News Corp. Reports Higher Fiscal Third-Quarter Profit

Rupert Murdoch - Portrait - H - 2011

UPDATED: Rupert Murdoch's entertainment conglomerate adds $5 billion to its stock buyback program as president Chase Carey defends his boss amid a recent U.K. report on phone hacking and renews his call for fresh energy for the "American Idol" TV franchise.

Rupert Murdoch's News Corp. on Thursday reported improved fiscal third-quarter earnings as its cable networks unit once again posted stronger figures. However, costs and charges related to the company's phone-hacking investigation weighed on the financials.

With chairman and CEO Murdoch missing from Thursday's earnings conference call, CFO David DeVoe and president, COO and deputy chairman Chase Carey spoke to analysts. Murdoch has in recent quarters often left the call to them.

"We take these issues very seriously," Carey said about the hacking situation. But he vehemently defended Murdoch against a recent U.K. parliamentary committee report that called the mogul unfit to run a major international company. "He’s one of the smartest and most forward-thinking executives of our time," Carey said about Murdoch. The News Corp. board and "I flatly reject [the notion that he is] unfit to run a major media company." Carey called that "a purely partisan finding.

Asked about a probe by U.K. media regulator Ofcom into News Corp. and pay TV operator BSkyB, which it controls, Carey commented on the risk that News Corp. could be required to reduce or sell its stake. He said he has no expectations of having to reduce the BSkyB stake "at this time."

Carey also shot down Wall Street hopes that News Corp. would sell or spin off its newspaper unit.

Carey also once again commented on the ratings performance of Fox hit show American Idol, which has seen ratings weaken. Last season, new judges and producers gave the show more of a fresh feel, which seems to be somewhat lacking this year, he said. Giving the show "enough energy and excitement to sustain it" must be the focus, he said.

But Carey once again said the music competition is still -- and often -- the No. 1 show on TV and is a "big, valuable franchise" that has "a lot of life in it." Looking to next season, he said Idol will still be a "centerpiece" of Fox's schedule and "we're excited about the potential of it."

The entertainment conglomerate said its quarterly profit rose to $937 million, compared with $639 million in the year-ago period. Revenue rose 2 percent to $8.4 billion.

The earnings for the latest period included a $27 million impairment and restructuring charge tied to the U.K. newspaper unit that has been at the center of the phone-hacking scandal. It also included a $63 million charge "related to the costs of the ongoing investigations initiated upon the closure of News of the World," the company said. That typically means the cost of legal and consulting fees, but not legal settlements. For the first nine months of the current fiscal year, investigation costs amounted to $167 million.

The third-quarter results also included a $111 million pretax gain from the company’s participation in BSkyB’s stock repurchase program as well as a $27 million gain on the sale of the company’s stake in Hathway Cable. The year-ago period also had included a charge for a legal settlement.

In a move that will draw applause from investors, News Corp. also doubled its stock buyback program to $10 billion.

For the full year, News Corp. still forecasts operating profit growth in the low mid-teen percentage range.

"Once again, News Corporation showed strong operational momentum in the quarter, driven by significant growth at our cable network programming and filmed entertainment segments," Murdoch said in a statement. "With our disciplined approach to monetizing our brands, I believe we are better situated than ever to capitalize on the increasing global demand for our superior content."

Film unit operating profit of $272 million was up from $248 million thanks to the worldwide theatrical and domestic home entertainment performances of Alvin and the Chipmunks: Chipwrecked and The Descendants, the home entertainment performance of Rise of the Planet of the Apes and the pay TV performance of Rio. Operating profit at the TV production unit rose due to higher digital distribution revenue, an increase in license fees for How I Met Your Mother and an increase in syndication revenue for Family Guy.

TV unit operating income of $171 million was down by $21 million from the same period a year earlier. The driver of the drop was the absence of advertising revenue and operating profit tied to the Super Bowl that Fox aired last year. Excluding that year-ago effect, TV advertising revenue at the Fox network and stations was on par with the year-ago performance. Higher national ad pricing was offset by lower ratings, driven by declines at Idol. Retransmission consent revenue doubled, the company said.

Cable networks once again were the biggest profit driver for News Corp. Operating profit rose 15 percent as revenue jumped 16 percent.

The News Corp. president also played down the potential that the conglomerate could launch a national sports channel, which recent reports have suggested is being looked at. "The press was probably a bit overblown," Carey said. "We are in the national sports business." But he also said that "we don't have any plans" for a national sports network launch.

Discussing advertising trends, Carey said network scatter ad rates are running up in the low- to mid-teens percent range when compared with last year's upfront. Entertainment cable ad rates are also up in the mid-teens, while local ad markets are softer.


Twitter: @georgszalai