Cabler: Lotsa cash is coming
NEW YORK — Cable networks and film goosed News Corp.’s latest quarter, with execs pleased by the fresh cash they expect once Fox News starts renegotiating affiliate deals.
Cable and pics offset slipping profit at the Fox broadcast net due to higher programming costs and license fees plus a handful of canceled shows.
Overall, News Corp.’s net income dipped to $400 million from $434 million. News Corp.’s total operating income rose 9% to $889 million. Revenue rose 17% to $6 billion.
Cable nets’ operating profit soared 55% to $172 million on higher advertising and affiliate sales at Fox News Channel and FX. Fox News saw profit increase 45% on a double-digit uptick in ad revenue. FX, Speed and regional sports nets posted a 44% profit jump. FX revenue rose 21%. Net added 2 million subs year-on-year.
Chairman-CEO Rupert Murdoch and chief operating officer Peter Chernin said Fox News’ first deal expires in September 2006. The bulk will be renegotiated within two years; all will be wrapped up in four. Chernin said each additional 25¢ per subscriber — “and believe me, we think we’re worth a lot more than that — is worth $250 million to the bottom line.”
Fox now receives about 23¢ per sub, roughly half of CNN’s take, “and we beat them at least 2-to-1 every day of the week,” Murdoch said.
Chernin said Fox’s new reality net is set to launch with 20 million subs. And Fox is still contemplating a biz channel but is moving slowly, feeling out affiliate response.
In filmed entertainment, operating income rose 15% to $251 million and revenue grew 25% to $1.47 billion.
Numbers were fueled by a whopping 70% surge in homevideo sales led by “Alien vs. Predator,” “I, Robot” and “Napoleon Dynamite.”
Company also cited theatrical perfs of “Robots,” “Hide and Seek” and “Sideways.”
“We’re sticking to our strategy of profitable filmmaking,” said Chernin, focusing on profits, not market share, and offloading risk. Studio’s upcoming slate has only one pic budgeted at $100 million-plus, he noted (Ridley Scott’s “Kingdom of Heaven”). He was quick to add that partnering pushed Fox’s outlay well below that figure.
Chernin’s clearly upbeat about “Star Wars: Episode III — Revenge of the Sith,” which garners Fox an undisclosed distribution fee. He expects hyped-up vid sales of previous installments.
In response to a question, Chernin said Fox “would be thrilled to distribute Pixar” but folks at the animation powerhouse and longtime Disney partner “have yet to make a decision as to what they intend to do.”
News Corp.’s broadcast segment saw profit dip 15% to $221 million, squeezed by Fox Broadcasting. An ad revenue zing from the Super Bowl and improved primetime ratings couldn’t offset higher costs at the net.
Execs cited spending on the Super Bowl and on higher license fees for shows including “The Simpsons,” “That ’70s Show” and “The OC.”
“Johnny Zero,” “Point Pleasant” and one or two reality shows were canceled, Chernin said.
On the bright side, Chernin was bullish on the upfront given Fox’s improved lineup led by “American Idol.” “With more established shows set to return than ever before, we will head into the traditional broadcast season much better placed than we’ve been in some time,” he said.
He also said the sluggish ad market has improved. “I wouldn’t say the market is great,” Chernin said, “but we’re seeing strengthening.”
The conglom has about $6 billion in cash on its books. Analysts would very much like some of that to go to a stock buyback given the relative weakness of News Corp. shares recently. But execs said they won’t spend much until they’ve resolved ongoing talks with John Malone’s Liberty Media on how to buy back certain voting shares of News Corp. that Malone recently acquired.
Murdoch said he hopes for a resolution within the next three months, “and we won’t make a decision on cash before that.”
Chernin said a purchase of Starz Encore “is not something we’re looking at or discussing” as part of a possible transaction with Liberty. Murdoch said Starz “is not something of enormous value” and a purchase “would depend on price.”
In News Corp.’s other businesses:
Publisher HarperCollins’ income eased by $6 million to $30 million. Year-earlier figures included Zondervan’s “The Purpose Driven Life.”
Strong sellers last quarter included Lemony Snicket’s “A Series of Unfortunate Events,” Jack Welch’s “Winning” and “Witness” by Amber Frey.
Sky Italia narrowed losses to $21 million from $24 million with a 20% jump in revenue. The Italo pay TV platform added 136,000 net new subs during the quarter, exceeding 3.2 million at the end of March.
Newspapers’ operating income rose 6% to $186 million — up in Australia and down in the U.K. Murdoch said he’s not interested in buying the Financial Times, which is rumored to be for sale by Pearson.
Magazines and inserts saw operating income dip to $79 million from $84 million.