NWSA

News Corporation (NWSA)

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News Corporation (NWSA)

F2Q11 Earnings Call

February 2, 2011 4:30 pm ET

Executives

Reed Nolte - Investor Relations

David F. DeVoe - Senior Executive Vice President Chief Financial Officer

Chase Carey - Deputy Chairman President and Chief Operating Officer

Analysts

Michael Nathanson - Nomura

Jessica Reif Cohen - Bank of America/Merrill Lynch

Douglas Mitchelson - Deutsche Bank Securities Inc.

Benjamin Swinburne - Morgan Stanley

Richard Greenfield - BTIG, LLC

James Mitchell - Goldman Sachs

David Bank - RBC Capital Markets

Anthony Diclemente - Barclays Capital

Jolanta Masojada - Credit Suisse

Jason Bazinet - Citigroup

James Dix - Wedbush

Staci Kramer - ContentNext

Brian Stelter - New York Times

Robert Andrews - paidContent

Andrew Edgecliffe - Financial Times

Georg Szalai - Hollywwod Reporter

Presentation

Operator

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

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

Reed Nolte

Thanks very much, operator. Hello everyone and welcome to our second 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.

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 December 31, 2010, identifies risks and uncertainties that could cause actual results to differ. And these statements are qualified by the cautionary statements included 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 in our earnings release and our 10-Q filing.

Finally, please note that certain financial measures used in this call such as adjusted segment operating income, adjusted earnings per share and adjusted net income are expressed on a non-GAAP basis. The GAAP to non-GAAP reconciliation of segment operating income and the EPS and net income reconciliation is included in our earnings release.

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

David F. DeVoe

Reed, thank you, and good afternoon everyone. As you all have seen in today’s earnings release, we’re pleased with our continued progress in fiscal 2011. We reported second quarter segment operating income of $1.29 billion, a 6% increase over year ago levels when excluding last year's $500 million litigation charge. This improvement was led by the continued strong growth at our Cable Programming and Television segments that more than offset a difficult comparison at Filmed Entertainment and higher losses at the Digital Media Group.

During this year’s second quarter the company recorded a $275 million pre-tax charge related to the impairment of assets in an organizational restructuring at Myspace. Also in the most recent quarter the company recorded pre-tax losses from the disposition of certain businesses including Jamba and the Fox Audience Network, Internet sales group.

Excluding the net income effect in both years of one-time items principally consisting of the items just mentioned as well as the litigation settlement charge last year, second quarter adjusted earnings per share this year are $0.29 compared with last year’s result of $0.25.

The press release includes a reconciliation of our GAAP results to these amounts. This 16% adjusted earnings per share growth reflects the higher segment operating income, lower net interest expense from $1.9 billion less debt outstanding and modestly improved equity earnings from higher BSkyB contributions.

Now I would like to provide some additional context on the performance at a few of our businesses. Let’s first start with Cable, the Cable Networks. This segment continues to drive overall company results. This segment generates nearly 60% of News Corporations total segment operating income.

Our second quarter Cable segment operating income increased 22% over last year to $735 million. This growth continues to be topline driven with segment revenues up 12%. Advertising revues at the Cable Networks increased 17% over year ago levels and affiliate fees grew 11% reflecting particular strength at the Regional Sports Networks, FOX News and our international channels including Star.

Keep in mind that our strong revenue and earnings growth was generated despite the adverse impact from a one month blackout on the Dish Network of our Regional Sports Networks, FX and National Geographics Channels due to a distribution contract renewal dispute with EcoStar. While a new deal was successfully executed, the blackout reduced Cable segment operating income growth by about $30 million in the current quarter.

At our film segment, second quarter operating income was a $189 million as compared to $324 million we reported a year ago. This anticipated decline reflects the very successful worldwide home entertainment release of Ice Age: Dawn of the Dinosaurs which is in last year’s results.

As we look forward, keep in mind that close to 75% of Avatar’s record-breaking worldwide box office receipts were generated in last year’s March quarter. As a result, we will have a difficult comparison to the prior year and the current March quarter.

At our Television segment, operating income in the quarter of $151 million increased by $122 million driven by top line growth at our television satiations and our broadcast network. Our station revenues were up 20% in the quarter compared to a year ago reflecting significantly higher political spending and overall improved the local advertising levels. Political spending was approximately $45 million higher this quarter than a year ago. After politicals, automotive advertising increases represented the next largest portion of our revenue growth.

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