News Corp. President Chase Carey: MySpace Has Quarters, Not Years, to Turn Itself Around

Says FCC has some fault in recent Cablevision program loss: lauds retransmission consent deals

NEW YORK -- News Corp. president, COO and deputy chairman Chase Carey on Wednesday had some harsh words for the FCC and its role in the company's recent program dispute with cable operator Cablevision, an ultimatum of sorts for social network MySpace to turn its business around and positive predictions for his company's broadcast business.

Discussing online social network MySpace, Carey said he is happy with a just-launched redesign, but said that "current losses are not accceptable or sustainable." He said the redesigned MySpace has the "potential to be an exciting business, but needs to show real progress in the coming quarters, not years, mainly by growing traffic and revenue and "a clear path to profitability." Observers took this as a signal that News Corp. could look for a buyer if MySpace shows no real progress. The networking site's revenue declined by $70 million in the latest quarter compared to the same period a year earlier.

Carey didn't comment on whether the company has more closely looked at a possible combination of MySpace with Yahoo, about which private equity firms have approached News Corp. But Carey repeated a recent mantra that News Corp. does not need to make any acquisitions and prefers to build businesses. "We're certainly not out shopping," he said.
News Corp.'s brand-new broadcast retransmission consent deals with Cablevision and Dish Network were critical in ensuring that its broadcast unit can over the coming years reach "a whole new level of profitability," he told analysts Wednesday.

On his company's quarterly earnings call, he also suggested that the FCC should have made clear to Cablevision earlier in the process that it wouldn't interfere in their program dispute. If "the government" had made things clear up-front, programming may not have gone off the air as Cablevision seemed to have hope that the FCC could make an intervention until the end, Carey said. He also once again highighted News Corp.'s view that retrans and other programming dispute shouldn't be dealt with by the government, but should be "a matter to be dealt with between private parties."

News Corp. chairman and CEO Rupert Murdoch wasn't on the call as he is traveling.

Carey also once again repeated his call that broadcast networks need to become more like cable networks in the sense that they need dual revenue streams in the form of advertising and carriage fees.

Speaking of advertising, management said that network scatter ads are seeing double digit price increases from the upfront, while TV stations are trending up 20% this quarter. Looking beyond this year, Carey said News Corp. remains cautious and alert, but has seen "no signs" of economic concerns affecting the ad market.

Asked about the current industry debate about whether consumers have started cord cutting, or dropping cable and satellite TV subscriptions to get more TV content online, Carey simply said: "I just don't see it."

News Corp. after the market close on Wednesday said its latest quarterly profit rose 36% to $775 million as double-digit percentage growth at its cable networks and broadcast TV units helped offset a decline in the film business, which faced tough year-ago comparisons.

The entertainment conglomerate's fiscal first quarter profit also included a $90 million tax benefit. Revenue rose 3% to $7.4 billion.

The company reiterated its full fiscal year guidance of low double-digit growth in total segment operating profit over the $4.46 billion recorded in the previous year, even though it said film results have started off weaker than expected and costs for extended talks with distributors over new programming contracts also were higher.

“Our global cable network programming business continues to lead News Corporation’s financial and operational momentum," said chairman and CEO Rupert Murdoch in a statement. "With continued subscriber growth in new and established channels throughout the world, and a global advertising recovery, our domestic and international channels now account for 25% of our revenues, and uniquely position us for profitable expansion of these franchises in the years to come."

Operating profit in the cable network unit, led by the likes of Fox News Channel, rose to $659 million helped by a 16% gain in U.S. advertising revenue and a 27% ad increase internationally.

In the broadcast TV segment, operating income of $105 million rose by $67 million over the year-ago period driven by improvements at the TV stations, which posted a 22% ad increase amid strong political ad spending and a rebound in the auto and other ad categories. The stations benefited from strong political ad spending, as well as a rebound in auto and other ad categories.

However, Fox network results were lower as higher ad revenue from NFL games was more than offset by program cancellation costs for Lone Star and higher promotional costs for the launch of summer and fall programming.

Carey admitted that Fox "would have liked a game six" in the World Series. But he said next fall's launch of Simon Cowell's X Factor and a reenergized American Idol early in 2011 give the network the opportunity to build year-round tentpoles.

Film unit operating profit fell from $391 million in the year-ago period to $280 million as last year's Ice Age: Dawn of the Dinosaurs outperformed the latest period's releases, such as Predators and Machete. Launch costs for the release of Wall Street: Money Never Sleeps also weighed on the latest period.

While the film business has seen a few quarters of disappointing results, it has avoided major losses and still has the best management in the business, Carey told analysts. Highlighting the recent news of a deal for two Avatar sequels, Carey declined to detail financial terms of the arrangement. But he expressed confidence in the company's ability to make more Avatar money. "This is a franchise for us to develop," he said. "This is a franchise without comparison." The long lead time to the sequels will allow the company to develop more merchandising and a whole experience around them. 

While Time Warner CEO Jeff Bewkes earlier in the day promised a first premium VOD film release by mid-2011, Carey wouldn't commit to a time frame and only said the company was in discussions about this opportunity.

In positive film unit trends, he also highlighted that home enternment financial trends are up year-to-date.

Asked if, similar to Time Warner, News Corp. could expand the 28-day window after which Redbox/Netflix get access to the firm's DVDs, he said the month-long window has been "a good thing" for the firm, but it will continue to evaluate things.