NWSA

News Corporation (NWSA)

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News Corp. (NWSA)

F1Q2011 (Qtr End 09/30/10) Earnings Conference Call

November 3, 2010 4:30 PM ET

Executives

Reed Nolte – SVP, IR

David DeVoe – CFO

Chase Carey – Deputy Chairman, President and COO

Analysts

Michael Nathanson – Nomura

Anthony DiClemente – Barclays Capital

David Bank – RBC Capital Markets

Tuna Amobi – Standard & Poor’s

Richard Greenfield – BTIG

Jolanta Masojada – Credit Suisse

Alan Gould – Evercore

James Mitchell – Goldman Sachs

Adam Alexander – Goldman Sachs

Jason Bazinet – Citi

Benjamin Swinburne – Morgan Stanley

Thomas Eagan – Collins Stewart

Spencer Wang – Credit Suisse

Douglas Mitchelson – Deutsche Bank

Claire Atkinson – New York Post

Sarah Rabil – Bloomberg News

Georg Szalai – Hollywood Reporter

Amanda Andrews – Daily Telegraph

Jeff Bercovici – Forbes

Presentation

Operator

Ladies and gentlemen, thank you standing by, and welcome to the News Corp. First Quarter 2011 Earnings Release. (Operator Instructions)

I’ll now turn the conference over to Reed Nolte, Senior Vice President, Investor Relations, News Corporation. Please go ahead.

Reed Nolte

Thank you very much, operator. Hello, everyone and welcome to our first quarter fiscal 2011 earnings conference call. On the call today are Chase Carey, President and Chief Operating Officer, and Dave DeVoe, our Chief Financial Officer. Rupert Murdoch will not be joining us today as he’s been traveling overseas.

First, we will give some prepared remarks on the most recent quarter, then we’ll be happy to take your questions. First from the financial community and then from the press.

This call may include certain forward-looking information with respect to News Corporation’s business and strategy. Actual results could differ materially from what is said. News Corporation’s Form 10-Q for the three months ended September 30, 2010, identifies risks and uncertainties that could cause actual results to differ. And these statements are qualified by the cautionary statements contained in such filings.

Additionally, this call will include certain non-GAAP financial measurements. The definition of and a reconciliation of such measures can be found on our earnings release in our 10-Q filing.

And with that I’ll turn it over to Dave.

David DeVoe

Reed, thank you, and good afternoon, everybody. As you all have seen in today’s earnings release, we are very pleased with our start of fiscal 2011. Our first quarter segment operating income increased 8% over a year-ago levels, led by the continuing strong growth at our Cable Programming, Television and Publishing segments that more than offset difficult comparisons at Filmed Entertainment.

Net income for the quarter was $775 million, a 36% increase over the year ago results. Earnings per share also increased 36% to $0.30 this year from $0.22 reported a year ago. This strong net earnings growth was driven by the higher segment operating income, as well as improved earnings from affiliates, primarily at BSkyB led by gain from the sale of their Easynet business.

Also included in this year’s first quarter result is a tax benefit of approximately $90 million or $0.03 per share related to the resolution of various tax items. You will note that affected this quarter, we have combined the previously reported Book Publishing, Integrated Marketing Services and Newspaper Information Service segments into a Publishing segment. This reporting change recognizes both the way we group these businesses and a smaller percentage of total earnings that these businesses now represent.

Now, I’d like to provide some additional context on the performance of the two of our businesses. Let’s start with the Cable Networks, which is our largest profit generator and accounted for over 57% of News Corp.’s total segment operating income this quarter. This segment continues to drive overall company results, with first quarter segment operating income contribution of $659 million, this up 28% from last year and reflects double-digit growth of the majority of our channels.

This growth continues to be top line driven, with segment revenues up 17%. Advertising revenues at the Cable Networks increased 20% over year-ago levels and affiliate fees grew 40%, reflecting particularly for strength at the Regional Sports Networks, FOX News and our international channels. The strength of our Cable Network franchise continues to grow.

As Fox News in October, we drew more viewers than all of our news competitors combined. FX recently ranked as the number seven most popular cable channel among adults, 18 to 49. Ratings at the Big 10 networks have been setting records and our fastest earnings grower, the international channels including the Star, Fox and National Georgraphic-branded channels continue to expand and capitalize on particularly strong advertising markets, especially in India.

At our Film segment, first quarter operating income was $280 million, a good result but as expected, well below the $391 million we reported a year ago. As we mentioned on the last quarter’s earnings call, this anticipated decline reflects the very successful worldwide theatrical release of Ice Age: Dawn of the Dinosaurs in the prior year’s result.

Contributions from our television production businesses were up year-over-year, primarily reflecting the initial syndication release of two major shows, How I Met Your Mother and American Dad.

At our Television segment, operating income in the quarter of $105 million increased by $67 million. This improvement was driven by strong revenue growth at our television stations, partially offset by modestly higher losses at the broadcast network from program cancellation costs.

Station advertising revenues were up 22% in the quarter compared to a year ago; reflecting improved local advertising trends, particularly in the automotive, telecom and financial categories.

Political revenues of $26 million were strong in the quarter and stayed healthy through yesterday’s election.

Turning to SKY Italia. Revenues increased 2% in local currency terms, as compared to the prior year’s quarter, primarily driven by the subscriber upgrade tickets and advertising for the World Cup coverage. SKY Italia generated segment operating income of $82 million, which is down from last year’s $128 million result. This result primarily reflects right’s cost associated with full coverage of the World Cup and increase subscriber acquisition costs related to the combination of both higher gross additions and the higher takeout of our full installation offer.

As mentioned on our last earnings conference call, SKY Italia’s consumer offering was reorganized in July, more than doubling subscribers programming package choices. These new offerings also make the high end’s standard service to our subscribers. Results to date indicate that this increased consumer choice is stimulating subscriber growth, giving us increased confidence that we will hit our profit growth in subscriber targets this year.

In the quarter, higher gross additions totaling 193,000 and lower churn net of SKY Italia of 58,000 additional subscribers. Now, this compares to no subscriber growth in the first quarter a year ago. Sky ended the quarter with 4.8 million subscribers. The penetration of additional subscriber services such as high-def PVRs and second boxes which helped reduced churn doubled over the last year with approximately 70% for our subscriber base taking at least one of those services.

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