After the close of markets Monday, News Corp released their second quarter earnings. The numbers, which are reported below, were very good on an operating level despite slightly missing profit expectations. Also, in a true rarity for this earnings season, the company raised its guidance for fiscal 2008 operating income.
More insightful than the numbers was the analysts call and Q&A. Rupert Murdoch’s participation is a little like a light version of Warren Buffet’s famous annual meeting speeches. Mr. Murdoch is at times frank, occasionally reserved but always on point and extremely well informed. At one point, he even corrected one of his colleagues on the numbers. What follows are some of Murdoch’s comments on the News Corp empire, broken out by theme:
•On the Economy and News Corps Ability to Withstand Bear Markets
“Now I know the big question on all of our minds, besides how Eli Manning was able to elude that sack and hit Tyree to set up the big Giants game-winning touchdown, is the resilience of the United States economy.
Clearly though, we’re facing potential challenges in our economic environment, ever challenging and for how long, no one knows. What is certain, however, is how better positioned we are than any other media company to weather whatever comes. Just look at the last quarter. Despite some softening in the overall economy, we posted extraordinary numbers, a powerful sign that our businesses are durable and positioned for the longer term.
The reasons are three-fold; first, we put major effort over the past 10 years into rapidly developing our subscription businesses …
Second, we’ve expanded internationally…
And third, we’ve invested smartly in the media where we think the greatest growth potential lies…
The result — today we are structurally a more sound company with significantly lower exposure to the vagaries of the advertising markets. In fact, today, less than a quarter of our revenues are dependent on the American television advertising business. And given our geographic and product diversification during this same period, we are no longer as dependent on the strength of any one market or medium.”
•On the Wall Street Journal
“We always suspected from afar that Dow Jones, properly leveraged as part of a larger global media company, had boundless potential, and if possible, I’m even more excited about its prospects now now than in [preceding] month leading to our takeover.”
“We see the greatest growth opportunity is really in our ability to strengthen Dow Jones’ online assets. It’s there where we are spending our most concentrated time and where we think we can achieve exponential growth”
“I’m more bullish than ever.”
•On Subscription versus Free
“The bulk of the Journals core business coverage will remain behind the subscription wall and the exclusive intelligence service for serious business people and investors.”
“Those matters that are basically commodities and that you can get free elsewhere, or those subjects, [are what] will be in our new wider, more open online service.”
“We have unique financial information. It is clearly of tremendous value to people and we think we ought to charge for that, the same as everybody else does. And as we open new niche online sites, some of them will be extremely valuable and we expect it will take … this is not going to happen in the next three months but we are having talks with a lot of financial institutions who seem to be welcoming this approach and we are hopeful that over the next couple of years, we’ll have major increases in revenue in the enterprise group.”
Asked in follow up if AOL might be an alternate target. Murdoch: “That’s an even easier question. No.”
The Finances, By the Numbers:
•Revenues for the quarter ended December 31st were up 10% to $8.59b from $7.84b. Profit was barely up year over year, hitting $832m (27cents a share) versus $822m (26cents a share) last year. The result missed consensus expectations by a cent. Operating income, on the otherhand, was up notably. The result there was a 24% gain to $1.4b versus $1.1b last year.
•Fox Interactive Media, which News Corp reports in the "other" category, had revenue growth of 87% ($233m). Operating profit was $47m compared to a loss of $11m last year. Payments from Google were $62m during the quarter. Total ad revenues for the group were up 43% year over year and 31% sequentially. Approximately 85% of the ad income comes from domestic sources. A quarter to a third comes from search and the majority of the revenue comes from MySpace. The company is confident the unit will hit their $1b annual revenue target.
•Within the film group, a weaker slate of titles brought operating income down from last year’s record setting return but still returned a solid result of $403m. The company expects the rest of 2008 should provide strong results. Juno was made for under $10m and has so far generated more than $110m at the box office. According to Peter Chenin, DVDs should also do well. News Corp “expect[s] an up-tick in 2008 from the sale of Blu Ray DVDs, now that Warner Brothers has announced its exclusive support of the format.”
•Broadcast television station earnings were down but operating profit was more than double the year ago. The company said the writers’ strike did not have any material impact. Looking ahead to the next reporting period, this weekend’s Superbowl earned revenue of $250m and was one of top drawing TV programs in 25 years.
•The cable broadcasting group had a 23% gain in operating profit with a result of $337m.
•The newly named Newspaper and Information Services Segment was up 15% year over year with operating income of $196m.
•FIM: Getting Deeper into Web Development
•MySpace Mobile: Fox Interactive Mobile Content
•News Corp and Dow Jones: Inside the Deal
•Hulu Heads to HD: Fox and News Corp Venture Pushes Ahead
•News Corp Q4 Earnings (August)
More detailed press discussion on News Corporation’s finances can be found at: