News Corp. released its third quarter earnings numbers yesterday, and although Chairman and CEO Rupert Murdoch mentioned cable network programming — and FOX News Channel in particular — as a bright spot, the results for News Corp.’s newspapers and information services division was grim.
Operating income for the newspaper group, which includes the New York Post and The Wall Street Journal, was down almost 97% to only $7 million, which the company attributed to low ad revenues. Circulation revenues increased during the third quarter at WSJ but that was “primarily due to price increases,” News Corp. said.
Those price increases seem to be extending to News Corp.’s Web sites. Murdoch hinted at that during the earnings conference call yesterday, one month after WSJ.com <a href="revealed plans to charge more for its content. Due to slumping print ad sales, this may be one of the ways newspapers can move towards becoming profitable again.
The earnings release after the jump
Earlier: News Corp. Totally In Trouble
EARNINGS RELEASE FOR THE QUARTER ENDED MARCH 31, 2009
NEWS CORPORATION REPORTS THIRD QUARTER NET INCOME OF $2.7 BILLION;
OPERATING INCOME OF $755 MILLION ON REVENUE OF $7.4 BILLION
NEW YORK, NY, May 6, 2009 — News Corporation (NASDAQ: NWS, NWSA; ASX: NWS, NWSLV) today reported third quarter net income of $2.7 billion ($1.04 per share)compared with net income of $2.7 billion ($0.91 per share) reported in the third quarter a year ago. During this third quarter, the Company recorded a net gain of $1.2 billion on the partial sale of its ownership stake in NDS Group plc (NDS) and a non-cash tax benefit of $1.2 billion from the resolution of various tax matters. The prior year’s third quarter net income included a $1.7 billion tax-free gain on the asset and stock exchange with Liberty Media Corporation. Operating income for the third fiscal quarter ended March 31, 2009 was $755 million, compared with $1.4 billion reported a year ago.
Commenting on the results, Chairman and Chief Executive Officer Rupert Murdoch said:
“Our third quarter results directly reflect the continuing weakness of the global economic climate. Despite this tough environment, we have proven resilient in several key areas this quarter. Our Cable Network Programming segment showed remarkable growth, led by the FOX News Channel which nearly doubled its operating income over the year ago quarter. Filmed Entertainment saw an earnings increase in the same period and I am encouraged by our upcoming slate of movies this summer.
We improved our already solid cash position adding another $2.4 billion to our cash balances during the third quarter, which includes cash received from the completion of the NDS transaction. We continued to make necessary operational adjustments to ensure our businesses are performing at optimum levels. We are working daily to increase market share and strengthen our core businesses, even in this very challenging
REVIEW OF OPERATING RESULTS
Third quarter consolidated operating income of $755 million declined 47% compared with operating income of $1.4 billion reported a year ago. This result reflects double digit growth at the Cable Network Programming segment, as well as increases at the Filmed Entertainment and Magazines and Inserts segments. These increases were more than offset by significantly reduced contributions at the Company’s remaining operating segments.
The Filmed Entertainment segment reported third quarter operating income of $282 million, 8% higher than the $261 million reported for the same period a year ago. The improvement reflects higher contributions from Twentieth Century Fox Television driven by increased domestic syndication revenue from How I Met Your Mother and Boston Legal and international television revenue for The Simpsons and 24. Current quarter film results also include theatrical revenues from Marley and Me and Taken, which together have generated more than $450 million in worldwide box office receipts. This quarter also reflects the theatrical expansion of Slumdog Millionaire, winner of eight Academy Awards, including Best Picture, which has generated over $140 million in domestic box office receipts.
The Television segment reported third quarter operating income of $4 million, a decline of $415 million versus the same period a year ago, due to decreased operating results at the Fox Television Stations, FOX Broadcasting Company and STAR.
Fox Television Stations’ third quarter operating income decreased 72% from the same period a year ago, reflecting a significant overall weakening of the local advertising markets and the absence of both the Super Bowl and contributions from eight stations that were sold in July 2008. Local television station advertising markets declined nearly
30% in the quarter compared with a year ago, reflecting particularly weak automobile, financial and movie entertainment advertising trends.
At the FOX Broadcasting Company, third quarter operating results declined due to higher programming costs driven by increased license fees for returning series and lower advertising revenue. The increase in entertainment programming costs was primarily attributable to lower costs in the prior year as a result of the Writer’s Guild of America strike.
STAR’s third quarter operating income decreased versus the same quarter a year ago due to advertising revenue declines, primarily in India, and costs of the recent launch of regional channels in India. The decreases in advertising revenues were partially offset by higher affiliate revenues.
CABLE NETWORK PROGRAMMING
Cable Network Programming reported third quarter operating income of $429 million, an increase of $99 million over the third quarter a year ago. This 30% growth was driven by higher contributions from the FOX News Channel, the Big Ten Network and the Fox International Channels.
The FOX News Channel (FNC) almost doubled its operating income versus the third quarter a year ago, primarily from increased affiliate revenues on higher rates. In the quarter ended March 31, 2009, FNC primetime ratings were up 23% compared with the same period a year ago. The Fox International Channels increased its earnings contributions by 25% over year ago levels driven by continued advertising and affiliate growth in Latin America and Europe. The Big Ten Network achieved its second quarter of profitability, having gained distribution on all major pay-TV platforms in the Big Ten
markets. Contributions from the Regional Sports Networks were down for the quarter as increased affiliate revenue was offset by the absence of contributions from the three regional networks that were divested in February 2008.
DIRECT BROADCAST SATELLITE TELEVISION
SKY Italia reported third quarter operating income of $63 million, a decrease of $34 million versus the $97 million in operating income reported a year ago, as local currency revenue growth of 7% was more than offset by increased operating expenses associated with higher subscriber volume, increased marketing and sports rights costs. Local currency revenue growth primarily reflects net subscriber additions of 290,000 over the past 12 months, bringing SKY ItaliaÂ’s subscriber base to 4.8 million at quarter’s end. This revenue growth in the third quarter versus the prior year was reduced due to the change in the timing of revenue recognition associated with expanded soccer programming, which is now broadcast throughout fiscal 2009, compared with only ten months of programming in fiscal 2008. This programming change shifts a portion of soccer revenues that were previously recognized in the last three fiscal quarters into the first quarter of the fiscal year.
MAGAZINES AND INSERTS
The Magazines and Inserts segment reported third quarter operating income of $97 million, a 4% increase versus the prior year. Higher revenue from both increased rates for free-standing inserts and higher custom publishing insert revenue more than offset higher paper costs.
NEWSPAPERS AND INFORMATION SERVICES
The Newspapers and Information Services segment reported third quarter operating income of $7 million, down $209 million from the $216 million reported in the same period a year ago, primarily due to lower advertising revenues, the strengthening of the U.S. dollar against the British pound sterling and Australian dollar and restructuring charges totaling $23 million.
The U.K. newspaper group’s third quarter profit contributions declined significantly as compared to the year ago quarter in local currency terms primarily due to 21% lower advertising revenues, as well as higher marketing and production costs. Circulation revenues increased at all four mastheads during the quarter due to cover price increases.
The Australian newspaper group reported 42% lower third quarter operating income in local currency terms versus the prior year third quarter, primarily due to a 16% decline in advertising revenue reflecting lower display and classified advertising, especially in the
employment and real estate sectors, and higher pension related expenses. Circulation revenues were in line with the year ago period.
Dow Jones & Company’s third quarter operating results declined from the same period a year ago, reflecting lower advertising revenue at The Wall Street Journal and lower information services revenue that more than offset reduced operating expenses. Circulation revenues increased during the quarter, primarily due to price increases at
The Wall Street Journal.
HarperCollins operating results decreased $67 million versus the same period a year ago due to the weakening retail market. Segment results for the quarter also reflect the inclusion of $30 million of restructuring charges. Third quarter results included solid sales of Act Like a Lady, Think Like a Man; The Grand Finale; Multiple Blessings and The Graveyard Book. During the quarter, HarperCollins had 55 books on The New York Times bestseller list, including seven books that reached the #1 spot.
The Other segment reported a third quarter operating loss of $89 million, an $82 million decline from the operating results of a year ago primarily due to lower contributions from NDS and Fox Interactive Media (FIM). The decline at NDS reflects the sale of a portion of the Company’s ownership stake on February 5, 2009. As a result of the sale,
the Company’s portion of NDS operating results subsequent to January 2009 is included within Equity earnings. The decline in FIM operating results was driven by lower advertising revenues combined with increased costs associated with the MySpace music joint venture and the launch of new features.
REVIEW OF EQUITY (LOSSES) EARNINGS OF AFFILIATES’ RESULTS
Third quarter losses from affiliates were $40 million as compared to earnings from affiliates of $109 million in the same period a year ago. This decline was primarily driven by the absence of earnings from The DIRECTV Group and Gemstar – TV Guide resulting from the sale of these investments in fiscal 2008.