News Corp. Presents at Morgan Stanley Technology, Media & Telecom Conference, Feb-25-2013 09:30 AM

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News Corporation (NWSA)

February 25, 2013 12:30 pm ET

Executives

James Rupert Murdoch - Deputy Chief Operating Officer, Director, Chairman of News International and Chief Executive Officer News International

Analysts

Benjamin Swinburne - Morgan Stanley, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

Okay. Good morning, everybody. Thanks for joining us. Quickly get my legal obligation done. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website or at the registration desk.

My name is Ben Swinburne. I'm Morgan Stanley's media analyst, and we're particularly thrilled to have with us this morning James Murdoch, Deputy COO for News Corporation, as well as Chairman and CEO of News International. And James is our first keynote speaker of this week's conference.

For those who may not be aware, News Corporation is a $35 billion revenue business across a broad portfolio of businesses and regions. Truly global media firm. Business is concentrated in content production and distribution in television and film. And if James were here with me, I will plug that at the end of the day today, on the Research Insights panel, I will be pitching News Corporation as to why I like the stock and why it's on the Morgan Stanley Best Ideas list. So thanks for letting me do that. I just want to have as many people in that room when I go, as you do here.

James Rupert Murdoch

I'm sure you will.

Benjamin Swinburne - Morgan Stanley, Research Division

So James, thank you so much for being here this morning.

James Rupert Murdoch

Thank you very much for having me, and thanks, everyone, for coming here and hi.

Question-and-Answer Session

Benjamin Swinburne - Morgan Stanley, Research Division

So why don't we just start out and ask you the truly sort of global nature of News Corporation and how you see that, differentiating it versus other media companies? And when you look across the portfolio, where are the biggest opportunities for the company to grow over the next 2 to 3 years from your perspective?

James Rupert Murdoch

Well, I think I -- we definitely view -- we do think about the business globally. We operate the business globally. So there's always things to do. I think for us, the really exciting thing over the next kind of couple of years that we see is really the continued growth of our channels business, both on an international basis or a global basis, but also on a domestic basis as well, I think. Here, the portfolio of the cable channels that we operate is very strong. We invest a lot in quality programming, things that are really differentiated for our customers. And we see continued affiliate growth, affiliate revenue growth, both domestically and overall growth in advertising and affiliate income on a global basis. India is a very important market for us. It's one of our largest international markets. The rest of Asia, particularly Southeast Asia, is very exciting for us. And we've also made great strides in South America over the last few years, particularly the launch of our sports business there. So we're super excited about the cable channels business generally, and we think the portfolio that we're investing in and that we have there is one that we can see a lot of growth to play for right away. I also think our platforms business, the Sky businesses have some really exciting dynamics in them. There's a lot of innovation happening at those businesses, and we just recently consolidated our Sky Deutschland business. And we think that's something that after, really from a standing start just a few years ago, we've been able to stand up as a real kind of 21st century digital TV company and we think it's going great. That's really exciting. And then sort of I think really just if you look at our just Television production business as well, there's a huge amount for us in the pipeline here domestically that I think we have great visibility on right now. That should provide great growth going forward from things news -- things like Modern Family and Glee entering their syndication runs, but also over the longer term, looking at The Simpsons coming into syndication, looking at things like Homeland or American Horror Story. These are very exciting things that our investment as a company has made over the years and are now really going to start to flow through the P&L.

Benjamin Swinburne - Morgan Stanley, Research Division

Terrific. One of the things that I think really got us excited about the stock in particular is the decision around restructuring and spinning off some of your assets. Can you talk about how you and the management team and the board came to the decision to spinoff the Publishing and Australian media businesses, which I think are sort of on track for this summer? And what's the thought process behind that?

James Rupert Murdoch

Well, first of all, just to step back a little bit, I mean, there's kind of 3 things that I think kind of characterize our basic strategy and have over the last few years and hopefully will continue to are: number one, we really want to simplify our operating model of the business and that's around creating, from a structural perspective, either consolidating minority positions, selling out of the minority positions, creating a simpler and easier to operate and understand company instead of companies for all our shareholders. We think that's been really useful for us, and it's really invigorated the company in a good way. We do think about operating globally as well and really pursuing opportunities in a broad range of territory. And we also think about sort of investing upstream. That's investing in really differentiated programming and in an increasingly competitive marketplace. So the first one is simplification. Really, I think the split of the company into primarily Publishing-driven business and then the TV and Film business, the FOX Group business, really made a lot of sense for us, both in terms of having a streamlined kind of unified management structures in each business that could pursue opportunities in each area, really makes a lot of sense for shareholders given the different natures of those businesses in terms of their use of capital, how they work, the kind of transformations that are going on, on all sides of it. And we think it just makes a much simpler environment both from an operational standpoint but also to align the operations with shareholders much more straightforwardly. So it was a good time to do it. I think it's something that the senior management team we discuss a lot, what's the right way to do it, what's the right mix. And the board then really embrace it. So I think it was something that percolated over a period of time, but it seems like coming out of last year was about 8 months ago that we announced it, we thought that we're really, having that done given the dynamics of both businesses over the next 4 or 5 years that we can see, having that done in '13 was the right thing so we pulled the trigger.

Benjamin Swinburne - Morgan Stanley, Research Division

Great. What else are you guys thinking about in terms of unlocking value for shareholders? One of the things that always comes up is you got a sizable cash balance, which you're working your way through. And then also, the Sky investments you've made, the biggest one by far being BSkyB and the value of that asset.

James Rupert Murdoch

Well, I think first of this and just generally on kind of capital, I will speak kind of from a FOX Group perspective, the TV and film piece, we think that we want to -- in terms of our allocation of capital, you've seen us continue to raise the dividend over the last couple of years. You've seen our buyback programs over the last 2 years. And we've intentionally, anyway, we have an intent to kind of directionally continue that. That's a FOX way I can put it. And so we want to have a balance sheet that allows us to distribute cash to shareholders using those, primarily, those 2 methods over time. With respect to the minority investments and other things that are there, I think over the last couple of years, what you've seen the company do is seek to either consolidate minority positions, buy out joint venture partners notably in sports over the last couple of years. We've done that in Fox Pan American Sports in Latin America, with ESPN Star Sports across Asia. And also in terms of our platform, Sky Deutschland where we just cross the control threshold and consolidation threshold. And I think we'll continue to seek to simplify the business in that way. As to the Sky investments generally, look, the businesses are performing well. I mean, we have issues in Italy. I think Italy is always -- a lot of companies have issues in Italy right now. But strategically, the business is positioned very well there, and we have some opportunities to take cost out in a different kind of -- in an environment with a very different top line velocity than it was a number of years ago. So we feel good about that business as well. And I think we'll seek to try that -- we do want to get credit for those minority investments and for the shares that we have, and we have to try to address that over time. So is there some -- there is some unfinished business there, but there are no immediate plans on that. And we'll really try and operate those businesses as best we can, and we're very excited to be able to consolidate Sky Deutschland going forward. It's been a really exciting but challenging kind of startup, if you will, but it's really coming good. I think it's a very exciting company.

Benjamin Swinburne - Morgan Stanley, Research Division

Great. I wanted to ask you about the U.S. Television business. News Corporation generally, I mean, if you look at the media, the big media companies, the stocks that outperformed the market 3 years in a row and early this year, off to a very good start again, I think largely because of the strength of the organic growth in the TV business in United States. Your assets, if you look at cable and TV, are growing double digits healthily on the EBIT line. You're outperforming your peers. What is going on in the U.S. Television business to drive this organic strength? Why, with all the technological change we see, consumer behavior is changing, are these businesses doing so well from your perspective, and particularly for News Corporation?

James Rupert Murdoch

Well, I think just for our company, and the way I look at it is I think that's a downstream retail business, if you will, retailing to customers is a lot more competitive than it's been with new entrants both on sort of an over the top environment like Netflix and Amazon distributing programming and whatnot. But also, I think that satellite and cable guys plus AT&T, Verizon is a very competitive downstream environment. And I think what that's doing is it's really forcing those distributors, the big MVPD as well as some of the newer entrants, to really think about what is the content that really is going to move the dial for that customers and where are they going to invest their incremental -- where they're going to put their incremental investment in programming. Some of that is going to be original programming for them. But others and a lot of it is going into their partners who are providing channels that really, really move the dial. And I think for us, our portfolio has really come good in that way. We're very proud both sort of creatively and sort of strategically what those channels like FX, or our regional sports networks or FOX News has been able to achieve or National Geographic. So I think you're seeing sort of value kind of move upstream a bit, and I think that's going to continue to occur. And I also think that the quality of television -- the quality of television entertainment is higher than it's ever been. And I think it's opening up the idea that the development cycle in cable is a little different where you don't have to be committing for multiple years. New kinds of talent can come into the marketplace and tell stories over 9 or 10 or 12 episodes instead of making a long-term commitment to do it is really opening up a whole new kind of creative chapter. And I think that television is just great. So that's really coming through. I think it starts with, are you making a good product for customers, and then how do you get a fair price for it. And I think both of those things are working reasonably well right now. And sort of the new technologies are actually enhancing the customer's experience in a lot of ways. In the U.S., probably the kind of multiscreen experience like a TV Everywhere type of thing is probably a bit behind where it is in parts of Europe where it's really proved to be a fantastically valuable product for customers. So it's making -- it's putting more value into pay television subscription, as opposed to creating -- as opposed to solely creating opportunities to disrupt the system. I think it's actually -- if the big MVPDs can continue to invest and really start to innovate faster and put better things in their customers' hands, then I think we're going to see some good continued growth.

Benjamin Swinburne - Morgan Stanley, Research Division

That's a good segue to my next question, which is around the cable satellite, your core customers driving your business. You recently announced a really significant deal with Comcast, the #1 distributor in the United States, which incorporates, I think, a lot of TV Everywhere digital right?

James Rupert Murdoch

Yes.

Benjamin Swinburne - Morgan Stanley, Research Division

Leveraging technology. Can you tell the audience a little bit about why that deal -- that agreement is important for both News Corporation and also for all the things you just mention about leveraging the consumers new behavior?

James Rupert Murdoch

Well, I think -- we're very pleased to be able to get it done. And whenever you're in this position, you sort of -- there are these sort of set-piece big contracts or big negotiations that define some of the rules for you going forward for a period of time. And I think what's exciting about this is that it really gives us clear visibility on some of our affiliate growth over the next few years. It gives us clear visibility in our ability to launch new channels and do things like that, and it gives us very clear visibility around what sort of an authenticated experience we're going to be able to offer customers. And I think across the FOX brands and National Geographic, we're super excited about that. So it is about multiscreen experience both with XFINITY, but also with FOX authenticated apps. And it's going to be something that I think will put a lot of value into customers' hand and really make -- and I think we need to talk more in general about the great value the customers get from a sort of proper [ph] 20% through digital TV experience as opposed to just worrying about the cost of big basic and worrying about affiliate fees and whatnot because customers are going to get huge value, and there's a huge amount of investment going into these products. And I think it's good to be prove to be very successful. It's not to the exclusion of selling to other providers like a Netflix, who we work very closely with both an original production as well as selling series to -- but it's actually -- but I do think the kind of large scale sort of MVPD relationships are going to be a big feature of the industry for some years to come and provide a very good environment for us to continue to invest on screen.

Benjamin Swinburne - Morgan Stanley, Research Division

And with that deal behind you, when you think about News Corporation's philosophy on TV Everywhere in the U.S. and also the Netflix, Amazons of the world -- and we do have Reed presenting later this morning from Netflix, where does News Corporation kind of shake out on the -- is the industry getting it right on over-the-top windowing of programming in the United States? Do you think people are approaching it with the right balance of maximizing earnings with the tech in the ecosystem?

James Rupert Murdoch

I think it's a bit of a mixed bag actually from an industry perspective. I think there's a lot of -- very inconsistent positions one way or another, and I think it's still in a period where people are trying to find the right balance. I think it's really important though, and the way that I think about it is as an industry, we need to think less amounts of business rules, if you will. The business rules that have been set up, whatever, in the network business 60 years ago and in the cable business 30 years ago and think more about what the customer experience is, right. One of the stories that we're telling, we're doing in a high-quality enough way and how we're packaging that programming with our distribution partners to do it in a way that's really the best use of technology, of spectrum and all of those things for customers. And I think it's an evolving story for the whole industry. I don't think it's there yet, but I also don't think it's quite as simple as saying we're going to balance protecting the ecosystem versus innovating. I think actually, there's an enormous amount of innovation that's being done within the ecosystem, and I think the ecosystem is changing because of that. And I think it's probably in a positive way, I think. This downstream retail competition is really driving value upstream. It's creating much more competition for programming and in sports. But also, customers have a lot more choice today. So there's a lot more competition just to get the stories right and tell them in the best way that you can. And I think that's a really exciting time for us as a producer, as well as a channel group in the U.S. I think we're in a good position. And I think in particular, we do like the mix of channels and assets that we have. We don't think there's, at this point, a big missing chunk to that. We think kind of a simplified -- sort of it's very clear what categories we're in, in news, in sports, in entertainment and in National Geographic with the nonfiction programming, and we think there's just an enormous amount of play for within that portfolio going forward.

Benjamin Swinburne - Morgan Stanley, Research Division

You mentioned, I think, before that you think the U.S. is a bit behind other markets in leveraging new technology into the existing pay-TV offering. Are you referring to Sky in the U.K.? And are they on the leading edge?

James Rupert Murdoch

Yes, and in Germany as well, I think it's been a different experience. There's a kind of vertically integrated kind of TV company where we've really been providing the Sky Go services, which is so called TV Everywhere services, for a number of years and really trying to get that right for customers. And it's been really successful for customers as well. And I think the integration of streaming services within the broadcast platform from a set-top box perspective where, if you're a Sky Broadband customer as well as a DTH customer, you can have on-demand programming and you're using infrastructure for what it's best at. Really big kind of simultaneously consumed HD sports programming live is very, very efficient to do that on a satellite. Other channels and programs that are consumed on-demand by small numbers, it's more efficient to do that streaming and making that a seamless experience across multiscreen, has been a real -- has been an exciting challenge and one that I hope -- I think we've delivered on well for customers. And I think that's what is lagging a little bit here. The MVPD is really getting -- some are doing really well, but across the industry. I don't think it's really consistent.

Benjamin Swinburne - Morgan Stanley, Research Division

Yes. Okay. Great. Another -- I want to shift here a bit. One of the big debate in the industry right now is what's happening in sports, and sports content and sports costs are frequently viewed or cited as the reason why pay-TV bundle gets more expensive for the consumer every year and it's diluting people's margin. And every big sports deal that's done, you hear this is the worst thing ever and no one's ever going to make any money on it. And then particularly at News Corporation, you've built incredibly significant profit streams on the back of sports over time. So where do you see in the sports landscape today globally, you've made some big bets? You've obviously used Premier League in the U.K., Bundesliga in Germany. But then at the same time in the U.S., you've walked away from deals like with the Dodgers, most significantly. And we'll have Time Warner Cable here later this week to -- appear with their side of the argument. But how does News Corporation view the sports landscape today going forward, domestic and global?

James Rupert Murdoch

It's a big question. I mean, certainly we've been very involved in the sports marketplace. We like it. I think to the first point is that it's always a question of choices, right? So it's not simply that if you like the category, you're just going to go and pay whatever. And if something gets really into kind of nosebleed territory, it's important to have a portfolio of rights where you can walk away from some things. And I think with -- for example, with the Dodgers, we felt that would've been a great thing to be able to do. But at the prices that it went to, it was just too much for us. And we have a very, very strong regional sports business and a network sports business that we felt totally capable of being able to do that. I think it's a question of creating the ability to make those choices by balancing the portfolio you have. So I think that our appetite for sports investment is one that is driven by economic sense, not simply by worrying about being differentiated against some other things. It's not really a defensive investment program. It's actually good economic sense. We think we understand how to price sports and package them properly. And that's why, for example, we're excited about being able to strike a partnership with the YES Network and a long-term rights agreement with the Yankees. And that brings me to the second point, which is from the standpoint of the competition on the field itself, it becomes -- it comes down to a question of, are you confident that a particular property is going to continue to be committed to putting a competitive product on the field, right? And that could be a league doing that, or a track or whatever, what-have-you. It could be a league doing that. It could be teams in the case of regional sports networks, and this is the case around the world. So you have to sort of make these choices. And look, sometimes we get them wrong. We have some very attractive and exciting cricket properties in India, for example. We've just done an 8-year deal with their BBCI there ahead of our -- ahead of consolidating the Star Sports ESPN business, which we're very excited about. But there are other cricket products that we've licensed over the years that it proved to be too expensive and might've been better to step back. But I think you have to find the balance as you go through. For us, today, the way we look at it is that it's not -- I don't believe it is a question of the RSN pricing going up and then people having to pass surcharges onto customers. I mean, that's not [ph] right at all. I think it's a question of where is the value in the overall bundle, and a question of transfer of value, which is happening today to really differentiated upstream product, be it in dramatic series, in strongly branded channels that are unique, in sports programming. And it's that transfer of value that I think is really crucial to understand. So I think in some territories, certain rights have gone a little crazy, and we tried to draw the line in those places. For example, the English Premier League just finished it's global kind of series of options, and we've made -- we've stepped up and made some big commitments in some markets, and in other places, we pulled back and said well let somebody else pay that because we don't think, given the overall portfolio, we need to make that choice. So on balance, I feel globally, the sports business is going to continue to grow. I think upstream programming is going to continue to grow in value, particularly really differentiates us, particularly consumed live. And you see sports get a new life breathe into them all the time. I mean, the Daytona 500 yesterday, I think it was up 30%, the highest ratings in years. We just got the ratings through, and that's super exciting. We love bringing that to customers, and we love seeing a country get excited about products on the field or on the track.

Benjamin Swinburne - Morgan Stanley, Research Division

Thank you, Danica Patrick.

James Rupert Murdoch

Yes, Danica Patrick. You made a [ph] long list going well.

Benjamin Swinburne - Morgan Stanley, Research Division

Exactly. You recently did a number or renewals in the U.S. NASCAR is one of them, but also the NFL where the dollars are even more significant, and baseball. If you go all the way upstream using your logic, the leagues and teams and even the players will go all the way to, let's just say, A Rod, that's probably [ph] a bad example now, but you know what I'm saying, the players that are extracting all the value. Why are you confident that News Corporation can continue to make money, earn a margin on these rights as a result of some of the renewals you've done?

James Rupert Murdoch

I think it's a question of how you structure these agreements where you can and in some places, they are things. These are going to escalate too much because at the end of the day, the system does have a tendency to put 105% of all the money that comes in into like players pockets, right? And as I always thought, maybe one way to play the sports business is kind of fund the Ferrari dealerships in certain areas. But it's -- and seriously, it's not -- I think it's a question of how you structure these things. So for example, with the Yankees, it's a very long-term rights agreement. It's a -- we have a lot of confidence in the ability of the Yankees to put a great product on the field for customers and viewers and fans. And when you have that sort of an investment horizon around it, it really gives you a lot more certainty that you'll be able to make that return because you're fixing -- you have visibility on those costs, then you have to bet that you can price it over time in the right way. The shorter-term sports agreements are, frankly, much harder. I mean, the English Premiere League is a good example, a 3-year cycle is a very difficult thing to invest in against, and that's why that's also there's so much turnover in the right shoulders, I think, globally there as well, which I don't think is necessarily as healthy for this point as it could be.

Benjamin Swinburne - Morgan Stanley, Research Division

You mentioned the U.K. Premier League, could you also touch on -- and you also mentioned cricket, could you talk a little bit about the decision in Germany around the Bundesliga deal? And now that you've consolidated Sky Deutschland, it's going to be a big part of the FOX Group story going forward. Talk to us, people in the audience may not be that familiar with that asset than you are.

James Rupert Murdoch

Sky Deutschland or the Bundesliga or both?

Benjamin Swinburne - Morgan Stanley, Research Division

Both.

James Rupert Murdoch

Yes, well the Bundesliga, first of all, if anybody likes football, it's some of the best football in the planet right now. I mean, it really is incredible, and it's great value as well from our perspective as a rights shareholder. It's very professionally run. There are a number of super competitive teams that have an incredible run in the champions league. The Bundesliga has really been a great, great investment for us over the last number of years, and we've just renewed so we got 4 plus 1 years to go in a new contract, and we think that Bundesliga is going to be a much more prominent sort of figure, if you will, a feature in the international sports calendar going forward. So it is really, really exciting actually right now, and the quality of football is very good. In terms of Sky Deutschland and Bundesliga, is really very much a part of that. Sky Deutschland is an incredible story. It's a business in a market that nobody -- I think a lot of you have thought that pay-TV wasn't going to be possible, premium pay-TV in Germany between the Kirsch and premier sort of message. It was going to be very, very hard. But we really took the view that having a really good go at creating a Sky sort of always pay at 20% for digital TV experience for customers and the German customer was going to have value choice, was going to appreciate good value for money there, was going to appreciate premium programming in HD and things like that. And that has come to past. We still have a ways to go in Germany. It's not there yet, but we're sufficiently confident to continue to invest and now that consolidating it is good. And I think in the largest marketplace in Europe, it's nothing much because that economy in Europe, the most durable anyway it appears, and the lowest pay television penetration of economies of its kind, it's a very exciting story. And I think it's also an interesting system because between Kabel Deutschland and Liberty Global and us, people are really focused on growing the whole market, and I think the whole market is really going to grow. It's going to be very exciting.

Benjamin Swinburne - Morgan Stanley, Research Division

Yes, the question I always get is, will Germans pay for television?

James Rupert Murdoch

They are, today. So I think that was when we went in there in 2000 -- it was like New Year's 2007, '08, and we brought a small stake in premier and then we have -- we structure the whole company and kind of relaunch it. The big questions were, could you grow -- could you increase the customer base at the same time as growing ARPU? And both of the things have come to pass. So we've been able to -- we've invest heavily. We've invested in programming and marketing. We've invested in technology. We've dealt with some of the piracy issues, and we really relaunched the Sky business there properly. And we're seeing revenue per customer growing, and we're seeing the velocity of the customer growth really increasing a lot since then. So I think they are paying for television, and I think more will continue to do so as advocacy increases for a multiscreen premium television experience that is really tremendous.

Benjamin Swinburne - Morgan Stanley, Research Division

Great. Let's turn also to your broader international business, the FOX International Channels or as you guys call them, FIC. This a business that in the fourth quarter grew top line about 20% organically. Again, that includes Europe where you've got some tougher macro situations. What's driving that international growth? And why are you taking so much share from your peers?

James Rupert Murdoch

Well, I think that the markets are growing. First of all, it's not all share at all. I think the markets are growing. And I also think as we've grown that business and invested more in that -- we've established our position on the dial if you will, and now we're investing more in the programming and the brands and these things. We're growing our advertising business. But also, we're able to, as we roll through our affiliate contracts on a global basis, really start to get to fair pricing where we think it was higher for what we're delivering for customers there. And I think the FOX International Channels business on an organic business is growing pretty fast, and we've also been able to accelerate that by bolting on some new businesses, like the Pan-American sports business, like ESPN Star Sports, et cetera, and we're seeing revenue growth from that really, really go up a lot. So we think it's a question of the market growing, but also pay television penetration, think of it is as growing, but also our ability to deliver something that's really differentiated there for customers to be -- to get price, and that's what's happening. When you take that business and our Star business in India together, it's really -- that non -- x U.S. cable channels business is experiencing tremendous top line growth right now and delivering a lot to the bottom line as well. So we think there's a lot to play for that.

Benjamin Swinburne - Morgan Stanley, Research Division

And I think you have for FIC, not even including STAR, a $1 billion operating income target in fiscal '15. Is this guys still feel good about that given the trends you're seeing?

James Rupert Murdoch

I think so. I mean, look, I think you're right to point out the European sort of situation, and there are certainly markets that have challenges. But I think we do feel good about that. And I think over -- if you take the Star business inside that as well, you'll be between -- within a year or 2 of that, you'll be looking at 1.5 roughly, and I think that's achievable.

Benjamin Swinburne - Morgan Stanley, Research Division

Terrific. Let me ask you one more question also focused in on India, but also just about News Corporation scale, then we'll ask the audience if they have any questions. How much does the ownership of distribution and content in a lot of these markets helped? And how much does the scale of News Corporation helped drive this business? Because when you look at the affiliate revenue growth in your international channels business and it's well ahead of a lot of the peers, I realize subs are growing in some markets. But really, you have pricing power that is better than most.

James Rupert Murdoch

I think the channels business internationally as well as domestically will tend towards scale. I think that this dynamic that I've talked about before of the downstream retail competition being very intense and getting more intense because barriers to entry are obviously lower with a lot of broadband and all that stuff, I think the value will really accrue to players of scale. So I think having multiple channels in key categories is an advantage, and it's something that we need to seek to continue to press. I think the vertical integration question, this is not so much channels and content, but actually retail distribution on channels and content is one that we've done -- we like that business model a lot. In territories where it's possible and where you can really, really deliver a big market share in a place, we think that, that could be a very exciting business. And the way that programming and channels and the distribution platform has worked together can be very exciting. But that said, even in those places, we still seek to distribute our channels to other players as well. So in Germany, we distribute over the cable networks. In Britain and Ireland, we distribute over the cable networks, and we compete with them on a retail basis. So it's not -- I don't think it's a necessary piece, but there can be -- but the retail business in certain places can be very, very attractive as it has been there. But I think the scale question is a really -- is an interesting one for the industry as a whole, because I think it's going to be hard as this competition increases and as customers have a lot more choices, it's going to be hard for independent or small channels to -- in a traditional ecosystem, get sort of never ending affiliate fee increases. And I think kind of the streaming business and online business is going to be a much bigger feature in their future.

Benjamin Swinburne - Morgan Stanley, Research Division

Sure. Great. Why don't we see if we have any questions from the audience, and if you can wait for a microphone, we would appreciate it.

James Rupert Murdoch

There must be one.

Benjamin Swinburne - Morgan Stanley, Research Division

Yes, over there. Thank you.

Unknown Analyst

James, can you talk more about India? It's certainly been one of the success stores inside of STAR. So can you talk about some of the growth drivers there? I know you've been reinvesting in sports this year. But as you think about the market dynamics there and the opportunity for News Corporation, can you give a little bit more color on what you're seeing there?

James Rupert Murdoch

I think -- I mean, the Indian market is really interesting right now because obviously, from a macro perspective, India's got some challenges. There's governance challenges. There's reform kind of agendas that are happening, and there's a political sort of challenge in the whole place. But from the standpoint of the TV business, over the last -- I mean, we've been -- actually this year will be our 20th year operating in India and believe it or not. And I went out 13 years ago or something, I first went out there to the STAR business. It's been an incredible story. We've basically seen total pay-TV subscribers in the last 12, 13 years almost doubled. And for all of the kind of regulatory pressure on things like stamping out analog piracy, digitizing cable systems, et cetera, the marketplace itself has delivered what the regulations haven't been able to, right? So digital direct on satellite sector. And once you've got license, it just exploded and it's been fantastic because it's really driven a lot more competition to the big cable operators to invest in their products as well. But it hasn't just eaten the size of the market. The analog operators have basically just spread out. So you've actually really increased the total size of the pay-TV market, even though there's kind of 2 tiers in it, if you will. So that's been a really, really exciting thing, and I think customers there are getting a great experience from everyone. So on the distribution side, that's really been the dynamic. I think that the DTH sector will kind of probably consolidate or some people will exit over time because there are just a lot of players there right now. We feel very good about Sky. We have a 30% shareholding in that. It's not a vertically integrated platform. It can own it's own content by law. But it's growing faster than the marketplace, faster than its peers, and we think it's very, very solid from a brand and a technology and a product point of view. But I think there will be probably 3 players, not 5 or 6 over time, I would guess, in India, in the satellite sector. In terms of our channels business there, it's just been very, very exciting. And what happened there is really in 2000 kind of -- Zee was the kind of major player in Hindi general entertainment. When we launched STAR Plus in Hindi, really kind of in that whole northern part of the country, you had a huge exposure, which created kind of change where a lot of new product was coming on screen, new ways to tell stories, and it was a very exciting creative period. What we've done over the last number of years is actually build in all the regional languages. So when you look at the regional language ad spending, so if you take the national average and ignore it and you take regional languages versus Hindi, the growth is really astronomical. And that's been really exciting to be able to invest in -- our STAR Jalsha channel is #1 in West Bengal. We've been investing in Marathi and down south in our Asian acquisitions. It's been really exciting. And I think the quality on screen in regional Indian languages has been -- has just grown enormously. And to match the sort of filmic kind of culture into each one of those regions, now you have a real television production culture as well, which has been great. So I think India has, for it's pay Television business, is going to continue to go really well. I think it's really competitive. But there's a handful of groups, and we're lucky we've had a good run. We intend to continue to be one of them that will really be able to make returns. I think a single channel or a 2- or 3-channel strategy doesn't really work. I think you really do need scale there. We have dozens of TV channels in India today, and the network share we're delivering has been in the high teens to kind of 20%, 21% for the last couple of years and that's been great. And if we can keep that up, then we'll really be able to grow that business dramatically. So that's too much in India, but you just gave me an open-ended question, sorry.

Benjamin Swinburne - Morgan Stanley, Research Division

Your mistake. There's a question right up here.

Unknown Analyst

One question on Sky Deutschland. You seem pretty excited about the German market. Can you just go through the puts and takes of the thinking to like what would be the share -- what would lead you to increase your shareholding? Because right now you own about 55%. So what would -- I guess, what are the pros and cons of buying out the minorities -- the minority investors?

James Rupert Murdoch

Well, I think -- the question was, I don't know if everyone could here, the sort of pros and cons are about increasing our shares in Sky Deutschland. And I think we would -- I think we're pretty happy with where we are right now. I think we've always want to get to a place where we can consolidate the business, and we'll have to see what opportunities there are going forward. I think it's important for the business itself to be kind of fully funded and very liquid so it could continue to grow and invest because we felt really good signs there. And we're happy to be able to help the company do that. But we don't have any immediate plans to increase our shareholding right away. We've just gone through the consolidation threshold, and we're pretty happy with where we are right now.

Benjamin Swinburne - Morgan Stanley, Research Division

One right over here, microphone to you.

Unknown Analyst

Can you comment on your views of the NBC-Comcast sort of final tie up? And how that affects or how that influences the way that you see the balance in your company between distribution and content assets?

James Rupert Murdoch

Good question. You're referring to the final tie, like, just the second piece of it that they did the other day? Which, I guess, we all kind of assume was all happening anyway. So look, I think I can't speak to their business or their sort of strategy, but I think -- I'm not -- but I wasn't surprised and will continue to not be surprised that distributors, MVPDs want to invest in upstream assets because I think it's really going to be a really important part of their portfolio. The bigger question is just about how it changes us. So I don't think it really does. I think it probably helps in terms of having a different perspective from our distributors in a way. We're some of the middle-sized MVPDs cable companies kind of land in that and they help -- what do they do? So that's kind of a question for the industry. And I think the domestic industry is going to change a lot over the next 5 years. I really do.

Benjamin Swinburne - Morgan Stanley, Research Division

Well, wait for the next...

James Rupert Murdoch

There's another one right there.

Benjamin Swinburne - Morgan Stanley, Research Division

I can't see through the panel.

Unknown Analyst

Yes. I think a lot of people are pretty quick to characterize the Xbox group business as purely publishing. But there's a lot of PDF that's there as well like REA -- or sorry, REA is not TV, but non-publishing assets. Can you talk a little bit about those potential opportunities to clean up your stakes there as well?

James Rupert Murdoch

Yes. I think it's a really good question. The question was just what would be the not-box group, the new News Corporation, we call it. It will be -- it's a really exciting business actually. Yes, there are obviously kind of technical challenges in some of the newspaper publishing businesses, but there's also some hugely strong brand and franchise in that newspaper publishing business as well. So I think when you compare it to other newspaper publishing business, I think it's a very favorable comparison in terms of the position in the marketplace. In addition to that, there's digital and multimedia assets in that company that are very exciting from REA group in Australia, which is a leading real estate classified business down there. It's a publicly listed company. The new News Corporation owns a majority of that business to FOX Sports and FOXTEL, 50% of FOXTEL down there in partnership with Telstra. So there are some very exciting companies within that group, not to mention the Book Publishing business, which is really -- I mean, the whole book publishing industry and I think -- and I'm very pleased that -- I think HarperCollins as well, really making the transition to kind of E if you will extremely well, and it improves all the dynamics in that business from kind of working capital and free cash flow dynamics to how we direct the customers to the Publishing cycle itself. Actually that, and particularly the adult trade business in HarperCollins is a super exciting kind of digital business going forward. I think that's a really -- that's a big change. It's a revolution in reading that's truly happened is really taking root, particularly in the domestic HarperCollins business here, which is great. So there are a number of assets there. And we made the choice to include a sort of mixture in there because actually, the Australian assets, we think, fit well together actually as one sort of Australian multimedia company. And then you have the Dow Jones and news and information services and book publishing businesses elsewhere. So it is -- we actually have really high hopes for it, and I think a lot of investors have focused very much on the FOX Group side of things, and I think it's going to be a great opportunity to put a spotlight on the business that has a lot of positive dynamics as well.

Benjamin Swinburne - Morgan Stanley, Research Division

Well, listen, we're out of time. Next year we'll bring James back for the first FOX Group presentation, if he's willing. And thanks, everybody. James, thank you so much.

James Rupert Murdoch

Yes, thank you very much, and thanks very much for listening.

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