Strong Earnings for Disney, News Corp.

Aug 15, 2005  •  Post A Comment

Television assets proved once again to be major growth engines for a pair of large media companies as The Walt Disney Co. and News Corp. each posted strong earnings driven in part by their cable networks.

At Disney, the company’s fiscal third-quarter profit surged 41 percent to $851 million for the three months ended July 2, versus a year-earlier profit of $604 million. Revenue was up 3 percent to $7.7 billion as the company’s television assets posted growth that offset declines at the film studio and in consumer products.

The company’s media networks division saw its revenue surge 16 percent to $3.4 billion and its operating income jump 48 percent to $998 million. The company attributed the division’s gains to affiliate-fee increases at ESPN and improved ratings and advertising revenue performance at ABC.

CEO-elect Robert Iger said ratings increases at ABC allowed the network to book $2.7 billion in upfront sales, a 30 percent increase over the 2004 figure, as the network attracted 20 new advertisers. ESPN’s upfront was continuing, but Mr. Iger said the network is “doing extremely well, outpacing the market.”

The results came as Disney scored a huge win on the legal front, with a Delaware judge ruling in the company’s favor in deciding that the board of directors did not violate its fiduciary duty to shareholders in the hiring and firing of Michael Ovitz nearly a decade ago.

The court ruling was an important victory for the media giant, which has been in a years-long legal tussle with shareholders who accused Disney directors of shirking their duty in hiring Mr. Ovitz as president in 1995 and then firing him after 14 months and paying him $140 million in severance. Shareholders had sought more than $260 million in damages, challenging, among other things, the severance payment to Mr. Ovitz.

Meanwhile, News Corp. announced last week that it posted a 67 percent surge in profit to $717 million for the fiscal fourth quarter, which ended June 30. Revenue rose 12 percent to $6.1 billion. For the full year, the company’s profit rose to $2.1 billion, compared with a year-earlier figure of $1.5 billion. Revenue for the 12-month period jumped 15 percent to $23.9 billion.

The company’s cable properties continued to lead the growth, with full-year operating income rising 44 percent to $702 million. Fox News Channel served as the main growth driver, posting 40 percent operating income growth, mainly on the strength of advertising revenue. FX and the Fox Regional Sports Networks also posted strong operating income growth thanks to higher affiliate-fee revenue, which was partly offset by higher programming costs.

At Fox Broadcasting, operating income fell due to higher programming costs associated with several returning series, which offset revenue gains related to higher advertising rates. At the company’s television stations, operating revenue slipped 5 percent due to a soft advertising market and the negative impact of Local People Meters in several markets.

The results came as News Corp. extended for two years its poison pill initiative to prevent any investor from amassing too large a stake in the company. News Corp. continues to hold talks with Liberty Media about how Liberty can liquidate its 18 percent stake in News Corp. During a conference call last Wednesday to discuss the results, News Corp. Chairman and CEO Rupert Murdoch said his company is looking to invest in an Internet search engine as it presses ahead with an aggressive plan to raise its online profile. But he did not provide many details about how much would be invested or which companies are being considered.

Over the past few weeks News Corp. has shifted its online efforts into high gear, creating a new unit to focus on Internet activities and acquiring Intermix Media, a company that owns numerous Web sites, including social-networking site MySpace.com.

Mr. Murdoch refused to answer repeated questions from analysts and the media about the story behind his son Lachlan Murdoch’s surprise resignation two weeks ago. He likewise refused to say whether his son’s departure would lead to executive changes at the television station operation, which Lachlan led.