Rupert: "The Worst Is Over"

Aside from a little sentimentality about COO Peter Chernin’s departure, News Corp (NWS) chairman Rupert Murdoch sounded downright cheery during today’s earnings call with analysts and reporters.

“I’m not an economist, but it is increasingly clear that the worst is over,” Rupe began his remarks. “As you know I have been increasingly pessimistic. But there are emerging signs that the days of precipitous decline are done.”

News Corp’s healthy cable businesses and stabilizing local TV stations fed the optimism.

Rupert told analysts and reporters the newspaper business is still hurting — “a broken model,” in fact. He said News Corp aims to fix it — perhaps by charging for access to even general interest newspapers on the Web.

Earnings are here:

News Corp (NWS) Beats Street Estimates, But Operating Income Down Nearly 50%

Here’s how the business breaks down by segment:

  • Filmed Entertainment: Revenues were $1.5 billion down from $1.6 billion last year. Operating income was $282 million up from $261 million last year.
  • Television: Revenues were $1.3 billion down from $1.8 billion last year. Operating income was down to $4 million from $419 million last year.
  • Cable Network Programming: $1.4 billion, up from $1.3 billion last year.
  • Direct Broadcast Satellite Television: $924 million from $993 million
  • Magazines and Inserts: $316 million from $299 million.
  • Newspapes and Information Services: $1.2 billion from $1.7 billion.
  • Book Publishing: $243 million from $302 million.
  • Other (including MySpace): $471 million from $725 million.

Notes from the call:

Everything but words in quote marks are a paraphrase.

4:34, Legal disclaimer time!

4:37, Now we’ve got David DeVoe breaking down the numbers. It’s nothing we don’t have in the bullets above.

4:41, Still running through NWS’s sprawling businesses. Care to know how the soccer business treated Sky Italia? (Well, but there’s been an increase in subscriber churn due to the worsening economy.)

4:43, Finally we’re talking newspapers. Operating income was down 7 million on “siginicantly weakened advertising in all markets.” UK local ads were down 27%. UK circulation was up 4%. In Australia, ad revs were down 16%. Dow Jones op results declinced due to 33% decline in display and classifieds at WSJ.

4:43, $187 mm revs for FIM. That’s down 11%. Down 16% in ad revenue, due to a reduction in branded ad spending at MySpace.

4:47, “We’ve also seen some stabilisation in the decline of the local TV station business.”

4:47, Maintaining outlook, assumes no further weakening.

4:48, Here’s Rupe. “I’m not an economist, but it is increasingly clear that the worst is over. As you know I have been increasingly pessimistic. But there are emerging signs that the days of precipitous decline are done.”

4:48, “Bright spots that give us encouragement”: Movie studio, circulation gains at WSJ, market share gains at UK and Australia papers.

4:49, “The movie industry is proving its anti-cyclical. Already in 2009 domestic box office revenue is up over 15%. With the event of 3D cinema we think those numbers are set to rise significantly.”

4:51, Fox News almost doubled its profits y/y. In April grew its prime time audience 63% in 25-54 demo y/y.

4:52, Cable and broadcast advertising: volume and pricing is holding up, scatter is matching up front pricing.

4:52, Ad revenues are forecast to raise 20% y/y on WSJ. That it is possible to have people charge for content on the Web is obvious. It is clear for many newspapers the current model is malfunctioning. I can assure you we will not be cedeing our content rights to the fine people who created the Kindle.

4:52, Too many content creators have been passive in the face of obvious infringement of copyright. The inchoate days of the Internet will soon be over.

4:55, The WSJ is the only major newspaper to grow its circulation in the last 6 months. Up over 2.8% in individual paying subs. WSJ Digital network 38% increase y/y in March.

4:57 MySpace management moves will help renew momentum. New team will refine and shape strategic vision. The truth is we’ve had a lot of success expanding MySpace and we needed to put the right people in place. 

4:57, The traditional newspaper model has to change even though the current situation has been greatly exaggerated by the recession. All of our technological resources are being concentrated on developing new business models for long term profitability.

4:57, There are lessons in Hulu’s success for other parts of our company.

4:59, On Peter: He’s been with me for most of his professional life.

5:00, Peter takes the phone. I’d like to say how much I’ll miss the relationship. The countless chats over coffee. The thousands of questions I’ve answered over these quarterly calls. I’ve had the ride of my life. I leave knowing the company is in great shape.

5:02: On Rupert: More exciting to be around than you can possibly imagine.

5:02, Time for questions.

5:02, If this is the bottom, why not use the $6 billion for buybacks?

5:04, Rupe: I want a little more evidence. It’s early days yet.

5:04, What are you going to do with the $6 billion then? Planning any spinouts?

5:05, Rupe: We are a very strong interrelated company. It is true that we have $6 billion at the moment. We do have $2 billion worth of repairments in the first quarter of next year. Let’s get that behind us first.

5:06, What’s the pacing look like in the local tv biz? Talk about home video trends?

5:06, Rupe: On our stations, if you’d asked me a month ago, I’d say the pacing looked frighteningly bad. Already this month we’ve improved by 15%. The next two months look the same.

5:08, On DVD?

5;08, A big film does as well as ever. The library has been doubtful. We’re in a leadership position in the development of Bluray.

5:09, Peter: Where you’re seeing a little softness is where you used to see them throw 3 or 4 titles in the basket now they’re throwing one or two.

5:10, Have the credit markets loosened up?

5:10, Dave: we did a $1 billion deal in February. I would say over the last week the markets are open attractive prices. Rupe: There’s a lot of money out there and we would have no trouble raising one or two billion.

5:11, Do you want to buy any more newspapers?

5:11, Rupe: “No, I’d want to see the model repaired. No.”

5:11, What kind of growth do you have for cable?

5:11, Rupe: Not the same percentage next year, but the same money growth. Peter: Lots of our channels have growth ahead.

5:13, What’s revenue for those international channels?

5:13, Rupert: Do we give those numbers? Dave: No! Rupe: It’s in the hundreds.

5:15, FIM question. Ad revenues down 16%. Why?

5:16, Rupe: Jon Miller has a lot of ideas. “We think we’ll have a much more attractive site for people to visit and stay with and just generate a lot more traffic. We’re not going for the Facebook model of getting hundreds and hundreds of millions of people who don’t bring any advertising with them at all. We’re number there and we plan to stay number one there.”

5:17, Peter: A lot of what’s gone on there has been on the brand side and due to the marketplace. June and July pacing on the MySpace side is up.

5:18, How much more involved will Rupe be with MySpace? Do you have too many reports?

5:18, If we looked at the Fox businesses there are 4 people to reporting to me. There were many more reporting to Peter. The big thing is that most of those people have been with us for a long time.

5:20, Peter “I don’t think Rupert’s going to be any more or less involved, because trust me, he was plenty involved in everything I did.”

5:20, Are newspapers just going to lose money for the next 20 months or can you cut costs to get to profitability?

5:20, Rupe: The London Sunday Times used to be very profitable, it’s still but only just so. The Sun is benefitting from the supermarket war.

5:23, Why so optimistic?

5:23, Rupe: “At the very least, we’ve hit the floor and we seem to be getting some bounce off it.”

5:25, What about China?

5:25, Rupe: We don’t see anything to do that will make us a lot of money. In media, it’s pretty much a no-no.

5:25, What about piracy?

5:25, Peter: We believe piracy is a big issue. We estimate 3 million downloads of Wolverine. We think the government needs to take a more active role. The most important thing to do to combat piracy is to build alternative business models. That’s what motivated us to build Hulu.

5:27, Are we going to see a paid subscriptions online for movies?

5:27, Peter: We are looking at electronic sell-through and video on demand.

5:28, On Hulu, Rupe says: We really have great hopes for that. It’s already the third biggest in the country and it’s the only one that collects any revenue. We should really be very happy and very confident about that.

5:30, Time for reporters’ questions.

5:30, Rupert can you envisage a time where you can charge readers for access to general interest newspapers?

5:30, We’re definitely looking at that. “I think you would see some in the next 12 months.”

5:31, Peter can you talk about your production venture?

5:31, Peter: This is a News Corp. call. Rupert: Peter will be bringing us big hits.

5:32, With your $6 billion in cash are you looking at any mergers or acquisitions?

5:32, Rupert: “No. Nothing of size. Most of the things we’ve done really well with we’ve started ourselves.”

5:33, How long till digital revenues make up for the lost analogue dollars?

5:33, Rupe: I hope it’s less than 2, but it might be more than 2. “We don’t believe in the Kindle business model, but we think its very signifcant that so many people go to that or go to their blackberry for their news. There are a lot of ways to make money with our content over and above advertising.” Some of the greatests technologies in the world are spending a great deal of money on mobile readers. We may invest a a little bit of money. We’re not appliance makers. There are other great ones in the world we’d rather go to.

5:37, Are there other properties worth acquiring out there, like AOL?

5:38, Rupe: “We’ve never thought about it, perhaps because they’ve always sought ridiculous prices.”



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