News Corp. Upbeat for 2011

Reverses losses to post 2010 earnings led by cable

By Jon Lafayette -- Broadcasting & Cable, 8/4/2010 4:56:42 PM

Having turned its losses from the prior year into a tidy profit in 2011, News Corp. on Tuesday forecast that its earnings would increase by double digits in 2011.

News Corp, whose fiscal year ends in June, is the first major media to take a look longer term health of its business. And most of what it sees it likes.

Rupert Murdoch, chairman and CEO, who has been somewhat pessimistic about the world economic outlook in the past, said on the company's earnings call that while conditions remain "very fragile," the advertising market is "inexplicable good."

"So we just have to wait and see how it turns out, but certainly I'm very confident of the next six months. But I think there is sufficient credulity for us not to be over confident about the long term or the medium term," he said.

News Corp. CFO David DeVoe, who delivered the company's financial guidance for 2011, said that "we are anticipating a stable economic outlook with modest growth in the major economies in which we operate and we expect that advertising markets will remain healthy. As a result we expect many of our businesses will generate strong year over year earnings growth and these include continued robust growth at our cable networks, led by further expansion of our international channels, as well as sustained revenue increases at Fox News, the RSNs and Star."

Despite a film business that is unlikely to replicate the success of the record-setting Avatar, and unfavorable changes in foreign exchange, DeVoe said News Corp. expected the growth rate for the company's operating income to be in the low double digit range from its $4.46 billion total in 2010.

Chase Carey, COO at News Corp. said that in 2010, the company benefited because "the economy was not as dire as we feared and we benefited from a recovering advertising market.

Carey said the ad market continues to be very strong.

"Our local stations current look to be pacing close to a 30% growth rate for this quarter and the scatter market continue to generate double digit premiums to upfront pricing. Our cable network scatter is even higher than that," he said.

Cable has become News Corp.'s biggest generator of profits and growth, led by Fox News, the regional sports networks and international channels.

"This group not only has exciting growth potential but great stability This group not only has exciting growth penitential  but great stability due to the long range nature of our contracts. It is a fabulous business and I do not believe that its strength value and importance are properly understood in evaluating News Corp," he said.

Carey also noted that in addition to having the top movie in Avatar, the company produced TV's two biggest new hits in Glee and Modern Family, both of which have already been sold in to syndication.

Carey added that Fox Broadcasting Co. has been successful, finishing first for the sixth straight year among adults 18 to 49, but has a problem with "a lousy business model."

He said broadcast needs a dual revenue stream. "We've begun this fight and we will prevail. We have right on our side. We have the most valuable programming and deserve to be fairly compensated."

During the conference call, Murdoch assured the analysts and reporters that Fox was close to naming new judges for its top-rated show, American Idol.

"I can assure you that next year's Idol will be different and will be better and that the music will be better," he said. He added that next year, when the network adds X Factor, "we'll really stand out."

Also during the call, Carey was asked about his new compensation deal, in which his base salary is being cut to $4.05 million in 2011 from $8.11 million in 2010.

He said he was basically exchanging salary for longer-term performance based compensation.  "It aligns my interests more with the shareholders," Carey said.  "I believe in the business I believe in our future. And I think it's the right thing to do."

News Corp. posted fourth quarter net income of $875 million, or 33 cents per share, compared to a net loss of $203 million, or 8 cents a share a year ago.

For the full year, the company said net income was $2.5 billion, or 97 cents a share, compared to a $3.4 billion loss, or $1.29 a share, in 2009.

The company said that excluding special charges, its operating income was up 30% in 2009...

In the fourth quarter, operating income at News Corp.'s television unit rose to $113 million from $100 million. For the full year, the television division has earnings of $220 million, up from $191 million in 2009.

The quarterly and full year results were largely driven by improved advertising markets.

Local station advertising revenues improved 29% in the quarter reflecting strength in the automobile and telecom sectors.

At Fox Broadcasting Co., fourth-quarter and full-year operating results decline due to higher programming costs, the company said, citing increased license fees for returning series and higher NASCAR costs

There was also a decline in Fox's ratings that more than offset higher advertising pricing.

Operating income for the company's cable networks rose to $563 million from $429 million in the quarter and to $2.27 billion for the year.

Advertising revenue at the domestic cable channels grew over the prior periods by 11% for the fourth quarter and by 3% for the full year.