“Our results for the quarter are a direct reflection of the grim economic climate,” said CEO Rupert Murdoch in reporting fiscal Q2 (October-December) results for News Corporation. Adjusted operating income plunged 42% to $818 million. Television segment adjusted operating income plunged 93% to a mere $18 million. That was due to declines at the Fox Network, MyNetworkTV, the O&O stations and at the Star satellite operation. Cable, however, had an up quarter.
The weak local television station business in the US got a lot of attention during the company’s quarterly conference call with analysts. CFO David DeVoe said same station revenues were down 20% in the quarter, “which is right in line with market declines.” Adjusted operating income declined 38%. Political ad growth was more than offset by weaker auto, telecom, movies and fast food categories.
News Corporation has been working to cut $400 million in annual operating costs at the Fox operations, both the two networks and the station group. That’s included reducing the headcount by about 800 people, although company officials said that was done mostly through not filling vacancies and permanently eliminating those positions.
Despite suggestions from analysts in past calls and this one that Fox ought to get rid of its local stations and take its network straight to cable, Murdoch remains committed to the local TV business. “There will always be room for good local stations that supply good local news. That is what the demand is for and that’s what we’re expanding – which, incidentally, is cheaper programming than buying a lot of syndicated material,” he insisted. But Murdoch conceded that he doesn’t know whether local television will return to the big profits of two years ago. “We’ll certainly be seeing much better profits than we’re seeing at this moment.
Fox Network results declined in the quarter due to higher programming costs and the effect of lower ratings and fewer games in the Major League Baseball post-season.
Meanwhile, Cable Network Programming profits rose 27% to $428 million. That was credited to improved results from Fox News Channel (FNC) , the Big Ten Network and the Fox International Channels, partly offset by costs associated with the continued development of the Fox Business Network. FNC operating income jumped 32%, in part due to election coverage.
Like so many other media companies, News Corporation took a big write-down for the value of its assets – an $8.4 billion pre-tax non-cash impairment charge related to goodwill and intangible assets. That dropped the company to a fiscal Q2 net loss of $6.4 billion, or $2.45 per share, compared to net income of $832 million, or $0.27 per share, a year earlier.
For the second time, News Corporation has revised downward its guidance for the current fiscal year. Whereas a quarter ago the company was telling Wall Street that operating income would likely drop in the low to mid teens, that’s been revised to a drop of around 30%. Originally, the company had forecast a 4-6% gain for the eyar.