Murdoch hints at possible deals after record quarter

With “Avatar” driving Twentieth Century Fox to its most profitable quarter ever and a rebounding TV ad market, News Corp. is easing back into deal mode.

Rupert Murdoch hinted as much during Tuesday’s conference call regarding the company’s mostly stellar earnings for the fiscal third quarter ended in March. News Corp. has more than $8 billion in cash, and investors have been nagging the company to put it to use.

“We are looking at all our options,” Murdoch said, and will decide in the next three months.

The company could opt to spend the cash in other ways, by paying down debt or buying back stock. But acquisitions are more likely now than they’ve been in a while.

“We’ve been cautious about this over the last year as the economy…looked fragile,” Murdoch said.

While “Avatar” was the star of the earnings report, Murdoch was quick to manage Wall Street’s expectations about the film wing for the near term.

“We’ve got a great slate of films coming up — but we don’t have an ‘Avatar’ in there,” he cautioned.

Murdoch also disclosed that News Corp. is planning a press conference in three to four weeks to unveil a new subscription service for digital content. The service, which he’s been hinting at for months, will include both news and entertainment.

He declined to elaborate on the venture. But Murdoch has been at the forefront of a group of publishers exploring ways that struggling newspapers can monetize their content through subscription revenues. The service is also expected to involve some Fox-produced TV shows and movies.

News Corp.’s overall operating profit for the quarter jumped 55% to $810 million. Net income plunged to $839 million from $2.7 billion, skewed by a $1.2 billion gain the year earlier on the sale of a subsidiary, NDS Group, and a separate $1.2 billion non-cash tax benefit.

Filmed entertainment income surged by 76% to $497 million — the highest recorded quarterly income ever for the segment, the company said.

Overall revenue rose 19% to $8.8 billion with growth across all major businesses including cable programming and newspapers and information, as well as film. A strong showing there more than offset another down quarter at Italian satellite broadcaster SKY Italia and digital media, led by MySpace.

“Avatar” has raked in more than $2.7 billion worldwide and will make News Corp. about $400 million, Murdoch said. (In an interview Tuesday with Fox Business Network, Murdoch said “Avatar” contributed “probably something a bit more than $200 million to this quarter and will produce more in the next quarter.”)

The film unit’s surge was also driven by the strong B.O. for “Alvin and the Chipmunks: The Squeakquel” and the home video performance of “Ice Age: Dawn of the Dinosaurs,” “X-Men Origins: Wolverine” and “Night at the Museum: Battle of the Smithsonian.” The quarter included launch costs for the theatrical releases of “Percy Jackson and the Olympians: The Lightning Thief,” “The Tooth Fairy” and “Date Night.”

Cable network programming saw income jump 38% to $588 million. The division’s star, the Fox News Channel, saw income rise 31%.

In broadcast television, operating income surged to $40 million from $9 million as improved numbers for the TV stations and MyNetworkTV offset a drag by the network.

Station profits surged 90%. Of that some 18% came from higher local advertising revenue and the rest from ongoing cost reductions.

Broadcast network profits fell on higher programming costs from increased licensing fees from returning shows, and lower advertising revenue due to lower ratings.

Newspapers and information services saw income surge to $131 million from $29 million on increased advertising revenue at The Wall Street Journal — up by 25% — and in the U.K. and cost containment initiatives across the newspaper businesses.

Both television and newspapers benefited from an upswing in advertising that Murdoch and News Corp. chief operating officer Chase Carey said was strong, crossed many categories, and showed no signs of letting up.

“We’ve got an ad market out there that looks great. We have some competition you haven’t seen in a while among key sectors,” said Carey.

HarperCollins book publishers swung to a $4 million profit from an $8 million loss a year ago. The “other” category, where News Corp. houses digital initiatives, saw losses widen to $150 million from $88 million. About $60 million in losses resulted from News Corp. selling part of its ownership stake in subsidiary NDS in February of 2009. The rest is from lower advertising and search revenue in digital media.

On a down day for the market overall, News Corp. shares dropped 4%, or 64 cents, to close at $15.40 on Tuesday, prior to the earnings announcement. Shares continued to dip in after-hours trading.

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