Film unit's operating income falls 72%
Rupert Murdoch’s forecast of dark clouds shrouding his media empire proved too optimistic Thursday as News Corp. reported a $6.4 billion loss in its second quarter.The loss for the period ended Dec. 31 was due to a previously announced writedown of assets worth about $8.4 billion on the purchase of Dow Jones and TV licenses, among other declining assets. In the year-earlier quarter, the conglom booked a net profit of $832 million. Total revenue slid 8% to $7.8 billion. Bad news defined most of the balance sheet as News Corp. followed other media congloms into the red, recording its first quarterly loss in three years. Disney and Time Warner issued comparably dismal reports earlier in the week. Cable networks, the third largest unit of News Corp., provided the only glimmer of hope, posting a 27% gain in operating income to $428 million and a 10% rise in revenue to $1.4 billion. Propelling the growth were ratings upswings at the Fox net and the emergent Big Ten Network. Murdoch wasn’t focusing on good news in his comments to Wall Street analysts during a post-earnings conference call. He proclaimed the financial crisis “the worst since News Corp. was formed” a half-century ago. “Our results for the quarter are a direct reflection of the grim economic climate,” he said. “While we anticipated a weakening, the downturn is more severe and likely longer lasting than previously thought.” He went on to argue that, despite the significant pressure applied by the economy, recessions inevitably end and when showbiz emerges into better times, advertising returns. “I’m not being flippant,” he said. “And I’m not saying we’re going to return to record levels.” Rarely do quarterly numbers describe such a dramatic shift, however. The film unit’s operating income fell 72% to $112 million due to a weaker slate, emphatically ending the studio’s multiyear winning streak. While “The Day the Earth Stood Still,” “Max Payne” and “Marley and Me” all opened at No. 1 on their respective weekends, only “Marley” became a solid hit. Murdoch insisted that “Australia,” while expensive and “disappointing” at the domestic B.O., would turn a small profit thanks to strong overseas returns and ancillaries. Fox Searchlight’s “Slumdog Millionaire” was also released in the quarter, but most of its kudos-driven B.O. will come after the Dec. 31 end of the frame. Warner Bros. is a full financial partner in the pic, which it originally fostered. This year’s slate compares with a strong prior-year slate of homevid releases such as “The Simpsons Movie” and “Live Free or Die Hard.” Pay TV windows for “Night at the Museum” and “Borat” also boosted the 2008 quarter. Lieutenant Peter Chernin said the sagging DVD numbers, a big factor in the film unit’s 25% drop in revenue to $1.5 billion, were likely tied to the larger retail recession. He said it was “too soon to tell” if consumers’ retreat was a longer-term trend or just a response to the economy. Broadcast TV and local stations fared even worse than film, reporting adjusted operating net of $18 million, a 93% freefall from the year before driven by decreased operating results at the Fox Television Stations, the Fox net, Star and MyNetworkTV. Murdoch partly blamed the ills of the auto industry, which he said accounts for at least 30% of local station ad revenue. Murdoch’s investments in Dow Jones and MySpace have also started to sour recently in the turbulent economy and ad climate. The $5 billion Dow Jones purchase came just before newspapers began a rapid decline. On a revenue basis, the Newspapers and Information Services group saw a 6% climb to $1.5 billion, but operating income drifted down 9% to $179 million as ad woes started to hit the U.K. and Australia. Asked by a reporter on the conference call about his potential interest in buying the New York Times given that company’s enfeebled stock and debt woes, Murdoch denied being a potential buyer. “I’ve got no desire to be an even bigger enemy, a bigger public target,” he joked, alluding to his widely criticized absorption of the Journal into the home of Fox News and the New York Post. News Corp. shares gained almost 5% to $6.94 before the earnings release, which came after the close of trading.
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