Chernin: Online already off charts

News Corp. chief touts value of digital ops at confab

News Corp. president and chief operating officer Peter Chernin said Tuesday that he expects his company to exceed its goal of $500 million in digital revenue for the current fiscal year and that online video advertising has the potential to be "the single best (business) story" for media companies in 2007.

He also said the digital operations will be profitable for the fiscal year even when including the cost for management retention and amortization, which the company had said would have to be excluded to write black ink.

Speaking at the 17th annual Citigroup Entertainment, Media and Tele- communications Conference in Las Vegas, Chernin said online ad rates have started to become significant at CPMs of $25-$30.

But he warned that industry watchers might overestimate the business opportunity behind user-generated content. "There is very little opportunity to monetize" user-generated videos because advertisers are not always comfortable with their content, and "there is no scarcity value," Chernin argued. "If you put an ad on a minutelong clip of someone falling off a skateboard, people can find that (video) everywhere."

He estimated that News Corp.'s MySpace online community already reaches about two-thirds to three-quarters the amount of video downloads recorded by Google Inc.'s YouTube.

TV show episodes that the conglomerate has put on MySpace and its TV stations' Web sites have garnered about 4 million downloads already with good CPMs, according to Chernin. He predicted that 2007 will mark the beginning of a big success story for broadcast networks, which finally will be able to make up for the financial drain from "the death of the rerun" through monetizing shows by putting them online a day after they first aired.

Asked about a continued dispute over whether ratings data should take into account the impact of DVRs, he predicted that for next year's upfront advertising sales season, marketers and networks might meet halfway. Rather than just looking at live ratings or live ratings plus seven days of delayed viewing, Chernin said a live-plus 2 or live-plus 3 model might be the final outcome.

Staying with TV themes, Chernin reiterated that his team is "not happy with how MyNetworkTV has been going. We are focused on making improvements," he said.

Asked about current TV ad trends, he said they are only "OK" for News Corp., as its Fox stations are seeing gains while MyNetwork affiliates are down.

He also said he expects the launch of the Fox business news channel in the latter part of 2007, with the network close to the targeted 30 million households it has set as a minimum base of reach.

Chernin also emphasized that News Corp.'s swap of its controlling stake in satellite TV giant DirecTV Group does not mean it has lost its confidence in the satellite business. "We believe enormously in satellite as a video-delivery system," he said, adding that British Sky Broadcasting in the U.K., Sky Italia in Italy and Star in India will remain important growth drivers.

Also at the Citigroup conference Tuesday:

• Comcast Corp. chairman and CEO Brian Roberts said the first couple of weeks of day-and-date video-on-demand movie trials in two markets have brought "very encouraging buy rates." The tests in Denver and Pittsburgh involve several studios: Universal, Paramount, Fox, Lionsgate, the Walt Disney Co., Warner Bros. and New Line.

Roberts also called satellite TV competitor DirecTV a "terrific company" but signaled that cable operators have an advantage in the form of true video-on-demand and high-speed Internet service options.

Asked about Liberty Media CEO John Malone and what he will bring to owning DirecTV, Roberts called him "a great money- and dealmaker" but hinted that satellite TV might not be Malone's core business of expertise. "We wish him well, but not too well," Roberts said.

At the start of his appearance, Roberts joked that Chernin, the previous speaker, was moving on to "greener pastures" as News Corp. was leaving the DirecTV investment to Malone.

• DirecTV president and CEO Chase Carey said that Liberty management has been "quite supportive" of his team's strategies but that he has had no real chance for more in-depth talks with Liberty since its deal with News Corp. However, he signaled that he expects few major strategic changes.

Asked about a possible merger with competitor EchoStar Communications, Carey said "there are certainly synergies" but also regulatory issues to overcome. He signaled that his team would remain focused at least for now on operating the DirecTV business.

• Blockbuster CEO John Antioco talked up the company's online Total Access product, predicting that its subscriber count will double this year to 4 million and that he intends on making the necessary marketing investment to make that happen. He added that online revenue will come via advertising and the sales of new and used DVDs.

Antioco also told analysts that the company is searching for a "cost-effective" way to enter the digital movies-on-demand business but that Blockbuster will likely strike a "partnership agreement" rather than build a platform from scratch.

Observers have speculated Blockbuster might eventually hook up with TiVo in that business because TiVo's plans for a similar arrangement with Netflix appear to have fizzled.

Paul Bond in Los Angeles contributed to this report.