Citing a weak economy and a deteriorating advertising market, News Corp. on Thursday said it expected its operating income to be down about 30% for this fiscal year.
In November, News Corp.’s guidance to investors was that operating income would decline by a percentage in the low- to mid-teens. In August, the company had forecast growth in the 4% to 6% range.
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David DeVoe, chief financial officer for News Corp., which announced an $8.4 billion charge against second-quarter earnings, said on the company’s earnings conference call with analysts that since November, “We have seen a more significant deterioration in the economic conditions and consumer confidence. The direct impact of this to us has been a further weakening of our advertising-driven businesses.”
Mr. DeVoe said about 60% of the change in expectations was specifically caused by the problems in the ad market.
“This guidance assumes there would be no further weakening to the advertising markets and economic conditions, and I want to stress again that we have less than perfect visibility into the markets,” Mr. DeVoe said.
One key to figuring the future course of the market is tracking how much of their upfront advertising commitment marketers are canceling. Most upfront advertisers have an option to not buy as much as 50% of the airtime they reserve in the upfront.
News Corp. Chief Operating Officer Peter Chernin said that while some advertisers have gotten extensions on their options, about 8% of Fox Broadcasting’s upfront buys in the quarter have been canceled.
“We would expect that to end up at about 11%,” Mr. Chernin said, adding that normally cancellations are in the 7% to 8% range.
“We’re a little higher than we’ve been running in the past several years, but honestly we’re feeling that’s a little better than we expected,” he said.
Mr. Chernin said cable was a “mixed bag” depending on the mix of sponsors, particularly automakers. “But in general, the cable networks are running fairly similarly to the broadcast networks,” he said.
Mr. Chernin said Fox has been able to sell about $50 million worth of advertising on the scatter market during the current quarter at upfront pricing or better.
Fox Chairman Rupert Murdoch said he expected News Corp. to emerge from the recession stronger than before, and ahead of its competition.
“We’re not sitting still waiting for things to change or to get better, but acting now, when things are perhaps their bleakest, to strengthen our businesses, challenge our assumptions and come up with new approaches that will solidify our leadership positions into the future,” Mr. Murdoch said.
“One of the reasons we’re willing to make investments in our business and in quality content is that we have never bought into that pervasive fear that all is lost when the business hits a recession; that advertising is gone never to return; that consumers won’t pay for entertainment,” Mr. Murdoch said. “Sure, there’s reason to be concerned and we’re running our businesses to respond to the concern. But historically, every time we’ve seen a recession, mild or major, we’ve endured this panic and come out better. And every time the economy rebounds, advertising comes back, usually stronger than before.”