Revenues: $7.1 Billion, up 19% y/y and 9% better than consensus. Down 3.6% from last quarter
Operating Income: $1.05 billion, up 23% y/y, driven by movies, cable. Down 13% from last quarter.
Earnings: $732 million, down 13% from last year, reflecting one-time gains from sales a year ago. Down 17.8% from last quarter.
Guidance mixed: Extremely confident, not changing. Except not as confident as they could be: During conference call, Rupert Murdoch acknowledges concerns about possible advertising weakness, and unnamed other concerns (presumably macro issues): “Next year could be rough.”
MySpace/Fox Interactive: From call: Fox Interactive revenues (MySpace + IGN, Fox Sports, Photobucket) up to $188 million, operating income of $4 million. That run rate won’t be enough to clear Rupert’s “more than $1 billion” goal he laid out this summer or the “about $1 billion” goal he laid out at Web 2.0 last month. So how can they hit that? NWS officials say that one-third of FIM revenues come from search (Google) and that those numbers are fairly steady; they are relying on their own sales staff to pick up the pace. FIM display ads are up 32% y/y, which is a good start.
From release: News Corp. continues to lump its Internet unit in a catch-all “other” category: That segment reported revenue of $653 million, up 65% y/y, and operating loss of $43 million, a 41% y/y improvement. From release:
… improved results at Fox Interactive Media (FIM), partially offset by startup losses at our Eastern European broadcasting initiatives. The operating income at FIM was driven by higher search revenues, primarily from the Google agreement which took effect in January 2007, and advertising revenue growth as a result of increased traffic, further inventory monetization and international expansion. The revenue growth was partially offset by increased costs associated with the larger audience, international expansion and new features.
Much more MySpace/FIM colour from earnings call, after jump.
Earnings notes: Simpsons, Die Hard 4 boosting film unit; TV group getting hammered, down 4.7%, in large part because of failing MyNetwork TV — the would-be replacement for UPN.
Rupert: Acknowledges concerns about advertising slump. We clearly have exposure to possible U.S. advertising weakness. But only 23% of business exposed to U.S. TV ad revenues. Touting resiliency of newspaper business, including WSJ, which he doesn’t own yet.
Little detail in earnings release re: MySpace but Rupert very chatty in prepared statements.
Excitement about MySpace “infectious” when he was at Web 2.0 last month. There are no limits to expanding, monetizing MySpace, other sites. Promoting OpenSocial as a “defacto” standard for social networks. Great to hear Rupert say the word “widget” out loud.
Acknowledges “chatter” about MySpace growth, monetization issues. “Any fear is misplaced”. One in four americans on Myspace last month 45 billion page views. Growth is steady, and as space continues to mature, plenty of room for Facebook, et al. Facebook still only 45% of MySpace in uniques, 33% in page views. MySpace users spent 3 hours monthly on site. Competitors not cutting into MySpace. MySpace and FB fundamentally different sites. Facebook is a utility “similar to a phonebook.”
MySpace display ads up 32% y/y. Hypertargeting will increase that substantially. Plan to have “thousands” of hypertargeting segments by end of year.
FIM generated nearly $200M in rev (believe CFO says $188M earlier) and profitable. MySpace adding 10 more countries outside U.S., big growth potential there.
Q&A: Mike Nathanson from Sanford Bernstein also notes “chatter” about FIM/MySpace. Any change in expectations for MySpace/FIM from earlier statements? “Nothing drastic” [but note that Rupert is talking about Web 2.0 statements, not Q4 prepared statement.]
This will be the weakest quarter. I wouldn’t really want to be more specific than that.
Peter Chernin chimes in re: FIM — We started off the quarter a little behind [as we have reported], but strong momentum now. Revs up 40% from July, up 16% September to October.
Potential weakness in overall advertising market? Not much, only problem has been decline y/y in ads. Had seem some weakness in cars, but that’s bouncing back. Right now, in some ways advertising feels, I don’t want to say “to good to be true” but it’s very strong. Sports very, very strong.
Ad revenue at FIM? Search v. display? Chernin: A little less than a third is search (GOOG deal). Rest is display and performance. Search is steady; increases coming from display, performance. We are selling “category 1” display ourselves, most performance we sell ourselves, remenants we sell through ad networks. Bulk of revenue we sell ourselves. We expect to see a lot of positive pressure as “self-serve” product launches — 5 to 10 million small businesses with MySpace pages.
Fox Business Channel losses: Budgeted $130 million in losses to break even in three years, and we’ll burn through $60M of that this year. “More” says either Chernin or CFO. Rupe: Product is great.
FIM Sales force growing? How many sales guys do you see in next 12 months? We don’t release those details, adding lots of people, budget assumes we add more. Quotas and targets will increase along with growth.
Impact/timing of OpenSocial? Within 60 days, more ad products, innovations coming.
Fragmentation concerns? Concern that second, third tier players growing much faster than MySpace? Rupert: They’re only growing faster in a percentage basis, not an absolute basis. Only a very small part of web advertising on social networks, and it’s going to be a bigger business.
Update on Google relationship? Chernin: Everything’s great. GOOG happy with deal. We’re essentially running at our level of our guarantee, and we hope we get past that level by the end of the deal [long form deal still not signed, both NWS and GOOG people assure us that’s not an issue].
Yahoo deal? Rupe: “We’re not lusting after it all”, and nothing in the works. But ruling anything out.
Guidance? Extremely confident, not changing. But lots of uncertainty, and (from Rupe) “Next year could be rough.”
Press Q&A: Why give Natalie Bancroft a board seat? Rupe: We think she’ll be great. Re: Bancrofts — “They’re a funny family.”
Spinoff MySpace/FIM? Rupe: We haven’t considered it, except passingly. It’s a temptation we want to resist.
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