Film coin rings up News Corp. Q3
Movies' 'unique quarter' won't bounce, Chernin saysNEW YORK -- Another record quarter in its film division boosted News Corp.'s fiscal third quarter revenue and profit as the theatrical run of "Night at the Museum" and DVD releases such as "Borat" and "The Devil Wears Prada" along with continued growth of its digital assets, led by MySpace, bolstered the entertainment conglomerate's results.
While cable giant Comcast Corp. recently signaled that day-and-date film release trials show no negative effect on studio financials, News Corp. president and COO Peter Chernin said on Wednesday's earnings conference call that his company needs to do more research before being able to fully evaluate the impact on its high-margin DVD sales and rule out any cannibalization.
And chairman and CEO Rupert Murdoch showed no interest in raising a recent $60 per share takeover offer for Dow Jones & Co. and signaled that talks between the firms could go on behind the scenes, saying he wouldn't comment on the issue in much detail until a formal conclusion is reached "one way or another."
Asked by an analyst if News Corp.'s film strength can continue after several record years, Chernin expressed confidence. While the latest period was "a very unique quarter," he said "all indications in our movie business are positive" and once again lauded film unit brass as "the best management" in the business.
News Corp.'s filmed entertainment unit reported a 30% revenue increase to $1.80 billion and record third-quarter operating income of $410 million -- its third record in the last four quarters, and up a whopping 82% from the $225 million recorded in the year-ago period. "Little Miss Sunshine," "Ice Age 2: The Meltdown" and "Eragon" also contributed to a strong DVD performance in the quarter.
Chernin signaled on the earnings call Wednesday that News Corp. will be careful to protect such DVD strength, saying in answering a question from The Hollywood Reporter that day-and-date pilots have shown that the business model is "clearly positive for cable operators." But early data received from Comcast is "not conclusive yet" on the DVD front and "it is very early days," he added.
The News Corp. executive said the conglomerate will really dig into data, especially from retail stores distributing its DVDs. While he declined to give a timeline, Chernin signaled results should become clear later this year.
He also said News Corp. has "a very good partner" in Comcast chairman and CEO Brian Roberts, and the early Comcast data on day-and-date trials has been "quite positive."
However, he also signaled that recent comments from Roberts and Comcast COO Steven Burke suggesting day-and-date releases are a financial win-win for cable firms and studios remain to be confirmed. After all, Comcast is really keen on rolling out day-and-date releases on a broader basis, Chernin said, adding "this is a very important issue for us" and all other Hollywood studios.
Chernin also expressed an interest in expanded tests and said News Corp. is "about to enter" similar trials with Time Warner Cable.
Murdoch said he wouldn't comment much on his company's Dow Jones play, saying: "I admire the Bancroft family (that controls Dow Jones) and new Dow Jones management," adding he wanted to honor the family's privacy.
He did, however, repeat his view that Dow Jones could do better with more financial resources and called the two firms "a perfect fit." Murdoch also signaled no interest in raising his offer, citing the "full and more than fair price."
Addressing investor fears that a Dow Jones acquisition would stop aggressive stock buybacks by News Corp. and reduce its cash war chest, Murdoch said the company has about $7 billion in cash, and brass said they feel the company could easily afford a deal and continued buybacks.
"As you have seen from our earnings, we have the ability to leverage our assets and expertise ... to provide strong growth platforms for any business within the News Corp. family," he said.
Management once again expressed disappointment with losses at the MyNetworkTV network, with Chernin vowing financial progress every quarter as the year continues to unfold, especially starting in the new fiscal year that begins in July.
News Corp. reported a fiscal third-quarter profit of $871 million, up 6.2% from $820 million in the year-ago period, It also recorded a record operating profit of $1.20 billion, up 23%.
Revenue rose 21% year-over-year to $7.53 billion, exceeding Wall Street estimates.
News Corp.'s TV unit saw its quarterly operating profit fall from $286 million to $273 million as the MyNetworkTV losses and lower contributions from Indian satellite TV firm Star more than offset better Fox network and TV station results. Network operating income jumped 49% on higher advertising rates. Brass lauded "Are You Smarter Than a 5th Grader" as the network's highest-rated series premiere in more than 13 years among adults 18-49.
News Corp.'s cable networks division grew its operating profit 34% to $282 million driven by gains at the Fox News Channel - up 49% - and the FX Network. But higher programming costs for the unit's regional sports networks and marketing spending for "Dirt" on FX weighed on the bottom line.
Asked about TV scatter advertising trends, Chernin said it was "extremely strong" at the Fox network, "very, very strong at the cable channels and good at the stations. This "all bodes well for the upfront," he concluded.
Italian satellite TV arm Sky Italia, meanwhile, boosted its quarterly operating profit from $69 million to $91 million as its subscriber base grew to 4.17 million at the end of the quarter.