This summary is based on the fourth quarter fiscal 2008 earnings call conducted by News Corp. (NWS) on August 5, 2008.
Management:
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Chairman of the Board and Chief Executive Officer: Rupert Murdoch
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President, Chief Operating Officer and Director: Peter Chernin
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Chief Financial Officer, Senior Executive Vice President, Director: David F. DeVoe
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Executive Vice President, Global Marketing and Corporate Affairs: Gary Ginsberg
Key Investors Issues
- Revenue rose 16% from $7.4 billion in 2007 to $8.6 billion.
- Net income was $1.13 billion or 43 cents a share, a 27% improvement over last year’s $890 million or 28 cents a share driven by filmed entertainment.
- A dividend of 6 cents per Class A and Class B share has been declared and is payable on October 15, 2008.
Full Year Highlights:
- Revenue was $33 billion, up 15% from $28.7 billion in the prior year.
- The company reported net income of $5.4 billion or $1.81 a share, a 68% improvement from $3.4 billion or $1.08 a share in the prior year.
- Stock repurchases to date totaled $4.2 billion.
Fourth Quarter Highlights
Revenue increased 16% from $7.4 billion in 2007 to $8.6 billion, reflecting double-digit growth in all of the segments, with the exception of television, which was below last year.
- Net income was $1.13 billion or 43 cents a share, a 27% improvement over last year’s $890 million or 28 cents a share driven by filmed entertainment.
- Results also include the $126 million gain on the United Kingdom land sale and Dow Jones operating income contributions that if excluded would reduce the quarter’s operating income improvement to 9% over the fourth quarter a year ago.
- Equity earnings included a write-down on BSkyB’s ITV investment, of which the firm’s share was $111 million.
- Additionally, other income was $433 million, reflecting gains on disposal of the interest in the Bay area RSN, in Gemstar, as well as mark-to-market adjustments on the [BUX] liability.
- A dividend of 6 cents per Class A and Class B share has been declared and is payable on October 15, 2008.
Filmed entertainment’s operating income of $220 million, more than doubled that reported in 2007 and includes continued worldwide DVD sales of Alvin and the Chipmunks and Juno, as well as the April DVD release of Aliens Vs. Predator in the United States.
- The firm had lower releasing costs related to theatrical releases versus a year ago, and higher profit contributions at 20th Century Fox Television, reflecting lower development cost from the production of fewer pilots as a result of the writers’ strike.
- Sky Italia achieved $212 million of operating income, this is a 37% increase from the fourth quarter a year ago and it added 147,000 gross and 55,000 net subscribers in the quarter.
- In addition, the annual churn rate remained low at 10% and monthly ARPU averaged EUR44 per subscriber this year and SAC on an annual basis approximated EUR260 per subscriber.
In the television segment, operating income of $279 million declined 28% as compared to a year ago, with lower earnings reported by the stations, the Fox Network, and Star.
- Station operating income decreased 26%, primarily resulting from market ad sales declines averaging about 10% in our markets and the weakest ad sales categories continue to be automotive, telecommunications, and movies.
- Revenues and operating income were also down at the Fox Broadcasting Network due to lower ratings that more than offset higher advertising pricing.
- And at Star, the cost of programming initiatives at Star Plus and at Star World more than offset higher advertising revenues.
- At the cable networks, operating income contribution of $313 million is up $29 million, a good result considering the firm incurred start-up losses of about $36 million for the Big 10 and the Fox Business Channel in the quarter.
The largest year-over-year gains were from the RSNs, which reflect higher affiliate rates, from the Fox News Channel due to higher affiliate rates, additional subscribers, and advertising revenue increases.
- The newspaper and information segment also reported a good quarter, with operating income of $262 million, and this was up 29% over the prior year.
- This increase largely reflects advertising and circulation revenue increases at the Australian papers, reduced cost from the U.K. print projects, favourable foreign exchange movements in both Australia and the United Kingdom, and the inclusion of Dow Jones.
- At Fox Interactive Media, revenues of $225 million were up 23% compared to a year ago, as a result of higher search and advertising revenues and the search component increase accounted for more than half of the overall revenue increase.
- FIM’s earnings contributions of $6 million was down $24 million from a year ago levels as revenue gains were more than offset by planned increases in development and technical costs associated with MySpace domestic and international expansion.
Operational Metrics:
- At Fox Broadcasting, Terminator: The Sarah Conner Chronicles, was last season’s top new scripted show on any network, and Moment of Truth was the number one new series on broadcast television.
- American Idol continues to dominate primetime with a 57% average advantage over its closest competitor last season.
- The firm has the single most buzzed about new show on network television in Fringe from J.J. Abrams and there is also tremendous excitement for the return of 24 in January, so much so that it is producing a two-hour prequel TV movie for November.
- While the network outlook is bright, local stations are feeling the effects of a worsening economy, with total local ad market down 10% and pacings for the first quarter 2009 continue to be weak.
Despite some presidential political spending in several markets, spending in key categories, like automotive and telecom and financial services, remains down.
- Last year Fox International channels launched 40 new channels and generated revenues close to $1 billion with margins of 25%, among the highest in the international cable industry.
- The new Fox News affiliate deal with Time Warner, which begins later this month, was done at a significantly higher subscriber rate over the previous agreement and it is in negotiations with EchoStar and ComCast for similar rates.
- On the film side, late next spring, News has two highly anticipated sequels, X-Men Origins: Wolverine and Night at the Museum 2, while the summer will kick off with Ice Age: Dawn of the Dinosaurs.
Despite the recent hand-wringing over the health of the DVD business, the retail space for the entire DVD market has actually widened by an estimated 5% over the last 12 months
- The Blu-Ray format is already ahead of DVD comparatively in terms of adoption at this point in its lifecycle, with sales of more than $200 million year-to-date through June, up about 300% for the same period in 2007.
- The company is seeing dramatic increases in branded display advertising across a number of categories for the first month of the first quarter of 2009, including financial services were up over 100% year over year.
- The hyper-targeting initiative, which was written up in the papers this week, continues to gain traction with 50% of all orders now including some form of hyper-targeting.
- Advertisers are increasingly turning to MySpace homepage takeovers as a way to reach a mass audience, with up to 40 million people visiting the homepage every single day.
- In September, the firm will launch the highly anticipated MySpace music joint venture, offering users the ability to listen to free streaming music, purchase song downloads, ringtones, t-shirts, and concert tickets.
Strategic Insights:
- The firm finally completed the tax-fee asset swap with Liberty Media, recognizing a nearly $1.7 billion gain on the divestiture of DIRECTV, while at the same time reducing outstanding share count by 16%.
- It also completed the acquisition of Dow Jones, with its information services businesses and the Wall Street Journal, include arguably the most important and vibrant brands in business news worldwide.
- It also raised over $1.5 billion in capital by selling a non-strategic ownership position in Gemstar TV Guide, a minority interest in other cable assets.
- It has also just received $1.1 billion in proceeds from the sale of eight smaller television stations.
