Struggling Ad Biz Hurts News Corp.

NEW YORK News Corp. has seen a "marked deterioration" in advertising business momentum and currency trends since August, management said Wednesday afternoon, forcing it to reverse its full fiscal-year operating profit guidance from a small gain to a double-digit decline.Chairman and CEO Rupert Murdoch warned that the current sluggishness "could well turn into a prolonged economic slump." The reduction in guidance came after News Corp. reported weaker fiscal first-quarter earnings due to a new investment and some recently sold-off assets.The company in August had predicted a 4-6 percent gain in fiscal year operating profit, but CFO David DeVoe Wednesday changed that projection to a decline in the low- to mid-teen percentages.He cited a "marked deterioration in confidence" due to the recent financial crisis, which accounts for 40 percent of the shortfall. This has further dragged down local TV advertising in the U.S. and newspaper ads around the world."Plus, the dollar has strengthened 20 percent" since the previous outlook, which adds about a third of the reduction, he added. The lower guidance is "a clear effect of the current economic downturn," Murdoch said, calling the current market "extremely challenging for the media sector." He added: "It's a pretty grim picture for all local TV stations across the country, but we're fighting it very hard every moment of the day."News Corp.'s reaction will be to "manage down our already lean headcount wherever appropriate," while also investing in developing growth businesses, he said."All media companies are being tested and the year ahead will be difficult," Murdoch said. But he also reiterated that he still believes in News Corp.'s long-running strategies. "I am confident that our long-term strategy of cultivating diversified assets at different stages of development, judicious investment of our capital and a strong balance sheet will guide us through these difficult times," he said.News Corp. posted a fiscal first-quarter profit decline of 30 percent to $515 million due to a $447 million write-off related to its investment in German pay-TV giant Premiere and the fact that it has sold DirecTV and Gemstar-TV Guide since the year-ago period. Quarterly revenue rose 6.3 percent to $7.51 billion.Revenue at the company's TV stations fell 17 percent due to weak local ad markets. In particular, DeVoe cited weakness in auto, financial and movie advertising. News Corp. president and COO Peter Chernin also signaled beginning weakness in online ad momentum.Citing recent reports of softness in the display ad marketplace, he said, "We're clearly starting to feel that."News Corp.'s filmed entertainment unit reported operating income of $251 million, down from a near-record $362 million in the year-ago period, which included the theatrical releases of The Simpsons Movie and Live Free or Die Hard.Management said the rest of the fiscal year should do better film-wise due to a stronger lineup of films.

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Struggling Ad Biz Hurts News Corp.

Georg Szalai, The Hollywood Reporter

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Georg Szalai, The Hollywood Reporter