There is one overwhelming message from the third-quarter earnings report from News Corporation this morning: the split in the company can’t come too soon for the Murdochs and shareholders watching how the previously vital print assets are fading, thanks especially to another weak quarter for its Australian newspaper assets.
Forget the headlines about a solid rise in revenue and a 200% jump in earnings for the quarter of more than $US2.8 billion — they were boosted by a series of one-offs. Focus instead on what’s called the segment operating income figures, which rose just 4% to $US1.36 billion, with the biggest black mark from the newspaper publishing assets in the US, UK and especially Australia.
Those assets only contributed $US85 million to third-quarter operating profit, down from $US130 million in the same quarter of last year. Publishing revenues (which also include Harper Collins books) fell more than 3% or $US87 million, to $US1.938 billion (from $US2.025 billion). For the nine months to March revenues were lower at $US6.105 million, from $US6.224 billion. Operating income before depreciation and amortisation fell 10% to $203 million in the latest quarter.
News directors said in their statement the lower result in the quarter was despite “increased contributions from the UK newspapers, which benefited from the launch of the Sunday edition of The Sun in February 2012″. That positive bit of news was “more than offset by lower advertising revenues at the Australian newspapers and integrated marketing services businesses”.
Meanwhile, Rupert Murdoch faces another call for him to step down as chairman of the company. Shareholders from the US, UK and Canada filed a resolution on Tuesday calling for News Corp to appoint an independent chairman. A similar resolution attracted strong support at the media company’s AGM last October. Resolutions for this year’s AGM (to be held in October) had to be filed with News by May 7.
The latest proposal was introduced by Christian Brothers Investment Services, which manages $US4.6 billion for Catholic institutions worldwide. It is backed by the UK’s Local Authority Pension Fund Forum, with assets of $US179 billion, and Canada’s British Columbia Investment Management Corporation. And a second resolution from the Nathan Cummings Foundation, an ethical investment group, has called on News Corp to end the dual-class share structure that allows the Murdoch family to control its media empire despite owning a minority of shares.
Will these resolutions apply to News Corp (the old publishing assets) or 21st Century Fox (the new content company)? Or will Murdoch be generous and allow these resolutions to be put to meetings of shareholders in both companies? Murdoch will be chairman of both, and will control both through the minority holdings he and his family have in the B-class voting shares.
Given the earnings performance, its no wonder the publishing arm is being hived off in the split, with a bit of investment spice added to it with the Foxtel and Fox Sports Pay TV assets and other digital media assets in Australia. The shareholders’ meeting in New York on June 11 will enable the separation to happen around June 30.
The key result in the earnings report was the 17% jump in operating income for the quarter in the company’s key asset, its US cable networks, led by Fox News. The cable business earned $US993 million for the three months to March, up from $US846 million. The operating income of the Fox TV business also rose 17% in the quarter to $US196 million, despite soft TV ad rates and lower ratings, especially for American Idol.
But with TV ad revenues rising by just 2%, News revealed it had boosted revenue from licensing deals to cable companies and independent TV operators by 11% in the quarter. That’s the way of the future for the new content company and what most shareholders want, not the print assets.
The direct TV satellite business lost $US11 million from a $US40 million profit in the March quarter of 2012, due to an increased operating loss at Amplify, its education business. The Amplify business is being loaded into the publishing spin-off, so it was a poor quarter for those about-to-be-separated assets. In addition, the company reported:
“The current year quarterly results also included $42 million of costs related to the ongoing investigations initiated upon the closure of the News of the World, as compared to $63 million of comparable costs included in the prior year quarterly results, as well as $25 million of costs related to the proposed separation of the Company’s entertainment and publishing businesses.”
Finally, a former close confidant and go-to executive for Murdoch, Tom Mockridge, has been revealed as the incoming CEO of Virgin Media, once its takeover by John Malone’s Liberty Global is completed in June. Mockridge was formerly the head of News International (after the July 2011 hacking scandal erupted and cost former CEO Rebekah Brooks her job). Mockridge left News last December after he was overlooked for the CEO’s role at the printing and publishing business (now called new News Corp) that went to Robert Thomson, who is running The Wall Street Journal.
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