News Corp. Reports $6.42 Billion Net Loss

News Corp. on Thursday announced it had swung to a loss of $6.42 billion in the final three months of 2008, as the media conglomerate was forced to take an $8.4 billion write-down on its TV and newspaper assets.
Speaking to analysts during News Corp.’s FY Q2 earnings call, chairman and CEO Rupert Murdoch said the results “are a direct reflection of a recession that’s deeper than any one could have predicted,” adding that the global economic climate is the worst he’s seen since the company was formed 50 years ago.

Adjusting for the impairment charge, Q2 net income was $320 million, or 12 cents per share, well below the average analyst forecast of 19 cents per share.

Operating income at the TV unit plummeted 93 percent in the quarter, dwindling from $245 million a year ago to $18 million, as a result of continued erosion of the local advertising business, as well as higher programming costs at the Fox broadcast network. According to News Corp., ad revenue at the Fox TV stations declined 19 percent in the quarter, as compared to a the year-ago period.

“The big thing that really is killing us is the lack of automobile advertising,” Murdoch said. “In local stations, automobile advertising was at least 30 percent of total revenue and there’s precious little of it around at the moment. Other categories are down too, but nothing like that.”

The lone bright spot in the company’s portfolio was its cable networks unit, which includes FX, Fox News Channel, the regional sports nets and National Geographic Channel. In the quarter, operating income at the cable nets rose 27 percent to $428 million, thanks in large part to gains at FNC, which enjoyed its highest-rated quarter and was the beneficiary of higher CPMs and a boost in affiliate revenue.

Meanwhile, the broadcast net is holding its own in the current quarter, as Fox continues to cut scatter deals. “In the current quarter we’ve written about $50 million in scatter at upfront pricing or better,” president and COO Peter Chernin said. “I think a lot of that is due to ratings shortfall in the marketplace, and I think we’re doing better than our competitors.”

Chernin also said that cancellations on upfront business are moderate, all things considered. “We’ve extended a couple of deadlines. Right now we’re probably at about 8 percent of total dollars cancelled and we would expect that to end up at about 11 percent,” Chernin said, noting that this is only slightly above the 7 percent to 8 percent churn rate Fox normally experiences in the winter months.

“Cancellations are running a little higher than in the last couple years, but honestly we’re doing a little better than we expected,” Chernin said. Depending on their relative exposure to the auto category, national cable nets are “a mixed bag…but are generally running fairly similarly to the broadcast network.”

Looking ahead, News Corp. now expects its operating income for 2009 to decline by 30 percent, off a base of $5.13 billion in adjusted operating income a year ago. Back in November, the company had anticipated a drop in the low- to mid-teens.

“This guidance assumes there will be no further downturn in the advertising market, although we still have less-than-perfect visibility,” said chief financial officer David DeVoe.

As the U.S. enters the fourteenth month of the recession, News Corp. is slashing expenses wherever it can, and as such, layoffs are inevitable. On Thursday, The Wall Street Journal let go of 14 newsroom positions, cuts which follow the elimination of 100 jobs at Fox Interactive Media.