Digital strategy in need of a reboot

At News Corp., the profit picture at the film and TV units is improving nicely, but the company’s digital strategy is in need of a reboot.

In the company’s fiscal first-quarter earnings call on Wednesday, News Corp. CEO Rupert Murdoch talked up a double-digit jump in television advertising this month, but he also had a less pleasant and equally surprising revelation: MySpace revenue is falling because the company hasn’t met minimum guarantees in its search deal with Google.

News Corp. chief operating officer Chase Carey was candid about the company’s struggle to operate in a digital world that is more than just an extension of content News Corp. produces for its other divisions. And he acknowledged that MySpace is losing traffic.

“With MySpace, we are in a state of transition. So to sit here and say we have a clear vision of where it will be in twelve months — that is not the case. … It’s a work in progress,” he said during a conference call to discuss News Corp.’s quarterly earnings.

The company’s overall earnings were robust, with net income up 11% to $571 million on strength in cable TV, film and book publishing. Revenue dipped 4% to about $7.2 billion. The upbeat numbers prompted the company to raise its earnings forecast for the full fiscal year.

As for turning around MySpace, Carey said the strategy going forward is to hone it into a “a social network focused around key content areas like music. … We’re not trying to compete with Facebook,” he said.

The Google pact called for the Internet giant to pay a total of $900 million in quarterly installments for a number of years as long as MySpace parent Fox Interactive Media meets certain traffic requirements.

The guarantees calmed investors, jittery about the acquisition of MySpace, which News Corp. bought in July 2005 for $580 million in cash. At the time it appeared that the Google deal paid for the entire acquisition and then some.

Interactive business is included in “other” in News Corp.’s financial report. For the fiscal first quarter that ended in September, the segment saw revenue drop to $400 million from $719 million. Operating losses widened to $128 million from $101 million.

Earnings contributions from the digital media group fell $22 million, the company said.

Murdoch, Carey and chief financial officer David DeVoe seemed at odds on just how much revenue had been lost.

Compared with the Internet, broadcasting is a walk in park. And things are indeed looking up.

“October is flat from last year, and November is up in the mid-teens. It’s the best results we’ve seen in seven quarters,” Murdoch said. The relief over the phone lines was audible. Murdoch has been the most cautious among big media honchos to predict a recovery, so a gleam of optimism from him promises to set a new tone.

“It’s been steady. It’s been a little bit better every month, and suddenly November was great,” he added.

Murdoch said the November upswing in advertising goes for newspapers as well as TV.

For the quarter, the broadcast biz saw earnings fall to $38 million from $83 million.

Revenue was down 8% to $765 million.

Stations were hit by weak local advertising and less political spending vs. the year before. The Fox network was squeezed by higher primetime programming costs and lower advertising revenue.

Buoyed by a strong slate of movies including “Ice Age: Dawn of the Dinosaurs,” and cost cutting, filmed entertainment income rose to $391 million for the quarter ended Sept. 30, from $251 million the year before.

Cable, powered by increased contributions from Fox News Channel, saw profit rise to $495 million from $350 million.

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