Film, other units push News Corp. to Q4 loss

Firm mulls new business models; film record streak ends

NEW YORK -- News Corp. swung to a fiscal fourth-quarter loss of $203 million on lower revenue and impairment and other charges of $680 million, primarily in the Fox Interactive Media unit.

Stronger cable networks unit results couldn't make up for weaker results elsewhere as the recession continued to take a toll.

The loss for the period ending June 30 reported after the market close Wednesday compared with a profit of $1.1 billion in the year-ago period. Excluding charges, News Corp. posted an adjusted operating profit of $948 million, down from $1.4 billion a year earlier. Revenue fell 10.7% to $7.67 billion.

The adjusted operating profit for the full fiscal year of $3.6 billion was in line with the conglomerate's forecast for a 30% decline from the $5.13 billion it had recorded in fiscal year 2008. Wall Street observers had expected the company to miss its target. Revenue for the fiscal year dropped 8% to $30 billion.

Management predicted News Corp. will grow its operating profit in the just-started fiscal year in the high single digit percentage range from an adjusted $3.44 billion with expected gains in the cable networks and film units, as well as other divisions. Revenue will grow in the 4% range, it said.

The full-year figures came after six consecutive record years in profitability. Another streak that ended Wednesday was in News Corp.'s film unit, which had posted seven consecutive years of record operating profits.

News Corp. chairman and CEO Rupert Murdoch and recently returned Chase Carey, who serves as president, COO and deputy chairman, signaled that they are looking at ways to change the economics of the media and entertainment business over the coming years amid the continued shift to digital.

Murdoch, for one, renewed his call for a push into paid-for digital content, saying the digital age "has not made content free." Carey said that News Corp. will be looking to build more dual revenue streams.

Discussing specific businesses, Carey argued that the advertising-supported broadcast TV model in particular "doesn't work" anymore and also mentioned new distribution systems in the digital age and international markets as key growth opportunities for the conglomerate.

Murdoch said he wants to start charging consumers for access to the company's news sites -- most likely during the just-started fiscal year. He later said that this plan would include not only News Corp.'s newspaper sites, but most certainly FoxNews.com as well, which he pointed out has a big and loyal audience.

Asked about how the broadcast TV business must change, Carey said that the Fox network should get paid for quality content like "American Idol" and the NFL. He also said the network must look at production costs, as well as its relationships with affiliates and content production partners. He didn't detail specific proposals, saying the ideas are still a work in progress.

Asked by The Hollywood Reporter about whether News Corp. is more likely to charge consumers or broadband providers for TV content online, Carey said the conglomerate is trying to avoid getting hung up on old rules and traditional business models, adding that new ways of windowing content could provide opportunities in the digital age.

For the full year, News Corp.'s film operating income fell to $848 million from the record $1.25 billion reported in fiscal 2008. Quarterly film unit operating profit fell 8% to $203 million, primarily due to lower library product contributions from Twentieth Century Fox Television.

The quarter also included the launch costs for theatrical releases "X-Men Origins: Wolverine" and "Night at the Museum: Battle of the Smithsonian," as well as prerelease launch costs for "Ice Age: Dawn of the Dinosaurs." Film revenue rose from $1.52 billion to $1.72 billion.

Asked about DVD rental kiosk operator Redbox, Carey said its $1 price point "grossly" undervalues the value of films. "A dollar rental is clearly an issue for us," he told the earnings call. "We are actively determining how to deal with it."

Meanwhile, News Corp.'s broadcast TV unit revenue and operating profit fell amid weaker results at the Fox TV stations, Fox Broadcasting Co. and Asian satellite TV platform STAR.
"Local television station advertising markets declined 27% in the quarter and 21% for the year compared to the same periods a year ago, reflecting particularly weak automobile, financial and movie entertainment advertising trends," News Corp. said.

Discussing the upfront ad sales market, Murdoch said he is "quite happy" with its progress and pricing, although Fox -- like others -- will retain more ad inventory to sell it in the scatter market.

Overall, July was a good ad month, he added, with CFO David DeVoe predicting flat ad revenue in the current fiscal year despite low double digit broadcast TV and newspaper declines.

Meanwhile, News Corp.'s cable network unit was once again a growth business with higher profit and revenue figures than in the year-ago period thanks to continued improvements at Fox News Channel, FX and the Big Ten Network, which turned in its first profitable fiscal year.

Murdoch said the past year "has been the most difficult in recent history." On the earnings conference call, he said though that "the worst may be behind us."

DeVoe predicted a "challenging" fiscal first quarter and a modest economic rebound in the back half of the firm's fiscal year.
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