K. Newspaper Matters.
Governmental Regulation
General
Various aspects of the Company’s activities are subject to regulation in numerous jurisdictions around the world. The introduction of new laws and regulations in countries where the Company’s products and services are produced or distributed, and changes in the enforcement of existing laws and regulations in those countries, could have a negative impact on the Company’s interests.
Australian Media Regulation
The Company’s subscription television interests are subject to Australia’s regulatory framework for the broadcasting industry, including the Australian Broadcasting Services Act 1992 (Cth) (the “Broadcasting Services Act”) and the Telecommunications Act 1997 (Cth) (the “Telecommunications Act”) and associated Codes. The key regulatory body for the Australian broadcasting industry is the Australian Communications and Media Authority.
Key regulatory issues for subscription television providers include: (a) anti-siphoning restrictions—currently under the ‘anti-siphoning’ provisions of the Broadcasting Services Act, subscription television providers are prevented from acquiring rights to televise certain listed events (for example, the Olympic Games and certain Australian Rules football and cricket matches) unless national or commercial television broadcasters have not obtained these rights 26 weeks before the start of the event or the rights are held by commercial television licensees whose television broadcasting services cover more than 50% of the Australian population or the rights are held by one of Australia’s two major government-funded broadcasters; and (b) other parts of the Broadcasting Services Act that may impact the Company’s ownership structure and operations and restrict its ability to take advantage of acquisition or investment opportunities. Foxtel is also subject to various consumer protection regimes under the Telecommunications Act and associated Codes, which apply to Foxtel as a telecommunications service provider.
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Data Privacy and Security
The Company’s business activities are subject to laws and regulations governing the collection, use, sharing, protection and retention of personal data, which continue to evolve and have implications for how such data is managed. For example, in the U.S., certain of the Company’s websites, mobile apps and other online business activities are subject to the Children’s Online Privacy Protection Act of 1998, which prohibits the collection of personally identifiable information online from children under age 13 without prior parental consent. In addition, the Federal Trade Commission continues to expand its application of general consumer protection laws to commercial data practices, including to the use of personal and profiling data from online users to deliver targeted internet advertisements. More state and local governments are also expanding, enacting or proposing data privacy laws that govern the collection and use of personal data of their residents and increase penalties and afford private rights of action to individuals in certain circumstances for failure to comply, and most states have enacted legislation requiring businesses to provide notice to state agencies and to individuals whose personally identifiable information has been disclosed as a result of a data breach. For example, the California Consumer Privacy Act (“CCPA”), which went into effect on January 1, 2020, established certain transparency rules and puts greater restrictions on how the Company can collect, use and share personal information of California residents.
Similar laws and regulations have been implemented in many of the other jurisdictions in which the Company operates, including the European Union, the U.K. and Australia. For example, the European Union adopted the General Data Protection Regulation (“GDPR”), which is intended to provide a uniform set of rules for personal data processing throughout the European Union, and the U.K. adopted the Data Protection Act of 2018 (the “UK DPA”), implementing the GDPR. Fully applicable and enforceable as of May 25, 2018, the GDPR and the UK DPA expand the regulation of the collection, processing, use, sharing and security of personal data, contain stringent conditions for consent from data subjects, strengthen the rights of individuals, including the right to have personal data deleted upon request, continue to restrict the trans-border flow of such data, require companies to conduct privacy impact assessments to evaluate data processing operations that are likely to result in a high risk to the rights and freedoms of individuals, require mandatory data breach reporting and notification, significantly increase maximum penalties for non-compliance (up to 20 million Euros or 17 million pounds, as applicable, or 4% of an entity’s worldwide annual turnover in the preceding financial year, whichever is higher) and increase the enforcement powers of the data protection authorities. The European Union is also considering an update to its Privacy and Electronic Communication (e-Privacy) Directive with a regulation to, among other things, amend the current directive’s rules on the use of cookies and end-user consent.
In July 2020, the European Court of Justice invalidated the Privacy Shield, one of the legal mechanisms for the transfer of personal data from the European Union to the United States. The Company relies on the Privacy Shield framework for one business unit operating an advertising exchange, and certain of the Company’s service providers also rely on the Privacy Shield. As a result, the Company will need to put in place, and work with some of its third party service providers to implement, alternative legal mechanisms for the affected cross-border personal data transfers. The other mechanisms that the Company and certain of its service providers rely on to address the European data protection requirements for transfers of data, including the European Union Standard Contractual Clauses, are also subject to uncertainty and legal challenges. Challenges to existing data transfer mechanisms, and any future legal challenges to data transfer mechanisms that may be adopted, could cause the Company to incur additional costs, require it to change business practices or affect the manner in which it provides its services.
In Australia, data privacy laws impose additional requirements on organizations that handle personal data by, among other things, requiring the disclosure of cross-border data transfers, placing restrictions on direct marketing practices and imposing mandatory data breach reporting, and additional data privacy and security requirements and industry standards are under consideration.
Industry participants in the U.S., Europe and Australia have taken steps to increase compliance with relevant industry-level standards and practices, including the implementation of self-regulatory regimes for online behavioral advertising that impose obligations on participating companies, such as the Company, to give consumers a better understanding of advertisements that are customized based on their online behavior.
The interpretation and application of data privacy and security laws are often uncertain, in flux, and evolving in the United States and internationally. Moreover, data privacy and security laws vary between local, state, federal and international jurisdictions and may potentially conflict from jurisdiction to jurisdiction. The Company continues to monitor pending legislation and regulatory initiatives to ascertain relevance, analyze impact and develop strategic direction surrounding regulatory trends and developments, including any changes required in the Company’s data privacy and security compliance programs.
U.K. Press Regulation
As a result of the implementation of recommendations of the Leveson inquiry into the U.K. press, a Press Recognition Panel responsible for approving, overseeing and monitoring a new press regulatory body or bodies was established. Once approved by
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the Press Recognition Panel, the new press regulatory body or bodies would be responsible for overseeing participating publishers. In addition to the Press Recognition Panel, certain legislation provides that publishers who are not members of an approved regulator may be liable for exemplary damages in certain cases where such damages are not currently awarded and, if Section 40 of the Crime and Courts Act 2013 is commenced, the payment of costs for both parties in libel actions in certain circumstances.
Press regulator IMPRESS was recognized as an approved regulator by the Press Recognition Panel on October 25, 2016. However, publications representing the majority of the industry in the U.K., including News UK, entered into binding contracts to form an alternative regulator, the Independent Press Standards Organisation, or IPSO, in September 2014. IPSO currently has no plans to apply for recognition from the Press Recognition Panel. IPSO has an independent chairman and a 12-member board, the majority of which are independent. IPSO oversees the Editors’ Code of Practice, requires members to implement appropriate internal governance processes and requires self-reporting of any failures, provides a complaints handling service, has the ability to require publications to print corrections and has the power to investigate serious or systemic breaches of the Editors’ Code of Practice and levy fines of up to £1 million. IPSO has also introduced an arbitration scheme to resolve claims against publications. The burdens IPSO imposes on its print media members, including the Company’s newspaper publishing businesses in the U.K., may result in competitive disadvantages versus other forms of media and may increase the costs of regulatory compliance.
U.K. Radio Broadcasting Regulation
The Company’s radio stations in the U.K. and Ireland are also subject to governmental regulation by the relevant broadcast authorities as the Company is required to obtain and maintain licenses from such authorities to operate these stations. Although the Company expects its licenses will, where relevant, be renewed in the ordinary course upon their expiration, there can be no assurance that this will be the case. Non-compliance by the Company with the requirements associated with such licenses or other applicable laws and regulations, including of the relevant authority, could result in fines, additional license conditions, license revocation or other adverse regulatory actions.
Intellectual Property
The Company’s intellectual property assets include: copyrights in newspapers, books, television programming and other content and technologies; trademarks in names and logos; trade names; domain names; and licenses of intellectual property rights. These licenses include: (1) the sports programming rights licenses for the National Rugby League, Australian Football League, Cricket Australia, V8 Supercars, Formula One, Football Federation Australia, Australian Rugby Union and other broadcasting rights described in Note 17 to the Financial Statements; (2) licenses from various third parties, including ARRIS, of patents and other technology for the set-top boxes and related operating and conditional access systems used in the Company’s pay-TV business; (3) the trademark license for the realtor.com® website address, as well as the REALTOR® trademark (the “NAR License”); and (4) the trademark licenses for the use of FOX formative trademarks used in the Company’s pay-TV business in Australia (the “Fox Licenses”). In addition, its intellectual property assets include patents or patent applications for inventions related to its products, business methods and/or services, none of which are material to its financial condition or results of operations. The Company derives value and revenue from its intellectual property assets through, among other things, print and digital newspaper and magazine subscriptions and sales, subscriptions to its pay-TV services and distribution and/or licensing of its television programming to other television services, the sale, distribution and/or licensing of print and digital books, the sale of subscriptions to its content and information services and the operation of websites and other digital properties.
The Company devotes significant resources to protecting its intellectual property assets in the U.S., the U.K., Australia and other foreign territories. To protect these assets, the Company relies upon a combination of copyright, trademark, unfair competition, patent, trade secret and other laws and contract provisions. However, there can be no assurance of the degree to which these measures will be successful in any given case. Piracy, including in the digital environment, continues to present a threat to revenues from products and services based on intellectual property. Policing unauthorized use of the Company’s products, services and content and related intellectual property is often difficult and the steps taken may not in every case prevent the infringement by unauthorized third parties of the Company’s intellectual property. The Company seeks to limit the threat of piracy by preventing unauthorized access to its content through the use of programming content encryption, signal encryption and other security access devices and digital rights management software, as well as by obtaining site blocking orders against pirate streaming and torrent sites and a variety of other actions. The Company also seeks to limit such threat by pursuing legal sanctions for infringement, promoting appropriate legislative initiatives and international treaties and enhancing public awareness of the meaning and value of intellectual property and intellectual property laws. However, effective intellectual property protection may be either unavailable or limited in certain foreign territories. Therefore, the Company also engages in efforts to strengthen and update intellectual property protection around the world, including efforts to ensure the effective enforcement of intellectual property laws and remedies for infringement.
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Third parties may challenge the validity or scope of the Company’s intellectual property from time to time, and such challenges could result in the limitation or loss of intellectual property rights. Irrespective of their validity, such claims may result in substantial costs and diversion of resources that could have an adverse effect on the Company’s operations.
Raw Materials
As a major publisher of newspapers, magazines and books, the Company utilizes substantial quantities of various types of paper. In order to obtain the best available prices, substantially all of the Company’s paper purchasing is done on a regional, volume purchase basis, and draws upon major paper manufacturing countries around the world. The Company believes that under present market conditions, its sources of paper supply used in its publishing activities are adequate.
Employees
As of June 30, 2020, the Company had approximately 23,500 employees, of whom approximately 7,000 were located in the U.S., 4,500 were located in the U.K. and 8,500 were located in Australia. Of the Company’s employees, approximately 5,000 were represented by various employee unions. The contracts with such unions will expire during various times over the next several years. The Company believes its current relationships with employees are generally good.
Explanatory Note Regarding Certain Metrics
Unique Users
For purposes of this Annual Report, the Company counts unique users the first time an individual accesses a product’s website using a browser during a calendar month and the first time an individual accesses a product’s mobile or tablet app using a mobile or tablet device during a calendar month. If the user accesses more than one of a product’s desktop websites, mobile websites, mobile apps and/or tablet apps, the first access to each such website or app is counted as a separate unique user. In addition, users accessing a product’s websites through different browsers, users who clear their browser cache at any time and users who access a product’s websites and apps through different devices are also counted as separate unique users. For a group of products such as WSJDN, a user accessing different products within the group is counted as a separate unique user for each product accessed.
Broadcast Subscribers
Broadcast subscribers consist of residential subscribers and commercial subscribers, which are calculated as described below.
Residential Subscribers
Total number of residential subscribers represents total residential subscribers to the Company’s pay-TV services through cable and satellite distribution, including subscribers obtained through third-party distribution relationships.
Commercial Subscribers
Commercial subscribers for the Company’s pay-TV business are calculated as residential equivalent business units, which are derived by dividing total recurring revenue from these subscribers by an estimated average Broadcast ARPU which is held constant through the year. Total number of commercial subscribers represents total commercial subscribers to the Company’s pay-TV services through cable and satellite distribution, including subscribers obtained through third-party distribution relationships.
Broadcast ARPU
The Company calculates Broadcast ARPU for its pay-TV business by dividing broadcast package revenues for the period, net of customer credits, promotions and other discounts, by average cable and satellite residential subscribers for the period and dividing by the number of months in the period. Average cable and satellite residential subscribers, or “Average Broadcast Subscribers,” for a given period is calculated by first adding the beginning and ending cable and satellite residential subscribers for each month in the period and dividing by two and then adding each of those monthly average subscriber numbers and dividing by the number of months in the period.
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Broadcast Subscriber Churn
The Company calculates Broadcast Subscriber Churn for its pay-TV business by dividing the total number of disconnected cable and satellite residential subscribers for the period, net of reconnects and transfers, by the Average Broadcast Subscribers for the period, calculated as described above. This amount is then divided by the number of days in the period and multiplied by 365 days to present churn on an annual basis.
Paid Subscribers
A paid subscriber to the Company’s OTT services is one for which the Company recognized subscription revenue. A subscriber ceases to be a paid subscriber as of their effective cancellation date or as a result of a failed payment method. Paid subscribers excludes customers receiving service for no charge under certain new subscriber promotions.
ITEM 1A. RISK FACTORS
You should carefully consider the following risks and other information in this Annual Report on Form 10-K in evaluating the Company and its common stock. Any of the following risks, or other risks or uncertainties not presently known or currently deemed immaterial, could materially and adversely affect the Company’s business, results of operations or financial condition, and could, in turn, impact the trading price of the Company’s common stock.
The ongoing novel coronavirus (COVID-19) pandemic and other similar epidemics, pandemics or widespread health crises could have a material adverse effect on the Company’s business, results of operations, cash flows and financial position.
The ongoing COVID-19 outbreak and other similar epidemics, pandemics or widespread health crises, and the resulting responses of governments, businesses and consumers, could have a material adverse effect on the Company’s business, results of operations, cash flows and financial position. The COVID-19 pandemic has led to the implementation of unprecedented and wide-ranging measures by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of the virus, including quarantines, shelter-in-place and other social distancing orders, event cancellations, travel restrictions, school shutdowns and orders for many businesses to curtail or cease normal operations. The impact of the COVID-19 pandemic and measures to prevent its spread have, in turn, created significant economic volatility, uncertainty and disruption and have subjected the Company’s businesses to a number of risks, including, but not limited to, the following:
•Lower revenue and profitability. Advertising revenues have been, and are expected to continue to be, adversely impacted by the recent economic downturn resulting from the COVID-19 pandemic and reduced spending by advertisers, particularly in the travel, retail, entertainment and real estate industries. Business curtailments, closures and other operational changes and shelter-in-place orders have also caused, and may continue to cause, a decline in, among other things, new listing and other Real Estate revenues, sales of print books and newspapers, live journalism event revenues and commercial subscription revenues and new subscriber acquisitions at the Subscription Video Services segment. Subscription revenues from broadcast and Kayo subscribers in the Subscription Video Services segment have also been, and may continue to be, adversely affected by the cancellation or postponement of sports events for which the Company has broadcast rights and other disruptions in the creation and availability of film and television programming caused by COVID-19. In addition, profitability in future periods may be adversely impacted even though some previously postponed events have restarted, as the Company has resumed recognizing programming amortization expense for those events but may not generate sufficient incremental subscription and advertising revenues to offset these costs and compensate for prior losses. It is possible in some cases that revenue and/or profitability may not return to pre-pandemic levels.
While the Company has seen growth in some areas of its business during the COVID-19 pandemic, including digital subscribers at its newspaper businesses and e-book sales at its Book Publishing segment, driven in part by the current news environment and other pandemic-related circumstances, this growth may not be sustainable, particularly in the event of a prolonged economic downturn.
•Disruptions in the Company’s supply chain. The Company’s supply chain, including its printing facilities, as well as the printing, manufacturing and other facilities and operations of its third-party suppliers and vendors, may be disrupted by facility closures, reductions in operating hours, labor shortages and changes in operating procedures. Similarly, the COVID-19 pandemic may negatively affect the Company’s distribution and logistics providers’ ability to operate or increase their operating costs. Economic disruption and uncertainty may also cause the Company’s suppliers, vendors and distribution and logistics providers to experience financial difficulties and result in volatility in paper and other input
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costs. These supply chain effects may have an adverse effect on the Company’s ability to meet consumer demand and could result in an increase in its costs of production and distribution.
•Efforts to address and mitigate the adverse impacts of COVID-19 may not be successful and may result in the incurrence of costs and/or negatively impact the Company’s revenues. The Company is devoting substantial time and resources to addressing and mitigating the effect of COVID-19. These efforts, including operational changes, measures to reduce variable costs and the implementation of cost-savings initiatives across its businesses, may divert resources and the attention of the Company’s senior management from other aspects of the Company’s operations, including previously planned initiatives. Operational changes and cost containment measures such as workforce reductions and the shift to digital-only editions for certain local Australian newspapers have caused, and may continue to cause, the Company to incur restructuring and other costs, while business support measures, including re-list and re-upgrade offers for new listings and price concessions at the Digital Real Estate Services segment, have adversely affected, and may continue to adversely affect, revenues. There can be no assurance that any efforts taken by the Company to address and/or mitigate the impact of COVID-19 will be successful or substantially offset declines in revenues.
•Adverse Workforce Impacts. The Company’s operations may be adversely affected if a substantial number of employees or key personnel become ill or are quarantined as a result of COVID-19. The Company has instituted remote working arrangements for a substantial majority of its employees in order to protect their well-being and comply with applicable regulations and guidance. However, there is no certainty that such measures will mitigate the risks posed by COVID-19, and an extended period of remote work arrangements could strain the Company’s business continuity plans, introduce operational risk, including but not limited to cybersecurity risks or risks to the effectiveness of the Company’s internal controls, and adversely affect the Company’s productivity and ability to manage its business and perform critical functions.
The ultimate impact of the COVID-19 pandemic, including the extent of adverse impacts on the Company’s business, results of operations, cash flows and financial condition, will depend on, among other things, the severity, duration, spread and any reoccurrence of the pandemic, the impact of governmental actions and business and consumer behavior in response to the pandemic, the effectiveness of actions taken to contain or mitigate the outbreak and prevent or limit any reoccurrence, the resulting global economic conditions and how quickly and to what extent normal economic and operating conditions can resume, all of which are highly uncertain and cannot be predicted. The evolving and uncertain nature of this situation makes it challenging for management to estimate the future performance of the Company’s business, including the supply and demand for the Company’s products and services, its cash flows, its advertising revenues, the impact on the delivery of programming and associated payments and the collectability of receivables. However, the COVID-19 pandemic has adversely affected, and may continue to adversely affect, the Company’s business and results of operations, as described above, and could have a material adverse impact on the Company’s business, results of operations, cash flows and financial condition, particularly over the near to medium term. Any such adverse impact or any continued weakness in economic conditions and/or further disruptions in the global financial and capital markets could in turn make it more difficult for certain of the Company’s operating subsidiaries to comply with the financial and other covenants relating to their existing indebtedness, impact the availability and cost of additional financing, lead to significant and adverse exchange rate fluctuations, result in additional impairments in the value of the Company’s assets and additional valuation allowances on the Company’s deferred tax assets or cause further declines in the Company’s stock price. In addition, the COVID-19 pandemic will amplify many of the other risk factors disclosed elsewhere in this “Item 1A. Risk Factors.”
The Company Operates in a Highly Competitive Business Environment, and its Success Depends on its Ability to Compete Effectively.
The Company faces significant competition from other sources of news, information and entertainment, including both traditional and new content providers. This competition continues to intensify as a result of rapid changes in technologies, platforms and business models, and the Company may be adversely affected if consumers or customers migrate to other alternatives. For example, advertising and circulation revenues at the Company’s newspaper businesses may continue to decline, reflecting consumers’ increasing reliance on a variety of content providers and platforms, including search engines, news aggregation websites, social media networks and customized news feeds, for the delivery of news and information, often without charge. In addition, due to the increased availability of high-speed internet access and developments in content distribution platforms that enable streaming and downloading of programming, consumers are now more readily able to watch internet-delivered content through an increasing variety of providers. These providers include IPTV and SVOD services, such as Fetch TV, Netflix, Stan and Amazon Prime Video, streaming services offered through digital media providers, such as YouTube and Facebook, as well as programmers and distributors, such as CBS, Disney and the FTA networks, that provide content, including smaller, lower-cost or free programming packages, directly to consumers over the internet. The increasing number of choices available to consumers for
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video content, many of which provide original or exclusive content, has caused some of the subscribers to the Company’s pay-TV services to disconnect their services, downgrade to smaller, less expensive programming packages or purchase certain services from other providers, and this may continue. This trend has adversely affected, and may continue to adversely affect, both the Company’s subscription revenue and, in turn, advertisers’ willingness to purchase television advertising from the Company, as well as increase subscriber acquisition, retention and other costs.
In order to compete effectively, the Company must differentiate and distinguish its brands and their associated products and services and anticipate and adapt to changes in consumer and customer needs, tastes and behaviors, which in turn, depends on many factors both within and beyond its control. For example, the Company relies on brand awareness and acceptance of the high-quality differentiated content in its newspapers, book titles, pay-TV programming and radio stations, as well as its wide array of digital products and services, in order to retain and grow its audiences, consumers and subscribers. However, consumer tastes change frequently and are difficult to predict, and when faced with a multitude of choices, consumers may place greater value on the convenience and price of content and other products and services than they do on their source, quality or reliability. Online traffic and product purchases are also driven by internet search results, referrals from social media and other platforms and visibility on digital marketplace platforms and in mobile app stores. Search engine results and digital marketplace and mobile app store rankings are based on algorithms that are changed frequently by the owner or operator, and social media and other platforms may also vary their emphasis on what content to highlight for users. Any failure to successfully manage and adapt to these changes across the Company’s businesses, including those affecting how the Company’s content, apps and products are prioritized, displayed and monetized, could impede the Company’s ability to compete effectively by significantly decreasing traffic to the Company’s digital properties, lowering advertiser interest in those properties, increasing costs if free traffic is replaced with paid traffic and lowering product sales and subscriptions or otherwise adversely affecting the Company’s business.
The Company expects to continue to pursue new strategic initiatives and develop new products and services in order to remain competitive, such as its OTT strategy and the migration of subscribers from cable to satellite or internet delivery at its pay-TV business and its referral-based model for its U.S. digital real estate business. The Company has incurred, and may in the future be required to incur, significant capital expenditures, marketing and other costs in order to implement these strategies and develop these new products and services, which may be dilutive to its earnings. There can be no assurance these strategic initiatives, products and services will be successful in the manner or time period the Company expects or that it will realize, in full or in part, the anticipated benefits it expects to achieve. The failure to realize those benefits could have a material adverse effect on the Company’s business, results of operations and financial condition. For example, the Company is targeting a different demographic with its streaming services, which are offered at a lower price point than its traditional broadcast subscription packages. However, if instead those streaming offerings cause broadcast subscribers to disconnect their services or downgrade to smaller, less expensive programming packages, the Company’s revenues may be materially and adversely affected.
Some of the Company’s current and potential competitors may have greater resources, fewer regulatory burdens, better competitive positions in certain areas, greater operating capabilities, greater access to sources of content, data, technology or other services or strategic relationships and/or easier access to financing, which may allow them to respond more effectively to changes in technology, consumer and customer needs and preferences and market conditions. Continued consolidation among competitors in certain industries in which the Company operates may increase these advantages, including through greater scale, financial leverage and/or access to content, data, technology and other offerings. If the Company is unable to compete successfully against existing or future competitors, its business, results of operations and financial condition could be adversely affected.
The Company Must Respond to Evolving Technologies and Changes in Consumer and Customer Needs and Behavior and Continue to Innovate and Provide Useful Products and Services in Order to Remain Competitive.
Technology continues to evolve rapidly, and the resulting changes in consumer and customer needs, behavior and preferences create constant opportunities for new and existing competitors that can quickly render the Company’s products and services less valuable. For example, enhanced internet capabilities and the development of new media channels have led to alternative methods for the delivery, storage and consumption of digital content, including the distribution of news and other content through social networking tools and on mobile and other devices, often without charge, distribution of video content to televisions, computers, tablets and mobile and other devices via streaming and downloading and digital distribution models for books. These developments have driven consumers to expect more control over the convenience and price of content consumption and may, in turn, continue to reduce the demand for the Company’s newspapers, television programs and other products and services and the price consumers are willing to pay for such products and services. Consumption of the Company’s content on new third-party delivery platforms may also lead to loss of distribution and pricing control, loss of a direct relationship with consumers and lower engagement and subscription rates. In addition, other technological developments, such as those allowing consumers to browse incognito or skip, fast forward through or block advertisements or otherwise time-shift viewing, may cause changes in consumer
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behavior that reduce the Company’s ability to serve advertising based on user data and behaviors or at all, which would adversely affect the attractiveness of the Company’s offerings to advertisers.