Film downturn socks Fox

Asset sales padded the profits of News Corp. last quarter with a hand from broadcast and cable — offset by softness on the film side even as Fox basks in “Borat.”

Chief operating officer Peter Chernin said MySpace is exploring a joint venture in China following a deal in Japan announced earlier this week in partnership with Softbank.

Studio profits fell 35% to $239 million on tough year-to-year comparisons in homevideo and syndication. Revenue dipped to $1.2 billion from $1.4 billion.

Chernin shrugged off the rare downturn in a division that’s gained widespread kudos this year for highly profitable hits like “Little Miss Sunshine,” “The Devil Wears Prada” and “Borat.”

“Obviously, I am extremely pleased with that operation and our financial discipline. That discipline isn’t going to change. In fact, I think it increases every month. I probably feel better about it than I have in some time,” Chernin said during a conference call to discuss the fiscal first quarter.

News Corp. swung to a profit of $843 million from a loss of $400 million. The year-earlier figure included a $1 billion hit for changes in accounting.

The current year included gains of $261 million from the sale of News Corp.’s investment in Sky Brasil and $136 million from the sale of Phoenix Satellite Television Holding.

Revenue rose to $5.9 billion from about $5.7 billion. Operating income fell 6% to $851 million on lower film contributions and a squeeze at Fox’s new-media business.

In filmed entertainment, execs noted that the previous quarter was buoyed by the video release of “Robots” and “Hide and Seek,” the pay TV availability of “Alien vs. Predator” and “I, Robot” and new syndication deals for “The X-Files” and “Dharma and Greg.”

Chernin said the rest of the year looks strong. “X-Men: The Last Stand” was released on video Oct. 2, and “Ice Age: The Meltdown” is due out later this month. “Devil Wears Prada,” “Garfield” and “The Omen” will all be out by the end of News Corp.’s fiscal year in June.

And he touted upcoming pics “Eragon” and Ben Stiller starrer “Night at the Museum.”

Chernin said News Corp. is in talks with Apple about a deal to sell its films on iTunes. He wouldn’t give a time frame, saying the two companies are having “positive talks” but that several details still need to be worked out.

Asked about the explosion in new forms of distribution, Chernin said he wants Fox films to be as widely available as possible. Like all other studios, Fox is working out copyright issues, exploring digital fingerprinting and other solutions.

“You have to please consumers in multiple fashions,” he said. “I think you’ll see the definition of what a rental is will change: Watch once; watch as much as you want in seven days; watch this many times in 30 days; rent to own.”

He said News Corp. is “committed to the protection of our copyright” but is “more positively than negatively focused” — as in finding ways to build new businesses, and to comply with copyright laws on its own sites, “rather than suing people.”

Queried about potential acquisitions, Chernin said News Corp. is still interested in social networking; in “additional applications to bolt on to MySpace”; and in content.

On the television side, profits rose a sturdy 20% to $192 million and revenue nosed up to $1.1 billion from $1.04 billion. Execs cited higher ratings at the Fox network, lower series-cancellation costs and strong political advertising at the stations.

Chernin acknowledged the company’s “not thrilled” by many new shows but cited a strong midseason lineup bolstered by stalwarts like “24” and “American Idol.”

“As far as the network, it’s not been a stellar fall launch for us. We’re not in the kind of black hole we were in the past, but we’re not pleased with the new dramas,” Chernin said. “One benefit is we’ve been there before — then we come roaring back. … So we’re less panicked, but not satisfied.”

In cable network programming, profit jumped a healthy 26% to $249 million. Revenue of $889 million was up from $775 million the year before.

Chernin cited strong double-digit ratings growth and solid scatter prices. He said a key event for the business is Fox News’ recent deal with Cablevision involving a major rate increase that will “dramatically enhance” the net’s economics and added that he expects “to ramp up our fees with other partners in years to come.”

Fox continues to line up carriage for its business channel startup and reiterated that it wants to launch with about 30 million subscribers.

“We’re getting pretty close to that,” Chernin said.

He stressed that carriage deals for the new biz net are being conducted separately from the Fox News rate talks. “We wanted to maximize it for Fox News alone and not spill it over into something else,” he said.

At Sky Italia, losses narrowed to $13 million from $61 million as revenue grew 20%. Subscriber growth was subdued in the quarter because of the Italian soccer scandal as teams were demoted but has picked up since, and the satcaster’s on track to pass the 4 million subscriber mark by year’s end.

Newspaper profit and revenue were about flat last quarter at, respectively, $124 million and $1 billion.

At HarperCollins, profit dropped to $55 million from $70 million. Revenue was down to $368 million from $391 million. The year earlier benefited from “Freakonomics” and “The Chronicles of Narnia.”

Magazines and inserts profit was flat at $78 million. Revenue was up to $275 million from $267 million.

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