News Corp. Quarterly Earnings No Match for 'Avatar'-Fueled Year-Ago Period

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Rupert Murdoch

President Chase Carey calls premium VOD films a test as the company posts a 24% profit drop amid lower film and MySpace results that offset a stronger broadcast and cable TV unit performance, including the highest quarterly profit ever for Fox News.

NEW YORK – Rupert Murdoch’s News Corp. on Wednesday reported a fiscal third-quarter profit decline of 24 percent, driven in large part by a weaker performance of its film unit, which had posted a record operating profit in the year-ago period thanks to the theatrical performance of Avatar.

Increased losses in the company's segment of "other" businesses also were a drain due to higher losses of social networking site MySpace, which the company is in the process of selling. But the entertainment conglomerate posted stronger broadcast and cable TV results, including what executives said was the highest-ever quarterly operating profit for the Fox News Channel.

For the latest quarter, News Corp.’s earnings amounted to $639 million, compared with $839 million a year earlier. Quarterly revenue declined 6 percent to $8.26 billion. Management reiterated its growth forecast for the full fiscal year, saying it expects strong gains in the current quarter.

"As we anticipated, News Corporation's third-quarter financial results faced challenging comparisons when set against last year's record Avatar contribution at our filmed entertainment business," said chairman and CEO Murdoch, who was not on an earnings conference call after the market close. "However, the great response to Rio and our confidence in our upcoming releases indicate that the difficult comparisons in this segment over the past nine months are now behind us."

He also lauded the conglomerate's broadcast TV segment. "Viewed by the market just one year ago as a challenged business, [it]
more than quadrupled its earnings contributions over the prior year quarter on the strength of the national advertising market, increased retransmission consent revenues and the popularity of our programming," Murdoch said.

Asked by The Hollywood Reporter on Wednesday's conference call about a deal with satellite TV giant DirecTV to trial premium VOD film releases for $29.99 only 60 days after they launch in theaters, News Corp. president, COO and deputy chairman Chase Carey said: "It is a test" and "the theatrical market is a very important market for us," as it sets the pace for a film's performance. The company feels premium VOD is an opportunity for some films and won't be a big segment of the business, but will judge how it works as it gets data. Will the company's studio share that data with NATO, which requested earlier in the day that data be made available? Carey conceded that he wasn't aware of the specific request, but said: "We feel it's important for everyone to understand what's happening out there."

Carey instead took aim at a common enemy - $1 film rentals just months after theatrical releases. "That doesn't work," he said. "That undervalues our product." He said studios must instead build "appropriate values and windows."

In its third fiscal quarter, News Corp.'s film unit operating profit of $248 million compared with a record $497 million in the year-ago period. The latest period included the theatrical performance of Black Swan, but also the launch costs for Rio. Revenue declined from $2.4 billion to $1.6 billion.

Management said that the latest period's film decline was nearly all driven by Avatar, and the unit's drop for the fiscal year to-date was also largely due to the movie's year-ago success. But the tough comparisons are now behind the company.

News Corp.'s largest earnings generator, its cable networks, once again recorded strong growth, boosting operating profit 25 percent to $735 million on a 13 percent revenue gain to just more than $2 billion as U.S. advertising revenue rose 14 percent. The company highlighted the Fox News profit record and ratings gains at FX.

Asked about a slew of Fox News carriage deals that are coming up next year, Carey reiterated past comments that he expects an "appropriate increase" in carriage fees that reflect the strength of Fox News, which he said for many viewers is second only to ESPN in importance.

Broadcast TV operating profit multiplied from $40 million to $192 million. Revenue in the unit rose from less than $1.2 billion to more than $1.4 billion. "This growth reflects an increase in advertising revenue driven by higher revenue from the broadcast of National Football League playoff games and Super Bowl XLV, as well as a stronger overall national advertising market," the company said. "Also contributing to this growth were increased retransmission consent revenues and lower general entertainment programming costs resulting from the absence of 24 and lower costs at American Idol."

Carey on Wednesday said the company was "very excited" to have Simon Cowell's X Factor on its fall schedule, calling Idol and the new show "an unrivalled one-two punch." He also said that News Corp. expects to have retransmission agreements covering 80 percent of homes by the end of next year.

Asked about News Corp.'s thinking on sports TV rights, Carey said the cost and appeal make sports a double-edged sword. Asked about a possible play for Formula 1 rights, he said the exploration of a consortium to acquire them is still "at an exploratory stage."

He didn't share much insight on the auction of MySpace, which is expected to be concluded around mid-year, beyond saying the process is ongoing. Asked about iPad newspaper The Daily, Carey said it lost about $10 million in the latest quarter. "It's a work in progress," he said.

Carey once again emphasized that News Corp. won't pay any price to get full control of U.K. satellite TV firm BSkyB. An increase in its stock price is "clearly troubling," he said, adding the company would look at other options if it can't agree on a "reasonable" price with BSkyB.

Twitter: @georgszalai

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