Murdoch not ready to pull plug on UPN

Future looks bright for netlet; News Corp. revs hit $14.2 bil

NEW YORK — News Corp. chairman-CEO Rupert Murdoch held out an olive branch Wednesday, saying he’s in no rush to dump UPN after his deal to buy key station affiliates of the Viacom/CBS-owned net.

“We’re not urging CBS to close down UPN at all. We’d like to see that develop, maybe with us as a participant. But it’s very early days,” Murdoch told reporters during a conference call to discuss the conglom’s latest financial results. Its numbers were pinched by a poor showing in filmed entertainment thanks to “Titan A.E.”

“Certainly, we’re not just going to walk away from UPN. Others may walk away from it, but we won’t be the first,” Murdoch added. “We really have to talk to Viacom about it. If it was successful, there would be real value in it. We could get good ratings in primetime.”

UPN, meanwhile, has sent out a letter to affiliates in an attempt to reassure stations that it’s business as usual at the weblet.

“Although the affiliation agreements for Chris-Craft UPN affiliates currently expire in January 2001, it is our hope that they will remain UPN affiliates for the long term,” UPN CEO Dean Valentine wrote.

UPN execs predict that the network will continue to rebound this fall due to the continued strength of “WWF Smackdown” as well as the acquisition of laffer “The Hughleys” and a movie night that is composed mostly of theatrical films.

Execs at the Smackdown net hope that News Corp. execs will decide that the Chris Craft stations are more valuable as UPN affils than independents.

“We are confident that UPN will continue to succeed in the long term and will bring increased value to any stations affiliated with the network,” Valentine wrote. “We look forward to working with all of our affiliate partners in realizing the full value that comes from network television.”

Chris-Craft pact

UPN’s future grew hazy this week after News Corp. agreed to hand over $5.3 billion for Chris-Craft, the former half-owner of UPN with 10 TV stations that include station affiliates in New York, Los Angeles and other big markets.

Viacom, which purchased Chris-Craft’s UPN stake earlier this year, also had been in talks to buy the company, but the sides couldn’t agree on price and News Corp. stepped in.

“We’re certainly open to discussions about it,” Murdoch said several times.

News Corp. president and chief operating officer Peter Chernin stuck to a somewhat harder line he’d taken earlier in the week, however, insisting that UPN is not “a critical question for us. We’ll take it as we go.”

Murdoch, who has expanded Chernin’s role within News Corp. and has placed his own two sons in increasingly higher-profile positions, also joked that a recent tussle with prostate cancer “just convinced me of my own immortality.”

Income drop

Turning to financials, the execs said News Corp.’s net income before extraordinary items dropped to $794 million for the fiscal year ended June 30 from $917 million the year before. After one-time items, like a $419 million gain in fiscal 2000, net income jumped to $1.2 billion from $628 million.

Annual revenue firmed to $14.2 billion from $13.6 billion.

Murdoch blamed lower profits on “a rather horrible year” at the film division, which didn’t rebound in time from animated debacle “Titan A.E.” Fox showed former studio head Bill Mechanic the door earlier this summer, replacing him with the duo of Tom Rothman and James Gianopulos.

“We have great faith in the new management,” Murdoch said. Going forward, “we expect better films, more films and we expect profitable films.”

Operating income for the film unit plunged to $119 million from $335 million for the year and swung to a loss of $53 million in the fourth quarter from a $22 million profit the year before.

Animation closure

Fox took a $12 million charge to shutter its Fox Animation Studios. It also said the full-year comparison was up against homevideo profits from “Titanic” and “There’s Something About Mary” in fiscal 1999.

Fox’s most successful releases, “Big Momma’s House” and “Me, Myself & Irene,” came too late in the year to make a difference. And the hit “X-Men” was released in July. Fox also owns half of “What Lies Beneath.”

News Corp. said it will record a $750 million, noncash charge in the current fiscal year to reduce the carrying value of its film inventory in order to comply with new film accounting standards.

TV fared well, with a strong ad market boosting operating profit by 4% for the quarter and 5% for the year at the stations.

At Fox Broadcasting, benefits from higher primetime ad sales and rejiggered deals with affiliates was only partly offset by weaker ratings and higher programming costs reflecting series cancellations.

The Fox News cable net is on track to hit profitability by the end of the calendar year, Murdoch said.

Cable cashes up

Cable network programming, which also includes Fox Sports Net, FX channel and the Los Angeles Dodgers baseball team, was a bright spot as red ink turned to black. The unit posted $1 million in operating profit for the quarter, pro forma, and $76 million for the year.

Newspapers also outperformed a year ago with operating income up 27%, rising 50% for the quarter.

U.K. satcaster BSkyB was a drag on earnings as the company continues to invest heavily in rolling out digital set-top boxes and interactive services.

Murdoch said the spending is crucial to take advantage of the window it has just now to stake its claim while the nation’s cable industry is in some disarray.

News Corp. took a $113 million charge for the year that was a combination of BSkyB losses, due to subsidies for set-top boxes for remaining analog subscribers, and a write-down for Fox Studios Australia.

BSkyB and News Corp.’s other worldwide satellite assets will soon be put under one umbrella called Sky Global Network. An initial public offering for the company is planned by year’s end.

In the fourth quarter, News Corp. said that net income excluding unique items fell 14% to $184 million and revenue rose to $3.9 billion from $3.3 billion.

(Michael Schneider in Los Angeles contributed to this report.)

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