Cable Gains Boost News Corp.

Station group ad revenue up 22%

By Jon Lafayette -- Broadcasting & Cable, 11/3/2010 4:35:42 PM

News Corp. reported Wednesday that its first-quarter earnings rose 36%, led by the performance of its cable networks.

Net income was $775 million, or 30 cents per share, compared to $571 million, or 22 cents a share, a year ago.

Revenues rose 3% to $7.4 billion from $7.2 billion.

 "Our global cable network programming business continues to lead News Corporation's financial and operational momentum," said chairman and CEO Rupert Murdoch in a statement. "With continued subscriber growth in new and established channels throughout the world, and a global advertising recovery, our domestic and international channels now account for 25% of our revenues, and uniquely position us for profitable expansion of these franchises in the years to come. At the same time, our Television segment enjoyed significant operating income growth compared to the first quarter a year ago as local ad markets continue to rebound."

Operating income for News Corp.'s cable network programming group rose to $659 million from $514 million thanks to a 17% increase in revenue. Operating income at the domestic cable channels was up 23%. Ad revenues at the domestic cable channels was up 16% and affiliate revenues were up 14%.

News Corp.'s Television segment's operating income rose to $105 million from $67 million as gains at its television station group offset lower income from Fox Broadcasting. Fox Broadcasting's results were lower despite higher ad revenues from NFL games because of higher program cancellation costs and higher promotional costs.

"The new season has been a bit of a disappointment and we would have liked to have had a Game Six in the World Series. But the strength of the NFL and the ad market has enabled us to largely offset those shortfalls," said COO Chase Carey during the company's earning call with analysts. "More importantly we're very excited about the new energy in American Idol, and the continued progress on X Factor for next fall, with the potential to build real year-round tent poles."

Fox just ended a highly publicized retransmission standoff with Cablevision Systems. Carey declined to provide details of the agreement, saying only that "we feel very good" about the terms. Carey said that retrans agreements with cash payments were vital to the future of the broadcast business.

"These deals are critical to driving the Fox Network's financial success to reflect its real value," Carey said. "Now four of the largest distributors and have set the market for our broadcast business. Over the next couple of years as we continue to close new agreements we will be taking this business to a whole new level of profitability."

Revenue from retrans will enable Fox to continue to compete for important sports franchises, Carey said. While those are expensive, they also represent unique programming that drives record ratings at a time when viewing is fragmenting and being disrupted by DVRs and other digital technology. "There's no second World Series. There's no second super Bowl. They come with big pricetags but they're a big part of building Fox," he said.

At the stations, ad revenue was up by 22%, thanks in part to increase spending in the auto, telecommunications and financial sectors, plus a jump in political spending to $26 million. CFO David DeVoe said that ad revenues were on track for an 11% gain going forward without political ads.

The ad market has been a strong driver of better results for News Corp. and other media companies for several quarters. "Our stations are looking at 20% year on year growth in the December quarter while network scatter continues to be priced at double digit increases to the upfront," Carey said. "Though the broader economy still faces great uncertainty, there are no signs today that these anxieties are impacting the ad market as we begin to look beyond January 1. Nonetheless, we remain cautious and alert for the risks."

Twentieth Century Fox Television had higher syndication revenue from How I Met Your Mother and home entertainment sales from Glee, Sons of Anarchy and Modern Family.