Lagging Units Blunt Earnings

May 9, 2005  •  Post A Comment

Media giants Time Warner and News Corp. each produced a mixed bag of earnings news last week as lagging divisions blunted the gains of stronger-performing units.

News Corp.’s television division-Fox Broadcasting in particular-was the culprit that offset gains at its white-hot cable operation during the company’s fiscal third quarter ended March 31.

The television operation reported a 15 percent decline in operating income to $221 million, due largely to higher programming costs at Fox Broadcasting associated with returning and canceled series during the period. Those costs offset revenue gains generated by Fox’s carriage of the Super Bowl and Daytona 500 this year as well as revenue increases at the company’s Fox Television Stations, which received a lift from the championship football game and the return of hit series such as “American Idol” and “24.”

The TV operation’s results stood in stark contrast to the cable division-once again a major growth driver for News Corp. The cable division posted a 55 percent surge in operating income to $172 million, driven in large part by gains at Fox News Channel, which generated a 45 percent surge in operating income resulting from double-digit advertising revenue growth. FX also posted gains, fueled by subscriber increases and higher advertising sales.

Both divisions’ results helped News Corp. post a profit of $400 million, down 8 percent from a year ago, since the company’s cable channels and filmed-entertainment divisions failed to fully offset declines at the company’s television operations. Revenue surged 17 percent to $6 billion.

Separately, News Corp. Chairman and CEO Rupert Murdoch said last Wednesday he expects to have a plan in place to buy back Liberty Media’s voting shares in his company by the time the company discusses its full-year results in August. Speaking during News Corp.’s fiscal third-quarter earnings conference call, Mr. Murdoch declined to say how News Corp. plans to obtain Liberty’s voting shares, saying he didn’t want to negotiate in public.

“We are at a very sensitive point in our negotiations,” he said.

However, in response to a question about whether any deal to buy those shares might involve purchasing Liberty’s Starz Entertainment Group, Mr. Murdoch said, “It’s not something we’ve given a lot of consideration to,” adding that SEG “is not of enormous value.”

Cable a Growth Driver

Around the time that News Corp. was transferring its domicile status to the United States from Australia last fall, Liberty was able to double its stake in the company to 18 percent, at the same time obtaining enough voting control to become second only to Mr. Murdoch and his family in terms of power. Since then News Corp. has been trying to get back those voting shares and has been negotiating with Liberty to achieve a resolution.

Meanwhile, News Corp. Chief Operating Officer Peter Chernin said the company continues to evaluate whether to launch a business channel, saying the channel would need “the right support” on the affiliate side before it received a green light.

Meanwhile, Time Warner reported a slight increase in revenue and profit for the first quarter ended March 31 as gains at the company’s cable and networks units offset revenue declines at the America Online division. Time Warner’s profit rose to $963 million from a year-earlier profit of $961 million. Revenue climbed 3 percent to nearly $10.5 billion.

The company’s cable unit proved once again to be a main growth driver, delivering 10 percent revenue growth to $2.2 billion thanks to a 10 percent rise in subscription revenue and a 9 percent increase in advertising revenue. The division reported a 19 percent jump in high-speed data revenue as well as a 21 percent bounce in revenue associated with advanced digital video services. The unit’s burgeoning phone business posted strong gains as well.

At Time Warner’s networks division, which includes TNT, TBS and HBO, revenue rose 4 percent to $2.3 billion. Subscription revenue at Turner Broadcasting and HBO rose 9 percent, while advertising climbed 12 percent at Turner. That offset a 5 percent decline in advertising revenue at The WB network, which has struggled in the ratings this season.

Strong international television sales and home video releases were offset in part by difficult year-ago comparisons, when the filmed-entertainment operation received a revenue bounce from the third-cycle syndication of the TV series “Seinfeld.”