Media giant News Corp has posted a quarterly net loss on a large accounting charge but beat analyst forecasts as operating profit rose 20 per cent on advertising gains at its cable networks and revenues at its 20th Century Fox film studio. News Corp on Thursday reported a fiscal first-quarter net loss of $433 million compared to a net profit of $625 million in the same period last year. Revenue rose 10 per cent to $5.68 billion.
The $1 billion charge relates to the way News Corp calculates the value of its US Federal Communications Commission television station licenses based on a new accounting standard established last year. Prior to the new standard, companies were able to put a higher value on intangible assets like broadcast licenses.
News Corp chairman and chief executive officer Rupert Murdoch said the results reflected the fiscal and operational momentum "we have enjoyed for some time. This was our 15th consecutive quarter reporting year-on-year operating income and revenue growth, and we delivered strong gains across nearly all of our operating segments."
The consolidated operating income for the first quarter of $909 million was up 19 per cent over the $766 million during the same period a year ago. The operating income growth during the first quarter this year was driven by double-digit percentage increases at the Filmed Entertainment, Cable Network Programming, Magazines and Inserts and Book Publishing segments, as well as by significant improvement at SKY Italia.
Income for the first quarter, before cumulative effect of accounting change, was $580 million, ($0.18 per share on a diluted combined basis1), as compared to net income of $625 million ($0.21 per share on a diluted combined basis1) reported in the first quarter a year ago. The company said these results reflected an increase in consolidated operating income and an improvement in equity earnings of affiliates, offset by reduced other income from the unrealised change in fair value of certain outstanding exchangeable debt securities and an increased tax provision resulting from a benefit in the prior year from the resolution of certain tax examinations.
News Corp's growth this quarter surpassed that of its peers in a tough media climate, boosted by its film division and cable network's operating profit growth. "Operationally, this company is succeeding in a very difficult environment," said Scott Benesch, research director at money management company US Trust, which owns over 8 million shares of News Corp stock. Benesch told Reuters, "You're not seeing those numbers at any of the other media conglomerates."
Murdoch himself said, "We have opportunistically expanded into new media, acquiring several assets which complement our existing businesses and which we believe enable us to better monetise our vast library of popular content. With solid momentum throughout the company and a strong foundation of new media investments, we believe we are ideally situated to deliver continued strong returns in the future."
The newspapers segment reported first quarter operating income of $125 million, an increase of $7 million during the same period a year ago. The inclusion of results from the Queensland Press Group, which was acquired in November 2004, as well as higher advertising revenues in Australia, drove the year-on-year growth.
The Australian newspaper group reported a substantial increase in first quarter operating income in local currency terms versus fiscal year 2005. The growth was primarily driven by the inclusion of results from the Queensland Press Group and increased advertising revenue with particular strength in the national display and employment classified markets.
The operating income of the UK newspaper group, however, declined in local currency terms as circulation revenue growth was more than offset by lower advertising revenues and higher depreciation costs associated with the development of new colour printing operations. The circulation revenue gains were the result of increased cover prices across all major titles, as well as from the conversion to a compact version at The Times.
The television segment reported first quarter operating income of $160 million, a decrease of $74 million versus the same period a year ago primarily reflecting lower contributions from Fox Television Stations (FTS) and a decline at the FOX Broadcasting Company (FBC) resulting from the timing of the launch of the fall lineup.
The operating income of FTS declined 10 per cent from the same period a year ago primarily as a result of higher programming costs from additional local sports rights and the continued expansion of local news. Despite softness in the overall advertising market and lower political spending, revenues for the quarter were only down slightly.
At FBC, operating results decreased compared to a year ago as higher advertising revenues, primarily from ratings growth of 16 per cent among Adults 18-49, were more than offset by increased promotional costs associated with the earlier debut of FBC's new fall line-up versus last season.
STAR's first quarter operating income declined versus a year ago as revenue growth of 22 per cent, primarily in India, was more than offset by higher programming and promotional costs from the launch of new channels and an expanded programming line-up at STAR Plus. The revenue growth was driven by increased advertising revenues at STAR Plus from the relaunch of Kaun Banega Crorepati, India's version of Who Wants To Be A Millionaire, and from higher subscription revenues reflecting new channel offerings and the international distribution of several of STAR's channels.
Cable Network Programming reported first quarter operating income of $197 million, an increase of $31 million over the first quarter a year ago. The 19 per cent growth reflects advertising and affiliate strength at Fox News Channel (FNC) and the Regional Sports Networks (RSNs). FNC reported operating income growth of 64 per cent for the first quarter as strong revenue growth, primarily from increased advertising, more than offset higher costs associated with covering hurricanes Katrina and Rita. Viewership in the quarter was up 31 per cent in primetime and 30 per cent on a 24-hour basis despite coverage of the Democratic and Republican National Conventions a year ago.
SKY Italia reported first quarter operating loss of $61 million, an improvement of $60 million versus a loss of $121 million a year ago on local currency revenue growth of 20 per cent. This improvement primarily reflects subscriber additions, with more than 568,000 net new subscribers added over the past 12 months, bringing SKY Italia's subscriber base to 3.4 million at quarter end.
The filmed entertainment segment reported first quarter operating income of $368 million, up $77 million from the $291 million reported in the same period a year ago. The 26 per cent growth primarily reflects strong syndication and home entertainment contributions from Twentieth Century Fox Television (TCFTV) and strong worldwide theatrical and pay-TV revenues from film releases.
First quarter film results were largely driven by the home entertainment performances of Robots and Hide and Seek, as well as by contributions from various catalogue titles including Dodgeball, Napoleon Dynamite and Garfield. Additionally, the worldwide theatrical performance of Fantastic Four, which has grossed over $320 million to date, and the pay-TV availability of Alien vs. Predator and I, Robot contributed to the strong quarterly results. The first quarter a year ago included the home entertainment performances of The Star Wars Trilogy and Passion of the Christ and the theatrical performances of The Day After Tomorrow, Dodgeball, I, Robot and Alien Vs. Predator.
The company faces an investor lawsuit over charges the company had reneged on a promise to seek shareholder approval before extending a poison pill measure. In August, News Corp extended without shareholder approval its "poison pill" provision to guard against hostile takeover. The anti-takeover measure was originally adopted last year after Liberty Media Corp, controlled by cable magnate John Malone, quietly boosted its voting stake in News Corp to about 18 per cent. Since then, Murdoch and Malone have been holding discussion to unwind Liberty's voting stake in News Corp.
