Sports TV rights need fundamental reset: News Corp

News Corp says a ‘fundamental reset’ is needed on what’s paid for TV rights for sports like the NRL and AFL, as its revenue declined.

News Corp chief executive Robert Thomson. Picture: AFP

News Corp chief executive Robert Thomson has asked for a “fundamental reset” of the price paid for sports broadcasting rights as the global media company reported declines in revenue amid the early impact of the COVID-19 virus.

Reporting third quarter results on a conference call from New York on Friday (AEST) the News Corp chief executive reported an 8 per cent decline in revenues compared to the same quarter last year and segment EBITDA of $US242m ($371.8m), a 2 per cent decline compared to $US247m in the prior year. News Corp is publisher of The Australian.

Mr Thomson foreshadowed a “fundamental reset” of sports rights in the longer term following the COVID-19 outbreak, which has had an impact on subscribers to the company’s sports streaming service Kayo.

Foxtel’s Kayo had reached 444,000 subscribers by end-March, up from 199,000 for the same time last year. Suspensions of the NRL, AFL and US NBA season were likely to impact subscriber numbers in the fourth quarter.

Mr Thomson said there would need to be a longer term re-revaluation of the amount paid for broadcast rights for sports such as the NRL and AFL.

“There obviously needs to be a fundamental reset, the idea that things will return to normal this season is absurd.

“It’s not just the quantity of games it’s the quality of experience and that has obviously been diminished. And that reset has to apply longer term to us in Australia.”

The NRL and broadcast partners Foxtel and the Nine Entertainment are hoping to finalise a reduced broadcast deal for the 2020 season, with the broadcasters previously agreeing to pay $1.8 billion for a four year deal ending in 2022.

Nine CEO Hugh Marks warned this week Nine could walk away from the NRL if it could not get a reduced rights deal for the next two years and into the future.

“It’s not a given that NRL has to be part of our future,” Mr Marks said. “It has to just pay its way like all of our content does, and if it doesn’t, well … again, we are less reliant on that as a revenue source.”

News Corp’s net loss was $US1bn mostly due to writedowns of goodwill and intangible assets at Foxtel and also a writedown in the former News America Marketing business, the sale of which was finalised this month.

The Foxtel writedown of $US931m by News – the 65 per cent owner of the subscription TV business – also triggered a $300m writedown by Telstra on Friday which owns the remaining Foxtel stake. Telstra said it would make the non-cash writedown in its full year results.

News’ Mr Thomson said the third quarter results were affected by the COVID-19 outbreak, but “clearly will be a major factor in our Q4 results.”

Mr Thomson said News Corp’s executive leadership, including executive chairman Rupert Murdoch, would forgo bonuses.

“Pay reductions will be led by our executive chairman, Rupert Murdoch, who is voluntarily forgoing his entire cash bonus for the current fiscal year, and as chief executive I will forgo 75 per cent of my annual cash bonus. The collective cuts in bonuses and other cost initiatives will have a positive impact on profitability and our cash position.”

Mr Thomson paid tribute to the work of News Corp journalists during the pandemic. Mr Thomson paid particular tribute to New York Post photographer Anthony Causi, who died as a result of COVID-19 at the age of just 48.

“We are operating in a different, difficult time,” he said. “Every business and family is facing challenges and our thoughts, in particular, are for those who are suffering deeply and personally from the impact of COVID-19.”

The third quarter result also reflects a $US14m, or 6 per cent, negative impact from foreign currency fluctuations. Adjusted total segment EBITDA actually increased 1 per cent.

News Corp shares on the ASX closed up 5.3 per cent to $16.36.

Mr Thomson reiterated the cash position of News Corp and said the company was anticipating no debt covenant issues at Foxtel in the next 12 months.

“Our fiscal third quarter results demonstrate the strength of News Corp and the power of our premium content,” he said.

“We also maintained a robust balance sheet, with $US1.4bn in cash and cash equivalents as of March 31st and an untapped $US750m corporate revolving credit facility, providing a strong foundation for the company’s future.”

The company’s Australian publishing business, which also includes state mastheads, The Daily Telegraph and Herald Sun, experienced revenue headwinds from a soft advertising market, and COVID-19 has worsened an already difficult advertising market and with the company recording a 45 per cent decrease in advertising revenue in News Corp Australia and News UK.

Strong growth was reported in digital subscriptions, with digital advertising at the Wall Street Journal - Dow Jones up 25 per cent.

Digital subscribers at News Corp Australia’s publications surged, led by The Australian, with the subscriber base growing to 613,000 from 493,000 at the same time last year growing 24 per cent. Two thirds of subscriptions at The Australian are now digital only.

The News Corp CEO also welcomed the decision by the Australian government to instruct the Australian Competition and Consumer Commission to force Google and Facebook to come to a revenue sharing agreement with Australian media companies.

“It is absolutely crucial that more be understood about the character, the power and the potential manipulation of algorithms and data,” Mr Thomson said.

Mr Thomson said Dow Jones had set new performance records in the third quarter of fiscal 2020.

“These Dow Jones numbers are vastly superior to those announced by The New York Times yesterday. Digital advertising increased by 25 per cent at Dow Jones, while it fell during the same quarter by 8 per cent at The New York Times.

“And while year-on-year profitability declined double digits at the NYT, it rose at Dow Jones, and was a key contributor to our news and information segment’s 15 per cent increase.

In March, News Corp Australia announced that it would suspend publication of 60 community newspaper with a strategic review of News Corp’s community and regional mastheads “well advanced”, Mr Thomson said.