Bloomberg News

News Corp. Falls as ‘American Idol’ Hurts Profit Forecast

February 07, 2013

News Corp. Profit Exceeds Analysts’ Estimates on Subscriber Fees

In December, News Corp. revealed its publishing business lost $2.1 billion in fiscal 2012 because of restructuring, falling sales and the costs of a U.K. hacking scandal. Photographer: Timothy A. Clary/AFP via Getty Images

News Corp. (NWS), Rupert Murdoch’s media company, fell the most in almost three months after cutting its profit forecast because of declining ratings for shows such as “American Idol” and “X Factor.”

Operating income will grow by a “mid- to high-single-digit” percentage for the fiscal year ending in June, the company said on a conference call late yesterday, down from an earlier forecast of growth that could exceed 10 percent. Fewer viewers leads to lower advertising sales for some of the top programs on the News Corp (NWS).-owned Fox network in the U.S.

“We have had a very disappointing year ratings-wise,” Chief Operating Officer Chase Carey said on the conference call. “We’re working to improve them.”

News Corp. (NWS) declined 2.3 percent to $27.56 in New York, the largest drop since Nov. 14. Shares fell 3.2 percent to A$26.60 at the close in Sydney, the biggest slide since June 4, with volume about triple the three-month average.

The TV ratings slump puts a damper on Murdoch’s plans to split his company in two, cleaving the declining publishing division from his more profitable entertainment businesses. The idea was to form a faster-growing company by freeing News Corp. (NWSA:US)’s 20th Century Fox film studio and the Fox cable and broadcast networks from the weight of newspapers, where ad dollars and circulation are falling industrywide.

Affiliate Fees

Affiliate fees for U.S. pay-TV carriers rose 13 percent in the fiscal second quarter, while U.S. advertising grew 8 percent, New York-based News Corp. said in a statement. Excluding some items, per-share profit was 44 cents, more than the 43 cents analysts predicted, according to data compiled by Bloomberg.

In Australia, the company didn’t see the traditional lift in advertising around the holiday season, Carey said. The company’s assets in the country where Murdoch was born include the Herald Sun and Daily Telegraph newspapers as well as a 50 percent stake in the Foxtel pay-TV network.

“We have been hammered by an economy we keep hoping has hit bottom,” Carey said. News Corp. announced plans to cut jobs and restructure Australian operations in June.

Through yesterday’s close, the company’s U.S.-listed stock had climbed 11 percent this year, bolstered by repurchases and the spinoff plan. That compares to a 6 percent gain for the Standard & Poor’s 500 Index.

Net income in the quarter ended Dec. 31 more than doubled to $2.38 billion, or $1.01 a share, from $1.06 billion, or 42 cents, a year earlier. Profit was helped by increased stakes in Fox Sports Australia and Fox Star Sports Asia.

ESPN Competitor

News Corp. is looking to build a national U.S. sports cable network to compete against Disney Co.’s ESPN, people familiar with the matter told Bloomberg News in March. In November, News Corp. agreed to acquire a 49 percent stake in the YES Network, which broadcasts New York Yankees baseball games.

“We believe we have a unique combination of rights and assets to potentially build a very attractive business,” Carey said, without confirming whether the plans will move forward. “If we launch a channel, we want to launch a channel that will excite people.”

In December, News Corp. said its publishing business lost $2.1 billion in fiscal 2012 because of restructuring, falling sales and the costs of a U.K. hacking scandal. For the three months ended in December, the publishing division generated $234 million in operating income, little changed from a year earlier.

Fox Group

Murdoch appointed Robert Thomson, the Wall Street Journal’s editor, as CEO of the new publishing company, where he’ll oversee newspapers, the HarperCollins book division and Australian TV assets. The publisher will retain the News Corp. name, while the entertainment division will be called Fox Group. Murdoch will be chairman of both companies and CEO of Fox.

News Corp.’s satellite-TV business in Europe swung to a $20 million operating loss in the second quarter, compared with $6 million in operating income a year earlier, because of higher programming expenses. The company also took a controlling stake in Sky Deutschland last month for about $550 million and will start including that revenue beginning in the current quarter.

John Malone, the chairman of Liberty Global Inc., is presenting a new competitive threat for Murdoch’s pay-TV businesses in the U.K. after agreeing to buy Virgin Media Inc., the nation’s second-largest pay-television company, for $16 billion. Murdoch’s British Sky Broadcasting Group Plc is the U.K.’s leading pay-TV company.

James Murdoch, deputy chief operating officer and son of Rupert, said that deal doesn’t change the competitive landscape.

“We’re pleased with our momentum” in that business, he said on the conference call.

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

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

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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Companies Mentioned

  • NWSA
    (News Corp)
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