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Big year for Rupe’s troops

News Corp. rides high as units produce record gains in 4th qtr.

See chartNEW YORK — Rupert Murdoch’s fiscal cup was filled to overflowing Wednesday as his News Corp. empire reported record-breaking earnings gains for its fourth quarter and full year.

From filmed entertainment (19 out of 25 releases will be profitable), cable nets (profits more than doubled over last year), BSkyB (contributing $31 million to the fourth quarter’s bottom line), Fox network (quarterly viewing up 92%), print (bigger demand in Australia) and Star TV (first full year in the black), News Corp.’s earnings from most units are hitting the bottom line in unison.

Some slight softness among TV stations and at the HarperCollins book group were the only blemishes in an otherwise clean sweep of profit gains across virtually all sectors for the quarter and full year ending June 30.

Revenue for parent News Corp. rose 20% in the fiscal fourth quarter over the same period a year ago to $4.59 billion, beating Wall Street’s already aggressive expectations fueled by “American Idol” and “Joe Millionaire.”

Majority-owned Fox Entertainment Group was responsible for most of the top and bottom line, with fourth-quarter operating income up $188 million to $430 million in the quarter on a revenue increase of 15%.

For the full fiscal year, News Corp. turned in a 35% operating income gain to a record $2.5 billion on sales that were up 15% to $17.5 billion.

Murdoch pere and his senior team, led by Peter Chernin, presided over a bounty of riches as all divisions maintained the uptempo growth of past quarters thanks to equal measures of cost control, ratings success and theatrical good fortune.

“It was a record end to a record year,” chairman-CEO Rupert Murdoch told analysts on an early morning conference call, claiming the fiscal fourth quarter was its most profitable quarter in 80 years of existence.

Murdoch attributed the across-the-board double-digit gains to a steadfast adherence to cost structure and margin improvement in all divisions and “one of the most stable management teams in the entertainment industry today.”

Click to skip chart

News Corporation
For year ending June 30 (in millions of $)
Yearly Results
2002
2003
Total revenues
15,195
17,474
Net profit
(6,901)
1,046
Profit by Division
Filmed Ent.
473
641
Television
458
851
Cable programs
199
430
Newspapers
430
400
Parenthesis indicate loss

News Corp. turned in a full-year net profit of $1 billion, compared with a loss of $6.3 billion in fiscal 2002.

Admittedly, some of that bottom-line improvement came thanks to a $50 million gain on asset sales and a jumbo $6.9 billion writedown ($1.9 billion of which hit in last year’s fourth quarter), mostly on the book value of the company’s 42% stake in ailing Gemstar-TV Guide.

The filmed entertainment group, which includes TV and film production, boasted a 36% year-over-year increase in operating profit to $641 million.

Gain came thanks to healthy hauls from “X2: X-Men United,” “Daredevil” and “Phone Booth,” along with big homevid sales for “Ice Age,” “Shallow Hal” and “Behind Enemy Lines” and higher-than-expected syndication profits from skeins like “King of the Hill,” “The X-Files” and “The Simpsons.”

Operating income of $85 million for the quarter was a $10 million improvement on the year-ago period, despite hefty promo costs for “League of Extraordinary Gentlemen” and “28 Days Later.”

Chief financial officer David DeVoe predicted that News Corp. would continue the pace for fiscal ’04, forecasting “high single-digit to low double-digit” operating income growth for the full year, despite an estimated $300 million in losses from its recently acquired and relaunched Sky Italia pay TV operation.

Cable nets steal the show

Cable nets, including Fox News, regional sports, Speed Channel and FX, were the star performers in the Fox portfolio, with big rating and subsequent ad gains fueling revenue gains that easily offset Iraq War-related costs and higher spending at FX.

Displaying the full force of its leverage, Fox Cable Networks’ operating profit rose 71% for the full year to $472 million. For the quarter, operating profits jumped 126%.

Chief operating officer Chernin thanked cost discipline and shrewd risk management for much of the 40% operating income gain.

Confident that there’s still “significant room for improvement at Fox,” Chernin said the enormous momentum from the network’s turnaround year would continue into the new season, where the net was now “nipping at the heels of NBC for supremacy among adults.”

In the fourth quarter, Fox Broadcasting enjoyed 25% ratings growth in primetime compared with the same quarter a year ago, thanks to steady ratings gains from “24,” “That ’70s Show” and “The Bernie Mac Show.”

Ad-vantage Fox

Like rivals Viacom (CBS) and Disney (ABC), Fox said the network is sold out for the quarter, with low cancellations and scatter prices up in double digits from the upfront.

Fox’s numbers bore out the market-wide trend of national advertising still outperforming local, however.

But Fox’s local advertising remains more solid than some of its rivals thanks to an overall 6% improvement in station market share.

Station group head Lachlan Murdoch conceded that the company was unhappy with the performance of UPN stations but said he’s willing to give new management a shot at turning the weblet around.

“If they can’t, we have lots of options available to us,” said the junior Murdoch, noting that UPN stations are currently pacing 16 to 20 points behind Fox O&Os, though operating margins at those stations are holding up and showing strong profitability compared with a year ago.

As for the pending acquisition of a 34% stake in Hughes and its prized DirecTV satcasting op, Murdoch said he was pleased with the progress in the regulatory process and he’s hopeful about gaining approval by the end of the calendar year.

Murdoch said he’s aiming to get DirecTV back to a growth rate of 1 million new subscribers annually for a number of years to come. “We can certainly grow the business into something much bigger.”

He also noted that Sky Italia, which formally launched July 31, has so far converted 825,000 of the 2 million combined subs to the former Telepiu and Stream services to the new paybox. Sky Italia is slated to reach profitability within 18 months.