Nets Bring Good News

News Corp. reported 16% revenue and operating income growth in its fiscal third quarter last Wednesday, fueled in part by strong gains at its cable and broadcast networks.

Revenue for the period was $8.8 billion compared to $7.5 billion in the prior year. Operating income for the quarter was $1.4 billion, compared to $1.2 billion in fiscal 2007.

Big gains at the Fox broadcast network and its cable channels helped fuel the quarter. At Fox Broadcasting, operating income increased a healthy 53% to $419 million, due mainly to substantially lower costs associated with the Writers Guild of America strike, which shut down production of many shows for about three months. The strike was settled in February.

At the cable networks, operating income rose 17% to $330 million, reflecting higher affiliate fees for its Fox News Channel, regional sports networks and FX cable network, partially offset by launch costs for Fox Business Channel and Big Ten Network. According to News Corp., startup costs for the latter two channels amounted to about $40 million for the quarter.

On a conference call with analysts, News Corp. chief operating officer Peter Chernin disputed speculation that ratings gains at cable-news rival CNN were cutting into Fox News Channel's ability to extract higher affiliate fees from cable, satellite and telco operators.

Chernin said that Fox News continues its dominance in the ratings — it is the fourth-highest-rated network on cable, while CNN is No. 13.

“Despite some very clever advertising by CNN, Fox News continues its dominance,” Chernin said. “It's pretty hard for me to imagine any cable operator saying, 'We don't want the No. 4 cable network.' ”

Fox News grew its operating income by about 11% in the quarter, strong but short of the 47% gain in the fiscal second quarter. Chernin said that there were two reasons behind the difference — higher costs associated with coverage of the presidential election and the fact that new renewal deals take effect at different times.

“The only 'lumpiness' in growth in Fox News is that our first big affiliate contracts had kicked in this time last year and our next big new one is this summer, when our Time Warner contract kicks in,” Chernin said. “We have Comcast at the end of the year, and I think we have Charter and Cox in 2009 and 2010. The only lumpiness you'll see in Fox News growth from an affiliate pint of view is when the old contracts expire. Overall there is continued growth.”

Chernin added that News Corp. will not get involved in the scrum for Internet giant Yahoo after Microsoft dropped its $46 billion bid for the company.

While a Microsoft deal may be out for the moment, News Corp. chairman Rupert Murdoch was confident his company will prevail in the bidding for Tribune Media's Long Island, N.Y., newspaper Newsday. News Corp. had made a $580 million bid for the paper, which appeared to have been trumped by a $650 million offer by Cablevision Systems. News Corp. has said publicly that it does not intend to raise its offer for the paper.

Murdoch was blunt when asked if the decision to hold fast could jeopardize its bid.

“I don't think Cablevision will prevail,” Murdoch said. “Just be patient for a couple of days.”

Murdoch said he expected the Newsday bidding to be wrapped up in the next seven days.

“We think everything's in hand,” Murdoch said.