News Corp. Quarterly Profit More Than Doubles Amid Strong TV Results

The improved financials came even though the company took a $275 million charge for its digital assets and confirmed that it is looking at options for social network MySpace.

NEW YORK – News Corp. on Wednesday reported a fiscal second-quarter profit that more than doubled compared with the year-ago period as continued growth at its cable networks and the highest profit at its Fox Broadcasting in two and a half years more than offset a charge related to MySpace, for which the company is exploring alternatives, and weaker film results.

The stronger TV figures came despite program blackouts in carriage disputes with cable operator Cablevision and satellite TV firm Dish Network, which management said reduced the company's segment profits by about $47 million, with Dish accounting for $30 million of that. The TV growth also helped offset a profit decline in the film business, which faced tough year-ago comparisons due to the success of the latest Ice Age DVD release and the early part of Avatar's theatrical run in the year-ago period.

News Corp. president, COO and deputy chairman Chase Carey said on an earnings conference call that the company is planning to offer premium VOD films about 60 days after their theatrical release - in line with an announcement from Time Warner earlier in the day. Carey said a first release could come by mid-year, but he didn't provide further details. A Fox studio executive previously mentioned $30 as a likely price for such an offer. Carey described the early release window as "an important opportunity," but emphasized the theatrical window must be protected.

Carey also confirmed market chatter that News Corp. is focusing on exploring new ownership options for MySpace after saying on his previous call that the social network had quarters rather than years to show improvement. On Wednesday, he said the company is not hoping for near-term financial improvements and is instead looking at strategic options for the social network. They are believed to include a possible sale, merger, the addition of another investor, a management buyout or spin-off. Carey didn't give any hint at what the likeliest option was or when he hoped to reach a decision, but mentioned there has been "a lot of interest" in MySpace.

Discussing News Corp.'s U.S. broadcast business, Carey said the company is targeting to make at least $1 billion in operating profit from it within a couple of years assuming a stable advertising market. The Fox network can use hit shows American Idol and Glee, as well as X Factor, which launches this fall, as a base to build its continued success on, he said. His team is "absolutely thrilled" with the recent return of Idol and its continued ratings strength, Carey said.

The executive also commented on online distributors Hulu, in which News Corp. has a stake, and Netflix. Despite reports that Hulu management has been arguing with its investors about access to content and business models, Carey said Hulu has "done a great job," has a "fabulous brand" and an "enormous following," leaving it well positioned. But he said the launch of the Hulu Plus subscription service was important for him to ensure dual revenue streams via subscriptions and advertising, and he said Hulu will have to look to further develop its models.

Discussing Netflix, Carey said that Starz's much-discussed streaming content deal with the firm was the "ultimate example" of content being sold at prices that are "beyond cheap." Carey also echoed Time Warner CEO Jeff Bewkes' view that Netflix will mostly be a provider of library titles. Asked if Modern Family has been made available online too widely, which Turner Broadcasting boss Phil Kent recently said made his firm limit its bidding for the show's syndication rights, Carey said he shares that concern about the reduced rerun value of TV shows if they have been available via a big player like Netflix, which now has more than 20 million subscribers. 

During the earnings call Wednesday afternoon, News Corp. management reiterated its previous guidance that its segment operating profit will grow in the low double digit percentage range in the current fiscal year from the $4.46 billion recorded for the previous one. While some recent film releases have been somewhat weaker than expected, and social network MySpace has continued to underperform, but cable network results have been stronger than expected, executives explained.

The entertainment conglomerate’s quarterly profit amounted to $642 million, including a $275 million charge to write down the reduced value of its digital media group and a restructuring at its main asset MySpace. The latest profit was more than double the $254 million recorded in the year-ago period, which included a $500 million litigation settlement charge.

Excluding all one-time charges, earnings per share rose 16 percent, and segment operating profit rose 6 percent to $1.29 billion. Revenue edged up slightly from $8.68 billion to $8.76 billion.

“News Corporation’s second quarter results demonstrate the mounting vigor of our global channels business,” said chairman and CEO Rupert Murdoch in a statement. “In the U.S. market, our cable channels are still expanding and adding subscribers, while increasing their revenues and profits at a double-digit pace on the strength of affiliate fee increases and buoyant advertising markets. I am also pleased with the continued recovery of our U.S. broadcasting business, including our local TV stations and the Fox Broadcasting Company, which posted its best quarterly profit in two and a half years.”

Murdoch missed Wednesday afternoon's earnings conference call as he was still giving briefings on The Daily, the tablet paper he unveiled earlier in the day, Carey told analysts.

At the cable networks unit, operating profit rose 22 percent to $735 million driven by a 12 percent U.S. advertising gain and a 10 percent affiliate fee increase for the domestic networks. Carey expressed confidence in continued double-digit growth for the segment.

Carey once again reiterated that the company is expecting "appropriate increases" for Fox News in carriage fee negotiations with cable and satellite TV providers in the coming years.

Television unit operating profit of $151 million was up $122 million from the year-ago period thanks to ad strength that boosted revenue at the firm's TV stations by 20 percent. At Fox, higher advertising revenue from NFL games and general entertainment programming more than offset lower ad revenue from a lower-rated and shorter Major League Baseball post season.

At News Corp.'s film unit, quarterly operating profit of $189 million compared with $324 million in the same period a year earlier, which had featured the home entertainment success of Ice Age: Dawn of the Dinosaurs. But Carey said Rio and an X-Men reboot are among the upcoming movies, for which the company has high expectations.