News Corp.’s earnings report for the quarter ended March 31 was decidedly mixed, but Rupert Murdoch came out swinging with an upbeat biz forecast for analysts and reporters during Wednesday’s conference call.
“It is increasingly clear that the worst is over,” Murdoch said of the economic meltdown. “There are emerging signs in some of our businesses that the days of precipitous decline are done and that revenues are continuing to look healthier.”
The scorecard for the quarter saw Fox’s cable nets and the 20th Century Fox studio deliver solid returns, while the broadcast TV stations and Fox network, the newspaper unit and Fox Interactive Media wing took big hits in revenue and operating income.
On the call, Murdoch also delivered a sternly worded message about the steps that News Corp. is taking to shore up the business fundamentals of its newspapers. Murdoch has been increasingly vocal about the need for newspapers and other print journalism ventures to charge for their content, particularly from Web aggregators (Google, this means you) who make money from ads sold around news indexes and the like.
The media biz “is now in the midst of an epochal debate over the value of content,” Murdoch said. “It is clear for many newspapers that the current model is malfunctioning.”
A big part of the problem is that “too many content creators have been passive in the face of obvious violations of intellectual property rights,” he said. While the copyright cops tend to focus on China and other overseas piracy hotspots, “the violation of these rights is rampant on the Web in our own country,” he said.
Murdoch cited his own Wall Street Journal’s success with its paid website model as a sign that newspapers that have the goods can charge for content, and he said the company’s other newspapers were experimenting with a range of options for wringing coin out of Web readers.
Moreover, News Corp. has put together a clutch of tech whizzes and business development types within its Slingshot Laboratories unit to “devise clever ways to monetize” content, though he did not elaborate on specifics. But he offered Amazon.com’s Kindle electronic reader as an example of a business making hay on the back of content that it doesn’t pay for.
“We will not be ceding our content rights to the fine people who created the Kindle,” Murdoch promised.
As for the advertising rebound, Murdoch bolstered his assessment by noting that ad volume at Fox’s 27 TV stations and the Fox network was picking up, with May sales already looking significantly better than March and April. On the national level, ad pricing is at or slightly above upfront levels, which is a key yardstick for TV ad sales.
“We are seeing people coming back into the advertising market,” Murdoch said. Blue-chip advertisers “are realizing they’ve got to keep their brands in front of people. It’s not back to the old levels … but at the very least we’ve hit a floor and we seem to be getting some bounce off of it.”
News Corp.’s earnings for its fiscal third quarter numbers offered stark evidence of the steep decline in advertising spending since the global economy began to seize up last fall. Operating income plunged 47% from the year-ago quarter, to $755 million, while overall revenue sank 16%, to $7.4 billion.
Fox’s Television unit, encompassing its 27 TV stations, the Fox network and the Star satcaster saw its operating income plummet to $4 million, from $419 million in the year-ago quarter, when Fox had the Super Bowl and before it sold off eight mid-sized market stations. The Fox network also had lower programming costs in the year-ago quarter because the writers strike was then ongoing.
The newspaper segment posted operating income of $7 million, compared with $219 million in the year-ago quarter, largely due to declines in ad revenue, the strengthening of the U.S. dollar and $23 million in restructuring charges. Ad revenue at the Wall Street Journal alone was off 33% in the quarter, execs said.
On the upside, operating income for the cable network programming segment grew a robust 30%, to $429 million, largely on higher cable subscription fees and higher ratings for Fox News Channel and the Big Ten Network sports cabler. Fox News Channel logged its most profitable quarter in its 13-year history, Murdoch said.
And the filmed entertainment side delivered an 8% hike in operating income, to $282 million, on the strength of syndication coin generated by “How I Met Your Mother” and “Boston Legal” as well as the ongoing B.O. and DVD returns from “Slumdog Millionaire,” “Marley and Me” and “Taken.”
Murdoch talked up the bullish perf of “X-Men Origins: Wolverine” and the “X-Men” franchise’s value to the company in general. “The movie industry is proving itself anti-cyclical,” he said, citing the strong year-on-year gains that the B.O. has enjoyed since the start of the year.
At Fox Interactive Media, which encompasses MySpace, revenues were down 11% to $187 million, with ad revenue dropping 16%. Murdoch expressed confidence in the moves that News Corp.’s newly appointed digital czar, Jon Miller, and newly appointed MySpace chief Owen Van Natta, were making to restore the social networking giant momentum.
“We are not going for the Facebook model of getting hundreds of millions of people who don’t bring any advertising at all,” Murdoch said, jabbing at MySpace’s rival.
He promised that there will be “major cost savings” at MySpace and Fox Interactive in the future.
Overall, News Corp. delivered net income of $2.7 billion, which was flat compared with the year-ago period, and was bolstered by a one-time $1.2 billion gain from the sale of its interest in tech company NDS Group. News Corp. also resolved a tax issue with the feds that gave it a non-cash tax benefit of $1.2 billion, which lifted its earnings per share in the quarter to $1.04, compared with 91¢ per share in the year-ago quarter, when it had a tax-free gain of $1.7 billion on assets and stock exchanged with Liberty Media.
News Corp. shares were up in trading Wednesday, prior to the earnings announcement, closing up 6.2% to $10.65.
Wednesday’s earnings call marked the last Wall Street outing for Peter Chernin in his role as News Corp. prexy and chief operating officer. He is stepping down at the end of June. A number of analysts wished Chernin well, and Murdoch made a point of saluting his longtime lieutenant for building Fox’s entertainment properties into “industry leaders.”
Chernin returned the compliment to his soon-to-be former boss, calling him “a leader who is visionary, bold and supportive, and who’s more exciting to be around than you can possibly imagine.”