NWS

News Corporation (NWS)

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News Corporation (NWS)

F3Q08 Earnings Call

May 7, 2008 4:30 pm ET

Executives

Gary Ginsberg - Executive Vice President, Global Marketing and Corporate Affairs

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

Rupert Murdoch - Chairman of the Board and Chief Executive Officer

Peter Chernin - President, Chief Operating Officer and Director

Analysts

Rich Greenfield - Pali Capital

Jessica Reif Cohen - Merrill Lynch

Doug Mitchelson - Deutsche Bank

Jolanta Masojada - Credit Suisse

Anthony DiClemente - Lehman Brothers

Alan Gould - Natexis Bleichroeder

Benjamin Swinburne - Morgan Stanley

Michael Morris - UBS

Michael Nathanson - Sanford C. Bernstein

Adam Alexander - JB Were

David Bank - RBC Capital Markets

Jason Bazinet - Citigroup

Jason Helfstein - Oppenheimer

Tuna Amobi - Standard & Poor’s

Media

Kenneth Lee - Reuters

Seth Sutell - Associated Press

Shira Ovide - The Wall Street Journal

Gillian Wee - Bloomberg News

Thomas Meyer - Newsday

Dade Hayes - Variety

George Silino - The Hollywood Reporter

Andrew Clark - The Guardian

Stacey Kramer - paidContent

Ellen Yan - Newsday

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the News Corp third quarter 2008 earnings release. (Operator Instructions) I would now like to turn the conference over to our first speaker, Executive Vice President Mr. Gary Ginsberg. Please go ahead.

Gary Ginsberg

Thank you very much, Operator and welcome to our third quarter fiscal 2008 earnings conference call. Joining me today are Rupert Murdoch, Chairman and Chief Executive Officer of News Corp.; Peter Chernin, President and Chief Operating Officer; and Dave DeVoe, our Chief Financial Officer.

As is our custom, Dave will begin the call with a brief summary of the results, focusing on items not immediately obvious from the reading of the earnings release, that you should all now have. Rupert will then give some detailed commentary on our latest acquisition, The Dow Jones Company, followed by an update from Peter Chernin on the progress we are making at Fox Interactive Media, and as a sign of our own progress, we’ll be posting both Rupert’s and Peter’s comments in their entirety on our News Corp website. We’ll then take your questions.

And this call is of course governed by the Safe Harbor provisions. On this call, we will make statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors, including those described News’ public filings with the SEC that could cause actual results to materially differ from those in the forward-looking statements.

And with all that, I’ll turn the call over to Dave.

David F. DeVoe

Gary, thank you and good afternoon, everybody. As you’ve seen in today’s earnings release, we are continuing the strong growth trends we reported in the first half of fiscal ’08. For the third quarter of this fiscal year, revenue and operating income are up both 16%, another strong result for News Corporation.

These improvements were led by strong performance at our television, cable, and newspaper businesses and it was achieved despite absorbing approximately $53 million in incremental losses related to start-up businesses such as the Fox Business Network, the Big 10 Network, and start-up television operations in Turkey, Poland, and Serbia.

In looking at net income this quarter, there are a few items to be highlighted. This quarter’s net income and earnings per share include a tax-free gain of approximately $1.7 billion related to the Liberty transaction. Additionally, we also had a reduction in this year’s equity earnings of $146 million, and this is primarily due to a write-down by BSkyB of its ITV investment, of which our share was $101 million. And our tax rate in the quarter of 10% was significantly affected by the impact of a tax-free treatment of the gain in the previously taxed equity earnings from DIRECTV.

Taking all of these items into account, reported net income increased $1.8 billion to $2.7 billion, and earnings per share increased to $0.91 versus $0.27 last year. Excluding the net income effect of the items included in other and the ITV write-down, earnings per share was $0.30 this quarter, an increase of 15% over a similarly adjusted $0.26 at the March quarter a year ago.

I think it’s also worth noting that as part of the Liberty transaction, we reduced News Corporation’s gross shares outstanding by approximately 513 million shares, a reduction of more than 16%.

Now given that you should now have the details presented in our earnings release, I’ll provide context on the recent performance of just a few of our businesses.

Our film segment’s operating income was $261 million in the quarter, and while down from a year ago, this is another solid result. I want to remind you that the year-ago results were very strong, reflecting the DVD and theatrical successes of such blockbuster releases as Borat and Night At The Museum, and carry-over DVD sales from Devil Wears Prada and Little Miss Sunshine.

The current quarter results reflect strong theatrical success of Alvin and the Chipmunks and Juno; also continued DVD sales of The Simpsons Movie and Live Free or Die Hard. Additionally, we are set up well for the rest of the year as we anticipate good results yet to come from films released in the quarter, most notably Horton Hears a Who, which was released mid-March and has generated over $275 million in worldwide box office to date.

At our television segment, third quarter operating profit increased more than 50% from year-ago levels, with every major business within the segment delivering double-digit earnings growth. As you know, Fox aired this year’s Super Bowl, which as the most watched-show in the last 25 years contributed to our continuing ratings gains. The Fox Broadcast Network nearly doubled its operating income, from higher advertising pricing for both our entertainment and our sports programming, strong post-season NFL ratings, which were up 7% excluding the Super Bowl and up 5% for NASCAR; and lower primetime cost as a result of airing less original scripted also contributed to the result.

Our station earnings increased 12%, largely reflecting Super Bowl revenues and political increases. And My Network TV greatly reduced its quarterly loss, primarily due to lower programming costs.

Moving on to the cable networks, we also had strong growth at this segment -- a 17% improvement in operating profit to $330 million. This again, this is an especially strong result considering we incurred start-up losses of about $40 million for The Big 10 and Fox Business Channel launches.

The largest year-over-year gains were from the RSNs, reflecting affiliate rate and subscriber increases, the international channels from advertising and affiliate increases, and they were led by our Latin American and European channels, and additionally the Fox News Channel, FX, and Speed all delivered double-digit profit growth, largely driven by higher affiliate and advertising revenue growth.

The results also include the consolidation of the National Geographic Channels, which were not consolidated a year ago.

Turning now to SKY Italia, SKY Italia reported operating income of $97 million, a 7% increase over the year-ago results. SKY added 77,000 net new subscribers in the quarter. This is down from 135,000 reported for the same quarter a year ago. Much of the decline compared to a year ago’s quarter is due to the timing impact of a new free trail promotion, under which we delayed recognition of subscriber additions until the expiration of the three two-month trial period. We completed this promotion as planned at the end of March.

Over the past 12 months, we have had net subscriber additions of 342,000 resulting in 4.5 million subscribers at quarter end. Our ARPU for the quarter was approximately EUR45 and this is similar to last year. SAC excluding the free trial cost was down slightly from the level we reported in the third quarter a year ago, and SKY’s churn in the quarter was up versus the same quarter a year ago but it still remains on track to achieve an annual churn rate of around 10%.

Read the rest of this transcript for free on seekingalpha.com