Little Sizzle in Q3 Earnings

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The sizzle and flash of the fall TV season couldn't hide mixed results at the broadcast units of Disney and News Corp. Both companies posted quarterly earnings last week, and neither impressed.

At Disney, broadcast-station and network revenues grew just 1% to $1.4 billion. That's attributed primarily to the absence of ad revenue from Monday Night Football games, which shifted to Disney-owned cable network ESPN.

However, those games were money-losers, so operating income should have improved. Instead, it dropped 40% from an already unimpressive $48 million to $29 million. Part of the problem stems from a write-down in the value of station licenses; the rest, from losses at the Disney Mobile cellphone startup, which is performing much worse than investors had hoped.

CFO Tom Staggs maintains that the ABC network itself is healthy and the profit picture should improve. “The average cost per hour of entertainment programming for ABC and primetime should be about even this year as versus last year, and so that's going to give you the opportunity for strong margin improvement at ABC this year.”

At News Corp., Fox's financial numbers were more positive, but the U.S. broadcast division has other problems. For the first quarter of fiscal 2007, TV revenues increased just 5% to $1.1 billion, but operating income rose a strong 20% to $192 million.

However, that rise is due largely to an easy comparison to last year's wretched performance. The company took substantial programming write-offs in the fiscal first quarter '06 as Fox rapidly cancelled series, notably Head Cases.

This year, Fox Network doesn't have the write-offs but still has ratings problems. Poorly performing fall shows have dragged ratings down 5% in total viewers this year and 10% in viewers 18-49. In addition to weak performance of the baseball playoffs and World Series, none of the networks' new series have worked, and one-time hit The O.C. is withering on Thursday night against ABC's Grey's Anatomy.

“I think it's safe to say it has not been a stellar fall launch for us,” says News Corp. President/COO Peter Chernin, speaking on the company's quarterly-earnings conference call. Because of the strength of returning dramas House and Prison Break, “we are not in the kind of black hole that we were in the past, but we're certainly not pleased or satisfied with the new dramas we have launched.”

Fox has plenty of opportunities for write-offs from series likely to be cancelled this quarter, notably Happy Hour. The network is expected to bounce back beginning in January when American Idol and 24 return to the schedule.

Both companies' cable-network units posted strong results for the quarter, with double-digit percentage gains in both revenues and income.

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