Bloomberg News

News Corp. Net Rises on TV Gains: Scandal Costs Hit $195 Million

February 09, 2012

Feb. 9 (Bloomberg) -- News Corp., owner of Fox Broadcasting, reported a 65 percent increase in second-quarter profit, driven by higher fees from pay TV operators. The company also said a hacking scandal has cost $195 million.

Net income rose to $1.06 billion, or 42 cents a share, from $642 million, or 24 cents, a year earlier, the New York-based company said yesterday in a statement. Excluding some items, profit was 39 cents, exceeding the 34-cent average of 23 analysts’ estimates compiled by Bloomberg.

News Corp., run by Chief Executive Officer Rupert Murdoch, who controls about 40 percent of the voting shares, gets most of its profit from levies on pay-TV operators for Fox broadcast and cable programming. Revenue at Fox cable networks, which include FX and Fox News, rose 9.5 percent to $2.16 billion, led by affiliate fees. Stock buybacks pushed the gain in earnings per share to 75 percent.

“Because their fundamental businesses haven’t been that volatile, this whole ball game is really about buybacks --that’s what moves the stock,” David Bank, an analyst with RBC Capital Markets in New York, said in an interview.

The company’s stated commitment to further buybacks may boost the stock, said Bank, who rates the shares his “top pick” and doesn’t own any. As of Feb. 7, News Corp. had repurchased $2.69 billion in shares as part of a $5 billion buyback program, according to a company filing yesterday.

Sales in the quarter ended Dec. 31 rose 2.4 percent to $8.98 billion. Analysts on average had estimated $8.91 billion. Profit in the cable division increased 20 percent to $882 million, or 60 percent of total operating income.

Hacking Victims

Publishing revenue slumped 9.2 percent to $2.13 billion. News Corp. has been trying to contain a hacking scandal at its U.K. publishing unit that is the subject of at least three separate inquiries. A police probe has identified 829 “likely victims” of phone hacking.

The company said it incurred an $87 million expense in the quarter tied to the investigations. The scandal has cost News Corp. $195 million since it broke in July, representing $88.4 million in legal fees, $15.6 million in settlements and $91 million from closing the News of the World newspaper.

At least three top executives have departed since December and Murdoch’s son, James, who led News International from London, is moving back to New York to work more closely with Chief Operating Officer Chase Carey. The scandal hasn’t hurt the company’s business, said Alan Gould, an Evercore Partners analyst in New York.

‘Gaining Power’

“If anything, what you’re seeing is Chase gaining power internally at the expense of James,” Gould said in an interview before News Corp. released results. Gould rates the shares “overweight” and doesn’t own any.

News Corp. has gained 47 percent from the 52-week low of $13.38 was set in August after the scandal broke. The Guardian reported on July 4 that a News Corp. newspaper accessed the voicemail of murdered teenager Milly Dowler. The shares rose 0.6 percent to $19.62 at the close in New York.

Filmed entertainment profit more than doubled to $393 million on new home video releases including “Rise of the Planet of the Apes.” Domestic box-office revenue from News Corp.’s films dropped in the December quarter, according to Box Office Mojo, as ticket sales for 20th Century Fox and Fox Searchlight films fell 16 percent to $252.9 million, from $299.5 million a year earlier.

Bloomberg LP, the parent of Bloomberg News, competes with News Corp. units in providing financial news and information.

--Editors: Rob Golum, Romaine Bostick

To contact the reporter on this story: Edmund Lee in New York at elee310@bloomberg.net

To contact the editor responsible for this story: Ville Heiskanen at vheiskanen@bloomberg.net


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