Fox sees post-ship profit sink

Studio's cash flow drops 69% from 'Titanic' '98

NEW YORK — Fox Entertainment Group’s net profit plummeted 89% to $8 million in the March quarter on 4.4% lower revenues of $1.7 billion, Fox said Wednesday, as earnings came back down to earth from last year’s “Titanic”-inflated bonanza.

The studio’s cash flow — earnings before interest, taxes, depreciation and amortization — dropped 69% to $51 million in the quarter.

On the TV side, cash flow dropped marginally to $149 million as a result of a lower contribution from the Fox network. Losses from Fox’s partly owned cable interests such as Fox Family Worldwide also increased, although losses at the fully owned Fox News Channel fell.

Fox Entertainment’s earnings downturn dragged down results for its parent, News Corp., which reported 64% lower net profit of $97 million for the same period.

News Corp.’s earnings were also hurt by increased startup losses at such overseas satellite ventures as Sky Latin America, as well as lower profits at BSkyB in the U.K., which is in the middle of a transition to digital broadcasting.

One bright spot was the Asian sat-TV venture Star TV, whose losses “narrowed by almost 50%,” News chief financial officer David Devoe said, noting it was helped by 17% growth in advertising and subscription revenues. Star had been losing close to $100 million annually in the past couple of years.

In contrast, News Corp.’s print side showed improvement, particularly in the newspaper and book publishing divisions.

News Corp. chairman Rupert Murdoch said in a prepared statement that the company had “made additional strides in both our core and developing businesses” during the quarter.

Earnings almost even

News Corp. and Fox both report on a June 30 fiscal year, and despite the sharply lower March quarter result, Fox’s earnings for the fiscal year to date of $170 million were only marginally below those for the same period of fiscal 1998. Fox stock fell 6¢ to $25.93.

In contrast, News Corp.’s earnings for the first nine months fell 24% to $688 million, largely because of higher losses from partly owned overseas satcasters. News Corp. stock rose 87¢ to $33.25.

Fox said filmed entertainment results in the March quarter were helped by video revenues from “There’s Something About Mary” and “Ever After: A Cinderella Story” and foreign video sales on “Dr. Doolittle,” although profits on these releases were offset by “below expectations” results from “The Thin Red Line” and “Ravenous.”

Still, Devoe told reporters on a conference call that the studio’s earnings would end up being more than 20% higher for the full fiscal year. “Titanic” and “Something About Mary” made so much money for the studio in the first half of the fiscal year that the studio’s operating income is still up 20% to $330 million for the first nine months.

‘Phantom’ coming

And later this month Fox is releasing the much-anticipated Star Wars prequel, “Phantom Menace,” which will probably beef up its June quarter results, although company execs were cagey when asked Wednesday about the pic’s likely financial impact.

“What we have said is that we are being paid a distribution fee,” Devoe noted, adding that he could not quantify the fee or the likely financial impact because of a confidentiality agreement.

On the television side, Fox said the TV station group’s March quarter cash flow rose 16%, “driven by double-digit revenue growth,” a result of “solid demand for local and national advertising and Fox Television Station market share gains.”

But TV cash flow fell slightly because of a lower contribution from the network, a result of lower ratings for the National Hockey League games and the higher costs of the NFL football contract, Fox said. The company does not disclose how much the network makes, but Devoe insisted it broke even in the quarter.

To improve the network’s economics, Fox recently told its affiliates it planned to take back one quarter of the local primetime advertising inventory. Fox has given the affils until today to respond.

‘Emotionally charged’

Fox co-chief operating officer Chase Carey told reporters Wednesday the proposal had become “emotionally charged” but that in the past week, “We have had a couple of conversations that have been instructive.”

Carey said it was “difficult to handicap where it ends up.”

Fox News Channel’s cash flow loss fell 29% to $17 million, reflecting increasing distribution that is helping lift advertising and subscription revenues. For the fiscal year to date, the channel’s cash flow loss has fallen 29% to $53 million.

But losses from Fox’s partly owned cable interests rose to $30 million from $12 million a year ago, reflecting higher losses at Fox/Liberty sports networks and at Fox Family Channel’s parent Fox Family Worldwide. (Fox jointly owns Fox Family with Saban Entertainment, while it recently agreed to buy Liberty Media out of Fox/Liberty sports networks).

Fox revamped the Family Channel’s programming last fall and so far “ratings continue to run below expectations,” Fox said in a statement. Cash flow from the partnership fell 24% to $42 million in the quarter while heavy interest costs on the partnership’s $1.8 billion in debt sent it heavily into the red.

Losses from the half-owned Fox/Liberty sports networks rose almost 50% to $19 million, a result of the delayed pro basketball season and startup losses at Fox Liberty’s Canadian joint venture.