News Corp. balancing act

TV up, film down in profitable Q1

News Corp. on Wednesday boosted the bottom line in its fiscal first quarter as stronger TV results were partially offset by weaker financials in its film unit, which had tough comparisons with a record year-ago quarter.

But president and chief operating officer Peter Chernin predicted "robust" film growth for the rest of the entertainment giant's fiscal year, driven by upcoming big theatrical and DVD releases, and lauded the movie unit's brass for their fiscal discipline and what he called industry-leading margins. "I feel better than ever" about the unit's ability to continue to grow, Chernin said, despite five consecutive record years.

Chairman and CEO Rupert Murdoch was absent from the call because of what officials said was a scheduling conflict, leaving Chernin and chief financial officer David DeVoe to handle all analyst and reporter questions.

The News Corp. president hit bullish notes regarding the company's broadcast and cable TV advertising momentum even after a record season for political spots. In addition, he said his company has continued talks with Apple Computer's iTunes service about making films available for downloads and suggested that the conglomerate's MySpace social-networking site could move into China with a joint venture partner in the current fiscal year.

Industry watchers also listened closely when DeVoe said that News Corp.'s digital unit, Fox Interactive Media, will break even this fiscal year even when including management-retention costs and amortization. Excluding those, it already is profitable and on track to bring in more than $500 million in revenue for the fiscal year, Chernin added.

DeVoe also shut down recurring market talk about a possible initial public offering of Italian satellite TV platform Sky Italia, whose improving financial management expects to be one of the biggest earnings drivers this fiscal year. "There are no plans to do an IPO — whether now or in the future," he said, adding that if that changed, it mainly would be because of political advantages.

News Corp. posted a fiscal first-quarter profit of $843 million, compared with a year-ago loss of $433 million, or $580 million when excluding the effect from an accounting change. The latest period's figure included about $397 million in pretax gains from asset sales. Revenue rose 4.1% to $5.9 billion.

"The operational momentum we exhibited throughout our record fiscal 2006 continued during the first quarter of fiscal 2007," Murdoch said in a statement.

Based on the results, News Corp. reiterated its previous guidance for fiscal-year growth in operating income of 14%-16%, excluding a gain from an asset sale, compared with 9% in the previous year that saw the fourth consecutive year of record operating profits.

News Corp.'s film unit reported operating income of $239 million, down from the record $368 million a year ago, when it was driven by home entertainment releases like "Robots," and the pay TV availability of "Alien vs. Predator" and "I, Robot." The latest quarter benefited from the theatrical release of "The Devil Wears Prada" and the pay TV run of "Fantastic Four" but also included costs for "Little Miss Sunshine" and big DVD releases like "Ice Age: The Meltdown," which comes out Nov. 12.

Chernin lauded the success of his studio's film "Borat," which he said has grossed more than $50 million in global boxoffice receipts in its first five days. He also said he expects much from the upcoming fantasy film "Eragon" and the Ben Stiller comedy "Night at the Museum."

"Our theatrical successes over the past six months are poised to generate significant returns in the quarters ahead," Murdoch said in his statement.

News Corp.'s broadcast TV division saw quarterly operating income rise 20% to $192 million thanks to better results at the Fox networks and TV stations group, partially offset by launch costs for MyNetworkTV, which Chernin said has so far has underperformed management's hopes. Fox operating income jumped 65% on higher ad rates and revenue as well as lower primetime programming costs. Stations operating income edged up 7% on political ad momentum and market-share gains, News Corp. said.

Chernin said the Fox broadcast network will boost its ratings momentum with the January return of "American Idol" and "24."

Asked about TV station trends after the elections, Chernin said "we don't expect any slowdown."

The cable networks unit boosted operating income 26% to $249 million on higher affiliate and ad sales at FX and regional sports networks. Fox News Channel operating income was virtually unchanged as higher revenue was offset by bigger costs for marketing and programming, with Chernin citing election coverage and talent deals.

Asked about the cable ad market, Chernin said scatter pricing is "holding up well," with overall scatter up in the high-single-digit percentage range in the fiscal first quarter and similar trends in the current quarter.

Asked about digital-growth opportunities for News Corp., Chernin said he doesn't expect the firm to "sue people and stop things," for example via a possible lawsuit against YouTube. He also said the definitions of renting and owning film content in digital forms will expand to likely encompass, among other options, watch once for a certain price, watch as often as you want over 30 days and download-to-own.
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