NEWS CORP. SAYS PROFIT WAS DRIVEN BY TV, CABLE PROGRAMMING
News Corp. Chmn. Rupert Murdoch in a conference call with analysts Tues. revealed some of his specific plans for DirecTV, pending approval of his company’s acquisition of parent Hughes Electronics: “With the addition of DirecTV, we will have built the world’s first truly global television platform, a platform that will immediately serve more than 25 million subscribers across the globe.” Murdoch said that he welcomed “stiff competition… from the larger and dominant cable companies” in the U.S. and that the transaction would “energize” the multichannel market.
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News Corp. reported $4.4 billion in total revenue for the quarter, up from $3.8 billion a year ago, and a 25% increase in operating income to $685 million. The company said it swung to a $275 million profit in the 3rd-quarter from a $4 billion loss a year earlier when it took a $4.1 billion write-down on the value of its Gemstar investment. CFO Davide Devoe said all segments of the Fox Entertainment Group performed well, especially Fox TV channels, “which registered increases despite nonreturns of advertising revenues from last year’s Super Bowl on Fox and the impact of significance preemptions from war coverage.” The overall impact of war on the stations was $20 million in the quarter and $35-$40 million for the entire company, Devoe said.
Earnings before interest, tax, depreciation and amortization (EBITDA) for the filmed entertainment segment totaled $220 million and operating income increased to $201 million from $161 million. “Driving this year’s earnings were strong home entertainment sales,” Devoe said, pointing to Ice Age and Planet of the Apes. Higher syndication profits were contributed by The X-Files and Dharma and Greg, with increased DVD gains from shows such as The Simpsons.
Operating income for the TV segment totaled $207 million, up from $114 million a year ago, News Corp. said. “The significant improvement reflects increased prime-time revenues, a 32% increase in ratings and improved pricing as a result,” Devoe said. American Idol 2, Joe Millionaire, and 24 Hours contributed to the higher ratings and resulted in Fox’s first sweeps victory in the adults 18-49 category, the company said. COO Peter Chernin said, “We're in a much stronger position going into [sweeps] up front than we were a year ago. We have far higher ratings across the schedule, more stability across more nights and fewer holes to fill,” all of which put Fox in a position to really compete in this month’s sweeps. Devoe said results for the rest of the year were expected to remain positive, although the company remained cautious on how the economy would affect business.
News Corp. intends to maintain its growth through programming, Chernin said, saying the strength of American Idol would allow it to lay a new foundation for the fall season with more scripted series: “American Idol 2 is clearly a national phenomenon. It’s a franchise hit that is doing for us what Survivor did for CBS a few years ago.” Chernin said Fox’s “disastrous” ratings in Nov. and Dec. spurred the company’s focus on its networks, resulting in several successful midseason shows, including Wanda At Large and Oliver Bean. Chernin also mentioned the success of the company’s cable networks, saying that the Fox News Channel ended the quarter as the highest rated basic cable channel: “Fox has done better than its competitors at holding on to new viewers. With war expenses behind it, we can look forward to greater ad sales.”
In response to a question on whether the company would move to renegotiate cable network fees due to its improved performance, Chernin confirmed that the company planed to do so when the time came: “Doing our job on a day-to-day basis is growing ratings, growing our profile, growing consumer demands for these services. We are very cognizant of where our rates are compared to others. Currently our rates are below CNN, which is a joke. We will maximize that, but not on this conference call.” Chernin also said recent comments by cable operators proposing that Congress leverage their retransmission fees were an example of companies with “enviable positions… trying to negotiate in front of Congress and cry poor.” He said he didn’t take those comments very seriously.
In response to questions about the FCC’s pending decision on raising the media ownership cap, Murdoch said the company wouldn’t be legally constrained from increasing its ownership in the least. “[A]s a matter of strategy, [we're] only interested in one or 2 very selective markets. We'd like more duopolies in the top 20 markets,” he said.