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News Corp swings to Q4 loss but poised to return to profit

2009.08.15

News Corp., reporting a quarterly loss, plans to charge for online news across its many media outlets. "Quality journalism is not cheap," says Murdoch. He adds that he is irked by News Corp.'s revenue cut from Amazon's Kindle device.

RUPERT Murdoch said today News Corporation was poised to return to profit as the global economy rebounds.

The comments by chief executive and chairman of the media giant came after the company swung to a fourth-quarter loss as a strong performance from its cable networks couldn't make up for the economic downturn and advertising slump.

Its full-year results were roughly in line with its forecast, which News Corp had lowered twice as the financial crisis engulfed Wall Street and the global recession hit around the world. It posted a 32.5 per cent drop in fiscal-year adjusted operating income after telling investors in May that it expected a decline of around 30 per cent.

Like other media giants, News Corp is struggling to find growth sources while the rise of digital communications wreaks havoc on the industry's traditional business models.

Its shares have lost more than a quarter of their value over the last 12 months, although the stock has rallied by nearly 16 per cent in 2009 on hopes that an economic recovery is near.

"I am certain that News Corp is poised to profit, and deliver strong returns, as the economy rebounds," said Mr Murdoch.

In after-hours trading in New York, News Corp's class A shares were flat at $US10.58.

The publisher of The Wall Street Journal, The Australian and Dow Jones Newswires posted a loss of $US203 million ($241m), or US8 cents a share, for the quarter, compared with earnings of $US1.1 billion, or US43c a share, a year ago.

Excluding impairment and other operating charges, the company earned US19c a share, beating the average analyst estimate by a penny, according to a poll conducted by Thomson Reuters.

Revenue fell 11 per cent to $US7.67bn, slightly ahead of the average analyst estimate of $US7.63bn.

Chief financial officer David DeVoe later told analysts that the company expected its fiscal 2010 adjusted operating income to increase by a high single-digit percentage rate.

Mr DeVoe said the increase would be based upon the company's fiscal 2009 operating income of $US3.44bn, which excludes $US121m in profits from NDS, a business News Corp sold.

He also said the company expected its overall revenue to grow by 4 per cent in fiscal 2010, while ad revenue would be flat.

He said the company expected growth for News Corp's cable networks, its film division, and its satellite TV business in Europe, Sky Italia. But he also said that "visibility" remained limited due to the continuing economic downturn.

Mr Murdoch said he was "confident" the company could meet its forecast.

"I think the worst may be behind us," Mr Murdoch said, "but there are no clear signs yet of a fast economic recovery."

Murdoch also reiterated today that the company planned to begin charging consumers online for access to all the company's news websites.

"Quality journalism is not cheap," Mr Murdoch said, noting that the success of The Wall Street Journal's online subscription offering has convinced him that consumers will pay for news online that differentiates itself from the mass of information available free on the web. "A newspaper that gives away its content is simply cannibalising its ability to produce good reporting."

While Mr Murdoch has indicated before that News Corp would look to charge consumers for online access to news content, his comments today suggested a broad attempt to charge for online news across the company's many media outlets.

Mr Murdoch said News Corp was working with hardware and software developers, as well as fellow publishers, to find the most effective way to charge consumers online for news content.

He said it was "highly unlikely" that News Corp would develop its own mobile device for reading news, but he also said he was dissatisfied with a deal the company reached with Amazon to offer The Wall Street Journal on its Kindle device.

"We'll get a better share of the revenue, but it's not a big number, and we're not encouraging it at all," he said, noting that Amazon would keep information about subscribers to itself.

"It will eventually cause a break between us."

News Corp's television segment posted a 66 per cent drop in operating profits, weighed down by weak advertising trends at its local TV stations and the Fox Broadcasting network. Ad revenue at its stations group fell 27 per cent, because of weak auto, finance and entertainment spending.

Its cable networks -- a bright spot for the industry -- picked up the slack, with a 39 per cent increase in operating profits led by the Fox News Channel, a 24-hour news network and ratings powerhouse.

News Corp's film segment, feeling the effects of a slowdown in DVD sales -- Hollywood's largest profit engine -- logged a 7.7 per cent decline in operating profits. Its results were driven by home entertainment sales of Marley & Me and Slumdog Millionaire, while marketing costs for the theatrical releases of X-Men Origins: Wolverine and Night at the Museum: Battle of the Smithsonian were drags.

News Corp's division that includes Fox Interactive Media, which includes the social networking site MySpace, posted a $US136m operating loss due to ad declines and the cost of launching MySpace Music. The unit suffered turmoil during the quarter as it lost ground to rival Facebook and slashed its work force by nearly a third.

In March, News Corp installed Jonathan Miller, formerly chief executive of internet company AOL, to oversee MySpace and News Corp's other digital properties. Soon after, the company hired Facebook veteran Owen Van Natta as chief executive of MySpace.

The company's publishing businesses also slumped, amid the continuing decline of the newspaper, magazine and book publishing businesses. Newspaper and information services profits were down 63 per cent, while book publishing swung to a loss of $US1m. The company's magazine and inserts business grew profits by 7.4 per cent, to $US102m.

Mr Murdoch said closing newspapers was "not a prospect at the moment" for newspapers, though he said the company could do more cost-cutting at business like The Times of London.

But he said News Corp would continue to invest in producing high-quality journalism.

"We want to come out of this with much stronger franchises than we started with," said Mr Murdoch, noting that some of the company's competitors were facing closures.

"Our policy is to win." 

www.theaustralian.news.com.au/business/story/0,28124,25890630-7582,00.html

 

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