Cable networks, film, and television propelled revenues for the first three months of 2013, although the company acknowledges that ad sales were hurt by ratings declines at American Idol. News Corp says it generated $2.90B in net income, +190% vs the period last year, on revenues of $9.54B, +13.5%. The top line was well ahead of the $9.14B that analysts expected. The bottom line number includes $2.43B in gains from overseas business deals, as well as $42M in costs related to the UK hacking scandal investigations and $25M in costs tied to the effort to spin off the publishing assets. With those stripped out, earnings fell 9.4% and equaled 36 cents a share – bulls-eye with the consensus forecast. Cable network revenues were +17.1% to $2.78B, with operating income +17.4% to $993M. The company says that domestic affiliate revenues were +11% but ad sales were just +2% in contrast to last year when Fox News benefited from political ads and regional sports networks had more basketball games. Life Of Pi helped to boost Filmed Entertainment revenues 17% to $2.01B with operating income +6.3% to $289M. A near doubling of retransmission consent payments and lower programming costs helped the broadcast operation see a 1.4% increase in revenues and 14.6% growth in operating income to $196M. But the Publishing unit struggled as ad sales at the Australian newspapers fell. It reported revenues -4.3% to $1.94B and operating income -34.6% to $85M. CEO Rupert Murdoch says that the company is “on target to complete the proposed separation of our businesses near the end of our fiscal year.”
It’s easy to see why News Corp’s earnings release emphasizes its full year results instead of the latest numbers from the quarter that ended in June. A $2.9B pre-tax impairment charge, primarily tied to its publishing business, resulted in a net loss of $1.5B for the quarter vs last year’s $728 profit, on revenues of $8.4B, -6.6%. The revenue figure was less than the $8.7B that analysts expected. And even if you wipe away the impact of the one-time charges, earnings merely matched forecasts of 32 cents a share. News Corp says that the charge includes a $1.5B write-down of goodwill and $1.3B for “indefinite-lived intangibles” primarily involving its Australian operations. But the numbers for the operations likely will sting investors. Cable networks were the only operations with unblemished good news, with revenues of $2.5B, +15.1%, and operating income of $792M, +25.5%. The company says that domestic affiliate fees rose 16%, including rate increases at the regional sports networks and Fox News, while ad sales were +5%. But Filmed Entertainment suffered with a weaker theatrical slate than last year and lower home video sales. The unit had revenues of $1.7B, -14.5%, with operating income of $120M, -42.9%. The Fox network and other TV assets also were down as declines in ad sales — which News Corp says was “primarily driven by lower American Idol ratings” — offset retransmission consent payments. Revenues were -3.3% to $1.1B with operating income -8.6% to $213M. And the publishing unit was bruised by lower ad sales in Australia and the U.K., and the closing last year of the scandal-ridden News Of The World – although the company says The Wall Street Journal delivered higher profits. The operation generated $2.0B in revenues, -13.9%, and operating income of $139M, -48.5%.
UPDATE: News Corp Calls Scandal Costs “Substantially Higher” Than Expected, But Touts Digital Initiatives
UPDATE, 3:05 PM: News Corp CFO David DeVoe had the thankless job today of telling analysts how much of a financial hit the company is taking as a result of the News Of The World hacking scandal. He says that the costs are “substantially higher than the amounts reflected in our guidance” three months ago: News Corp figures it spent about $104M in the six months that ended in December — including the $87M charge it just reported from the last quarter. About 85% of the payments went for professional fees — mostly lawyers. Much of the remainder was used to pay settlements. On top of that, the company expects to lose about $300M this year in its newspaper business — with about half of the loss in the UK, mostly tied to the closing of News Of The World.
COO Chase Carey was a lot more comfortable making the case that this is “a great time to be a content leader.” He echoed some of the points that Time Warner’s Jeff Bewkes made this morning about pay TV and entertainment companies dragging their feet in launching TV Everywhere. “You can’t spend 3 or 4 years getting someting going,” he told analysts in a conference call. “All of us have to do a better job…It’s taking too much time.” More generally,
UPDATE, 2:35 PM: The comment about James came from News Corp president Chase Carey, filling in for Rupert Murdoch, who wasn’t on the quarterly conference call with analysts and reporters. Despite growing concerns about James’ role in the News Of The World hacking scandal, the deputy COO “has done a good job and we are not contemplating any changes,” Carey said. He added, in response to a question, that the company is taking “seriously” the strong opposition that several shareholders expressed at the recent annual meeting to many members of the News Corp board — which includes three members of the Murdoch family. “The board will, and is, discussing those votes,” he says. “The board continues to evolve. …. That being said, we’re proud of the board.”
In other matters, Carey says that “we’re not buying the (Los Angeles) Dodgers,” but didn’t elaborate. Sports costs are not a big concern for the company for now because “outside of Los Angeles, most of our contracts are long term,” he says. He’s also unfazed by the NBA strike, saying that “it’s not a significant financial event for us” although “we’d like to see them settle it.” Carey denied that Fox is offering make-goods ads for lower-than-expected initial ratings for The X Factor: ”We have the No. 1 show and make real money from it,” he says. “It came out a bit below where we targeted … but is building momentum.” Not much detail about the collapse of the auction for Hulu. Carey says that it ”has been a positive for us in terms of creating value” despite its “complicated ownership structure.” Carey also didn’t provide much insight into the new programming deal with DirecTV, although he says it’s “fair for both of us.”
UPDATE, 3:40 PM: Although the drama in today’s analyst call involved the News Of The World hacking scandal, News Corp execs made a few interesting points about the company’s less sensational business activities. COO Chase Carey says that the Hulu auction is “progressing largely according to plan.” But he left open the possibility that it won’t result in a sale, rhetorically asking “does it make sense to pursue that path or for us to stay in an ownership position?” He and Rupert Murdoch also said that they support the Fox Business Network, claiming it was just an oversight that they didn’t mention it when listing cable channels that are poised to grow. “The ratings are in fact improving,” Murdoch said, adding that “we need more distribution, it’s true.” Still he says Fox Business is breaking even on a cash flow basis. Carey also says that FX has the potential to become a bigger revenue generator. All told, Murdoch says that News Corp operations were “exceptional” in the last quarter providing the company with the “most robust balance sheet in our history.”
PREVIOUS, 1:19 PM: The media giant says that it did well in its fiscal fourth quarter — as long as you don’t count the $245M earnings hit from the MySpace sale. The company had net profits of $683M, down 22% from the period last year, on revenues of $8.96B, up 10.5%. Net earnings came in at 26 cents a share — but if you factor out MySpace they hit 35 cents. Analysts expected 30 cents.