News Corp. loses $6.4 bil after charge

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News Corp. missed quarterly earnings expectations with its first quarterly loss in three years and again reduced its fiscal-year operating profit guidance amid what chairman and CEO Rupert Murdoch said is the worst economic downturn in the company's 50-plus-year history.

The media giant swung to a fiscal second-quarter loss of $6.4 billion driven by an $8.4 billion impairment charge for the reduced value of its TV stations and its newspaper and information services group.

Excluding the charge, the entertainment conglomerate would have recorded a profit of $320 million. This compared with a year-ago profit of $832 million. Quarterly revenue fell 8.4% from $8.6 billion to $7.9 billion.

President and COO Peter Chernin said on a conference call that it is too early to say whether the weakness in the DVD market is mainly driven by the recession or also due to an underlying erosion of demand. But he said the company has eliminated about 800 positions across the Fox businesses (film, cable, broadcast, digital) by cutting two-thirds of open positions and not filling others.

Murdoch added, without providing more specifics, that there will be "major" cost cuts at the local TV stations that have been hurt by the disappearance of auto ads and the broader recession.

He also said there are no businesses he has seen that he would want to acquire, but "we like Premiere eventually." News Corp. already owns a stake of about 30% in the German pay TV provider.

Asked about contract renewal talks with Chernin, whose contract expires this year, Murdoch said: "Peter and I are continuing our conversations. They are private." He would not comment further.

The two executives also said the Fox broadcast unit will be aggressive in retransmission consent deals that come up for renewal in the next two to three years given its ratings strength.

CFO David DeVoe lowered full fiscal-year operating profit guidance for a second consecutive quarter to a decline of about 30% from the previous year's $5.13 billion. In November, News Corp. predicted a low- to mid-teen percentage decline after its original prediction for a 4%-6% gain. (partialdiff)



DeVoe added that financial visibility remains low though and that a further ad deterioration could threaten the latest forecast.

Murdoch cited the "grim economic climate," saying the recession is the worst in News Corp.'s history. Echoing comments from his earnings call in November, he said, "While we anticipated a weakening, the downturn is more severe and likely longer lasting than previously thought."

Before the earnings report, News Corp. shares closed up 2.8% at $7.45.

News Corp.'s film unit recorded operating income of $112 million for the latest quarter, down from $403 million in the year-ago period, which included contributions from the home entertainment releases of "The Simpsons Movie," "Live Free or Die Hard" and "Fantastic Four: Rise of the Silver Surfer" as well as the pay-TV availability of "Night at the Museum" and "Borat."

Twentieth Century Fox Television saw higher contributions from the syndication of "How I Met Your Mother" and "Boston Legal," which were more than offset by weaker DVD results.

Murdoch touted solid boxoffice results for recent theatrical releases, including the Oscar-nominated "Slumdog Millionaire." He also predicted strong results for upcoming sequels "Ice Age 3," "Night at the Museum 2" and a Wolverine-focused "X-Men" sequel. And Chernin said DVD sales were down less in January, namely 9%, than during the fourth quarter of 2008, which saw a 15% drop.

He also mentioned "pretty significant increases" in film VOD views and electronic sell-through for News Corp.

Operating profit at News Corp.'s TV stations, adjusted for station sales, declined 44% in the fiscal second quarter because of the deteriorating local ad market. This dragged down overall TV unit operating profit to $18 million, compared to $245 million last year. The Star satellite TV platform in Asia also saw profitability hurt due to ad revenue declines, primarily in India.

Murdoch said on his call that ad revenue may never go as high again as it was before the current downturn, but he expressed confidence that a sizable chunk of it could be recovered once the economy rebounds.

The entertainment giant's cable networks unit once again was a star performer, with operating profit jumping 27% to $428 million on stronger results at Fox News Channel, the Big Ten Network and the Fox international channels, partially offset by costs for the Fox Business Network.

Fox Interactive Media saw lower MySpace revenue, and the unit's profit contribution fell to $7 million due to spending on new service launches, management said.

Asked about likely new FCC chairman Julius Genachowski, Murdoch said, "We look forward to working with him positively." He added, "We do expect a more decisive and better-run FCC." (partialdiff)
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