It’s hard to say that the write-down hurt the publishing operation for the fiscal year that ended in June. The noncash charge, disclosed today in the company’s first annual report since being separated from Rupert Murdoch‘s Fox entertainment assets, is an improvement over the $2.6B charge it took last year. All told, News Corp ended the year with net income of $506M, up from a $2.1B loss last year, on revenues of $8.9B, +2.7%. The revenue figure is short of the $8.96B that analysts anticipated. Earnings at 87 cents a share beat forecasts for 57 cents. The uptick in revenues reflects News Corp’s consolidation of Fox Sports Australia and acquisition of publishing company Thomas Nelson, and includes contributions from the introduction in February 2012 of the Sunday edition of UK’s The Sun. But ad sales overall fell by 7.4% cutting the revenue contribution of the Australian newspapers by $350M, and Dow Jones — which includes The Wall Street Journal — by $76M. The slowdowns were a factor in News Corp’s impairment charge which it says reflects its diminished assessment of the prospects for the News and Information Services businesses in Australia and the U.S. News Corp share prices rose 1% in after-market trading.
Senior Notes due 2022 from a subsidiary, News America Incorporated, will offer buyers 3.00% interest — and result in gross proceeds to the company of $992.9M. News Corp says the cash will be used for “general corporate purposes.” Earlier today Moody’s Investors Service assigned the debt a Baa1 rating, which means it’s investment grade with just moderate risk. The debt sale “will add to the company’s robust cash balance of $9.6 billion” as of June 30, Moody’s says. “We anticipate that in the next 12-18 months, the company will reduce leverage … through strong EBITDA growth, and maintain significant financial flexibility.”
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.”
Cowen & Co’s Doug Creutz shouldn’t expect Rupert Murdoch to call today and thank him for upgrading News Corp stock to the equivalent of “buy.” The analyst is optimistic because he sees a 25% chance that the UK phone hacking and police bribery scandals will end Murdoch’s reign — and lead the stock to pop. Creutz says that his main problem with News Corp is that with deals like the $5B acquisition of Dow Jones “the company has been run with an eye towards empire-building and with little regard to creation of shareholder value.” He’s also concerned about “the culture at News Corp which seems to encourage business practices that are close to, and have at some times crossed …the line of acceptable behavior, putting the company and share valuation at risk.” Murdoch’s effort to remain CEO reminds Creutz of Michael Eisner’s struggle in 2005 to stay at Disney. Although Murdoch controls 40% of News Corp’s voting shares, a power that Eisner didn’t enjoy, the former Disney chief didn’t face “the full power and wrath of a first-world government that is arguably fighting for its life.”
Still, Creutz still sees a 70% chance that the scandal will result in no change in control and no lasting damage to News Corp’s businesses. In that case he says the stock might recover from the 10% decline in July as the scandal unfolded. The analyst sees just a 5% chance of what he calls the “nightmare scenario” that would involve “a spread of the scandal’s toxicity …
It’s Official: News Corp Withdraws BSkyB Bid
Will U.S. Officials Now Investigate Murdoch?
So what now for Rupert Murdoch? Well, he’ll have a lot more cash to play with now that he has decided to scrap his $14 billion acquisition of the BSkyB shares that he doesn’t already own. He’ll probably look for something else to buy, possibly in education services — his new passion. You can be sure that it won’t be an asset that would require him to seek approval from government officials. But his shareholders also are eager to get their hands on some of that loot. Murdoch tried to appease them yesterday by announcing that News Corp would buy back $5B worth of its own stock. Don’t be surprised if they start lobbying for higher dividends too. Murdoch may have to give them what they want if News Corp’s stock price falls as questions arise about his management, the quality of the board of directors’ oversight — and, especially, succession plans.
Some analysts say the Murdoch’s defeat may lead him to think about selling, not buying. His newspapers, once his proudest possession, could be seen as too much trouble. Nomura Equity Research’s Michael Nathanson says in a report today that the newspapers are “highly inconsequential” for the entertainment company.
This could provide some pop for News Corp shares, which have declined more than 12% over the last five days as the News Of The World phone-hacking scandal mushroomed. The company says this morning that its board of directors has authorized a $5 billion stock repurchase over the next 12 months, up from $1.8 billion it had previously approved. The buyback applies to the company’s Class A shares, the ones that ordinary investors typically own, as well as the Class B ones that Rupert Murdoch and his family control. News Corp says that the purchases will begin after August 15. It also warns that while the board has authorized the transactions, the company isn’t required to repurchase any stock and the program “may be extended, modified, suspended or discontinued at any time.” But Wall Street will closely watch what the company does: In a report this morning Nomura Equity Research analyst Michael Nathanson says that “pressure is growing for News Corp to address equity returns to shareholders.”
UPDATE, 3:15 PM: Add NewsCorp COO Chase Carey to the list of executives of studio owners who characterize Premium VOD as merely a test that shouldn’t hurt theater owners. In a quarterly earnings conference call with analysts and reporters, Carey said that Fox and other studios are beginning to offer 8-week-old movies to cable and satellite VOD because they had little choice: Services such as Netflix and Redbox are renting DVDs for as little as $1 a night ”and that doesn’t work,” Carey says. “We have to build appropriate values and windows into our business.” Fox is “in the very early stages (of the P-VOD trials) with one small film.” He doesn’t want it to affect exhibition chains because they “set the pace for the film industry.” Still, he hedged when asked whether Fox would let exhibition companies see how well P-VOD movies perform — something that the National Association of Theater Owners says it wants. Carey says he “doesn’t know what request has been made,” although he adds that it’s “important for everyone to understand what’s going on.”
Jeremy Hunt, the UK culture secretary – and a man known to be sympathetic to the Murdoch media empire – will now decide whether News Corp’s £7.8 billion ($12.5 billion) takeover of BSkyB gets referred to the Competition Commission. Business secretary Vince Cable disqualified himself from the role this afternoon after telling 2 undercover newspaper reporters that he had “declared war on Mr Murdoch and I think we are going to win”. Prime minister David Cameron called Cable’s views on Rupert Murdoch “completely unacceptable”. The BBC has been leaked the full transcript of Cable’s secret taped conversation with the Daily Telegraph reporters. Ofcom is investigating the bid on the grounds of protecting a diversity of voices. It’s not meant to be political. Cable went on: “His whole empire is now under attack… So there are things like that we do in government, that we can’t do… all we can do in opposition is protest.” Robert Peston, the Beeb’s business editor, has been leaked the transcript by a whistleblower unhappy that the Daily Telegraph omitted this part of Cable’s interview in today’s front page splash. News Corp says: “News Corporation is shocked and dismayed by reports of Mr Cable’s comments. They raise serious questions about fairness and due process.” Claire Enders of Enders Analysis, the media analyst who wrote to Cable outlining how the deal would harm media diversity, tells me: “This was a huge mistake on his part. It …
Mark Thompson has called on the British government to intervene in News Corp’s bid to take full control of BSkyB. Speaking on PBS’s Charlie Rose Show in New York, he agreed there was potential for an abuse of power by the Murdoch media group if BSkyB, the UK’s biggest broadcaster in terms of its £5.4 billion revenue, comes under the same ownership as News International, the UK’s largest newspaper group. Combining BSkyB with News International, owner of The Sun, The Times and The Sunday Times, raised issues of “how you ensure plurality in the system”, Thompson warned. He said that the UK government should look at those issues – although he stopped short of calling for the deal to be blocked.
UPDATE: The Walt Disney Co was the last major studio and network to report quarterly earnings, and its fiscal 3rd quarter profit rose 40% on the strong box office grosses from Pixar’s Toy Story 3, Marvel’s Iron Man 2, and Tim Burton’s Alice In Wonderland 3D. As promised, here is an earnings roundup showing that Big Media is alive and well and even flourishing not just this quarter but in many cases for next quarter or even the entire year. Yet the trickle down effect has been slow or nonexistent for Hollywood. After rounds of layoffs during the economic crisis, the moguls are still slow to put people back to work. And the movie and TV community still is underemployed. But what everyone can count on is that Big Media’s good news for the benefit of Wall Street will turn into bad news to the detriment of talent, behind-the-camera, post-production, and below-the-line unions when it’s time to negotiate:
August 5th: Viacom Inc Reports Sharply Higher Earnings For Q2
Credit the rebounding economy and recovering advertising market. Net earnings rose to $420 million, or 69 cents a share, up 52% from $277 million, or 46 cents a share, a year ago. Executive Chairman Sumner Redstone gushed, ”With six months under our belt in this calendar year, day after day our confidence continues to grow as the emerging economy recovery builds. Now of course we’re not all the way back, but the light is brighter than it’s been for some time… Consumers are returning to the marketplace, marketers are beginning to spend again to grow revenues and capture share and Viacom is now and will continue to benefit.” Revenue at Viacom’s media networks group rose 6% to $2.1 billion.
Viacom CEO Philippe Dauman said ad revenue growth has been improving quarter by quarter. “Once we get into October and into the December quarter, we will benefit from this upfront where we have greater volume than last year at higher pricing. Dauman singled out Jersey Shore as a show where ”we have advertisers scrambling to get on it. We have advertisers who want to be wall to wall in particular episode. We’re turning them away.” Viacom’s movie business was down 10% to 41.25 billion, led by a 43% drop in home entertainment revenue. Also, Paramount Pictures has primarily been distributing others’ films like Iron Man 2 and Shrek Forever After in 2010 and self-financing its own pics. It is deliberately pursuing a strategy of a smaller slate of films in 2010-2011. Still, the film unit booked income of $69 million, reversing an $8 million loss in the same quarter a year ago. Viacom continued to post equity losses from its EPIX joint venture but said it should approach break-even by the end of the year.
August 4th: News Corp Posts Improved 4th Quarterly Results
News Corp posted a profit of $875 million, or 33 cents a share, for its fiscal 4Q ended June 30th easily beating analysts expectations. That compared with a loss of $203 million, or 8 cents a share, a year ago, when News Corp took an impairment charge. Revenue grew 6% to $8.11 billion, as companies spent more to advertise on the company’s television stations, TV channels and newspapers. That beat the average forecast of analysts of $8.05 billion. COO Chase Carey explained that brisk sales of advertising at Fox Broadcasting and the company’s cable television networks made the difference, while ad rates at the Fox network are up by a double-digit percentage from this spring. Ad rates are even better at the cable channels, which already represent more than 50% of the company’s profits. Local television station advertising revenues improved 29% in the quarter and 8% for the year compared to the same periods a year ago, reflecting strength in the automobile and telecom sectors.