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Yesterday Rupert Murdoch told the press that News Corp. was in good shape, except for its TV properties. Today he delivered the same news, via his company's quarterly report: The local TV ad market has fallen off a cliff. Ad revenues were down 10%, and operating income at his TV unit was down 28%. And the company says things are looking just as bad this quarter, and will continue to look that way for at least a year.
Aside from that gloom, though, Murdoch and COO Peter Chernin insisted that the rest of their company is in pretty good shape: Cable TV, for instance, remains strong, and units like their SkyItalia satellite business are growing quite fast, too. Meanwhile MySpace and the rest of the company's Web properties are rebounding from an unpleasant spring, and aren't seeing any weakness in the online ad market.
Summary follows, and transcript from earnings call after that.
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But television really was hammered, though: Operating income fell from $385 million to $279 million, a 28% y/y drop. Meanwhile Fox Interative Media -- MySpace and some other Web properties -- saw operating income drop.
Revenue: $8.6 billion, beating 17% y/y, beating $8.5 billion consensus
Operating Income: $1.5 billion, up 21% y/y. Double-digit increases across the board except for television
Earnings: $1.1 billion, up from $890 million
EPS: 43 cents, That makes more sense: Adjusted EPS is 35, in line with 34 cents consensus. Checking to make sure we're not missing one-time items.
What happened in TV? Revenue only dropped a bit more than 7% -- from $1.43 billion to $1.33 billion. But it lost very profitable revenue: Local station revenue dropped 26%. On top of that, the Fox network itself saw revenue drop along with ratings. The operating income loss would have been worse if not for the writers' strike: Fox's costs decreased because it bought fewer pilots this spring (because no one had time to make pilots).
Fox Interactive/MySpace: News Corp. doesn't break out financials in the release, though the Murdoch and Chernin usually do so in the earnings call. For now the company will only say that FIM's operating income decreased for the quarter. That's because "strong search and advertising revenue growth" was "offset by increased development and technical costs related to the addition of new features and costs associated with the startup of new ventures." Update on FIM revenues: FIM/MySpace: $225M, up 23% y/y, up consecutively from $210M in Q3, but still not as high as $233M in Q2.
CALL STARTING. Believe CFO speaking. Walking through numbers all available in release. O/I would be up 9% for Q4 if you take out one-time gains. Adjusted EPS was 35 cents.
TV: Ad sales declined 10% in local markets: Auto and movie ads down. Cable in good shape. Fox News channel getting ad rate increases, affiliate increases.
FIM/MySpace: $225M, up 23% y/y, up consecutively from $210M in Q3, but still not as high as $233M in Q2. Result of higher search, ad revns. Search increases up 50%. Operating income $6 million, down from $30M - high expenses (but not much detail).
GUIDANCE: "Significantly more challenging environment" for local ads.
Technical difficulties getting Murdoch, who's calling from Bejing, online. COO Peter Chernin going first:
Chernin wants to accentuate the positive. Call breaking up. Talking up big success on Fox broadcast. Hey! Here's Rupert from China! Interrupting Peter! Whoops - PR Gary Ginsberg has to tell him to cool his heels. OK. Chernin back.Network outlook bright, but local market looking bad. Pacings for 09 continue to be weak: Auto, telecom, financial services remains down. Overall local ad market is "highly challenged for the moment." But again, cable good, Q1 looking good.
Film: Talking up slate, per usual: Yet another X-Men Movie, yet another Ice Age movie in 2010. "Despite recent hand-wringing" over DVD market, floorspace actually widening at retail (as we've noted!)
FIM: "Quite pleased" with MySpace: Revs up q/q and y/y. (but still down from Q2). Some very nice news: "Dramatic increases" in branded display ads so far this quarter: Financial services up, and all categories up double-digits. More advertisers spending on home page, and users spending more time on home page. Next month MySpace Music JV launches next month. (Any news on CEO? No).
Here's Rupert, finally. Apologetic about being late. Notes he's China now, was in India yesterday. Because News Corp.'s very global, you see. Talk of international downturn overdone. Lots of cheerleading (would make more sense if Chernin went second)
"Significant structural challenges" at some of our older businesses. But cable, satellite and FIM can all grow. And Asia's going to be huge, too. Other companies "may indeed be struggling" but we're in good shape.
Q&A: How big is enterprise b2b media in print and w/in Dow Jones in particular? You sold TV stations at 10x Ebitda earlier this month. Other sales?
Murdoch: More than half of profits at DJ come through digital delivered products, such as newswire, Factiva, indexes. All growing very fast. WSJ print and online growing very fast. It is an information service, not a newspaper. An information that will be neutral to all platforms: Kindle, mobile, PC whatever. [Pretty much a non-answer]. Chernin on other asset sales: We got a great price on the stations we sold. Not sure we'd get that again. And we have lots of valuable assets. Not sure I'd be looking to see us selling in the near-term. Murdoch: "I support that"
Leverage at FIM: What is cost outlook for FY 09 there - possiblity of getting bigger/gaining scale? Also on advertising: Is weak auto/financial sales locally bleeding into national?
Chernin: FIM: We Need scale. Will keep investing for growth. But we think we can grow margins into 09. Project revenue growth of 30%. Costs will grow but so will margins. So we'll outpace that. National TV ads? Strong, though auto is the weakest right now. But we have Ford and they've reupped for American Idol. We also have multiyear deals for sports that we've locked in. Also car companies continue to emphasize national advertising even as they cut back on local ads. Buyers have done lots of work on the Web prior to coming to showroom, so they can cut back on local. But they need national branding to get people to look at the cars.
Revenue guidance? Broadly, except for TV (which will be down mid-single digits) rest of business (not including FIM) will grow low-to-mid single digits.
What are you going to do with cash you've gotten from station sales, etc? Murdoch: "We're going to be opportunisitic, and we're going to be careful like everybody else." Strength of balance sheet "number one priority".
MySpace: Is economic problem affecting ad sales? [Doesn't seem so based on commentary] We made change in ad sales management. We're reaping benefits. Market may be a little soft, but we're encouraged by what we're seeing ourselves. [That sound you hear is NWS bus running over former sales chief Mike Barrett].
Online video growing very fast. Will that hurt TV? I know you'll say no, but I'm going to ask anyway. Chernin: Yes, user-generated content is competitive. Eyeballs going somewhere. But that's the world we live in. Our challenge is to make compelling content. If you're not watching UGC, they're playing video games, looking at phones, etc. We need to look at UGC very differently than we do premium content. We're offering advertisers "segregation opportunities" on MySpace so they can be with stuff they're comfortable with.
Hulu, meanwhile doing great. 88M streams in June. A good example of way we're transitioning busienss. Its's a way for us to replace something that's gone away: Broadcast reruns. We don't run reruns of reality and serial dramas. But we can do that on Hulu, and make that additive. Same thing with sell-through online. We've been very careful to make sure that those margins are equal to or better than DVD. So if whole busines migrates there we'll be ok. Making sure we don't canabalize margin in that transition.
Comment on CVC ruling re: DVR in the sky? Still reviewing ruling. But historically you can assume we weren't in favor of it, since we were suing CVC via the MPAA.
Why are you selling Russian assets? Murdoch: Because the more I read about doing busienss in Russia, the less I want to business there. The more successful we'd be, the bigger target we'd be.
Why won't you buy back more of your stock? Murdoch? "I don't know. Why don't you buy more stock?" We've seen other companies go into heavy debt to buy back stock, and they've gotten nothing for it. We might one day, and that's really what the DirectTV deal was, but let's take it step by step. Too many uncertainities.
What do you think about moving DVD releases to "day and date"? Chernin: We're looking and testing. But not in a rush. Just like with online video, "what's paramount in our mind is protecting our overall margins."
Press Q&A:
Any interest in Cablevision assets? Murdoch: "Not at the price they'll be asking. But some of their big cable channels could be interesting at the right price." Like what? "We're not looking at Rainbow per se. But I don't think we're being offered it." What would the right price be? Dunno.
Local TV weakness affecting cable advertising? Chernin: Hard for us to tell since we sell national cable ads for the most part, except for local sports channels, that we sell a lot of. But that seems to be doing well. Revenues in that business have been quite solid. You'd have to ask the MSOs about local cable ads. And national cable market we're seeing "quite good strength"
Chernin: "We're not talking to anyone right now" We've said we'd be interested in opportunistic conversations, "but they obviously went nowhere and we're not talking to anybody right now." Murdoch "We've already moved on from those conversations."
Call ends.
See Also: Murdoch: We're OK Except For Local TV
News Corp.: Selling Ads For MySpace Is Hard Work!
News Corp Web Unit Sees Revenue Drop; Admits It Won't Hit FY 08 Revenue Goals
News Corp On Microsoft, Yahoo: Talks? What Talks?
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