News Corp. Admits Soft Fall Start For Fox

With company-wide revenues up only 2.2% to $8.14 billion and operating income down 0.5% to $1.38 billion, the fiscal first quarter [July-September] was not the sort of growth quarter News Corp. executives like to crow about. Political advertising helped the television segment, along with a more than doubling of retransmission consent revenues, but company officials conceded that the new television season is not off to a roaring start.

Television segment (primarily the Fox Network and the Fox owned-and-operated TV stations) revenues were up 3.9% to $959 million. Operating income increased 17.3% to $156 million. Those results were far less impressive than at the Cable Networks, where revenues rose 15.5% to $2.45 billion and operating income rose 23% to $953 million. Domestic cable ad revenues were up 8%, led by the regional sports networks and Fox News Channel.

“At our broadcast business, our results were mixed this fall,” said President-COO Chase Carey in Tuesday’s conference call with Wall Street analysts. “On the positive side, we continue to be on track with our goal of building a dual revenue stream business through both retransmission and reverse compensation with our affiliates. Our stations continue to do a great job maximizing margins and market share. However, our fall entertainment launches have been below our expectations and a four-game World Series was clearly not what we had hoped for.

“Nonetheless, we’re focused on initiatives to build on some of our key franchises and look forward to the return of a refreshed American Idol in January and dynamic upcoming new series like The Following starring Kevin Bacon,” he added.

“The advertising market has also been mixed. Political spending exceeded expectations, while the base local ad markets were a bit softer in the first quarter, with trends down in the mid-single-digits excluding political ads,” said Carey, adding that the Olympics on NBC also hurt the quarter’s results.

“Second quarter [October-December] looks a bit better, with post-election results tracking up in the mid-single-digits from a year ago,” he told Wall Street.

At the Fox Network, Carey confirmed recent market chatter that the scatter market is not robust.

“Nationally, we’re still seeing broadcast scatter at a modest premium to upfront pricing and national cable’s a bit stronger than national broadcast. It’s still clearly, however, a market with very limited visibility,” he said.

The current quarter, Carey told the analysts, is looking a little better. “I’m not saying this quarter is rockin’ and rollin,’ but I think the quarter is a bit better than it was last quarter. But underlying it, I think you have an economy that has limited visibility. I think there is some degree of people waiting for the election and year end and what happens as you go through some of the events — the fiscal cliff and the like. So I think you’ve got a market that is pretty reserved.”

Chairman-CEO Rupert Murdoch was not on the quarterly call with analysts, but he issued a statement applauding the company for growing revenue and “adjusted” operating profits. That adjustment is removing costs associated with phone hacking investigations in the U.K. related to the company’s newspapers and expenses related to the proposed separation of News Corp.’s publishing arm into a separate company. If you exclude those costs in fiscal 1Q of each year, operating income inched up $48 million to $1.45 billion.

“We are committed to leading the change that the marketplace and our customers demand as the company builds on its success at leveraging multi-platform opportunities for our content,” Murdoch declared. “We believe that our ability to do so will be enhanced by the flexibility and management focus that will result from the proposed separation of our entertainment and publishing businesses. We have made considerable progress in this process and look forward to providing more details by the end of the calendar year.”