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Weak Q1 Results For News, Disney

5/10/2009 2:00 AM Eastern

News Corp. chairman Rupert Murdoch may believe that the worst is over regarding the advertising slump, but that may be more because there isn't much more room for the media giant to fall.

Despite strong cable-network results, News Corp. reported a dismal fiscal third quarter last week, with revenue down 16% to $8.8 billion and operating income down 47% in the period to $755 million from $1.4 billion in the prior year.

Cable networks once again reported strong growth — revenue increased 11% and operating income in the segment rose 30% in the period — fueled by increased affiliate revenue at Fox News Channel. FNC nearly doubled its operating income in the quarter and contributions from Fox International Channels and the Big Ten Network (which reported its second straight quarter or profitability) helped drive results.

But it wasn't enough to offset big declines at the television segment, which includes the Fox broadcast network, Star TV and the Fox television stations. The television segment reported operating income of $4 million, a $415 million decline from the previous year, fueled by a 72% decline in revenue at its television stations. Adding to the bleeding were newspapers and information services, where the company reported a $209 million decline in operating income to $7 million from $216 million in the prior year, fueled by lower advertising revenue and unfavorable currency exchange rates.

On a conference call with analysts Murdoch said that despite the poor performance “it is increasingly clear that the worst is over.” But later on the call, when asked that if the bottom has been reached, why News Corp. doesn't use its sizeable cash position (about $6 billion) to buy back its own shares, the chairman balked.

“I want more evidence that we've hit bottom,” Murdoch said. “There is a real feeling that we have hit bottom, but it's early days yet.”

News Corp. does not anticipate a turnaround in the economy just yet. The company is holding fast to its guidance that revenue for the fiscal year will decline 23%.

But while News Corp. may see the bottom of the ad market decline, others are calling it a “stabilization.” Last month Viacom, which experienced a 9% drop in domestic ad sales in the first quarter, said it saw signs the declines were leveling off. CBS last week said ad sales dipped 15% in the quarter but CEO Les Moonves said in a statement that there were “early signs” of an ad market improvement. Discovery Communications bucked the trend all together, reporting a first quarter advertising revenue gain of 2% to $244 million.

The performance was a little better at Disney — revenue for its fiscal second quarter declined 7% and operating income was down 29%.

At its Media Networks division, which includes the ABC broadcast network and cable properties like Disney Channel and ESPN, revenue was up 2% to $3.6 billion and operating income declined 4% to $1.3 billion. At ESPN, ad sales were down in the high single digits — comparable to the first quarter – due to continued softness in automotive and financial services categories. On its conference call with analysts, Disney chief financial officer Tom Staggs said insurance and men's grooming companies were taking up some of the slack at ESPN.

But it wasn't enough to stem the continued bleeding at ABC, where revenue dipped 2% and operating income plunged 38%.

On a conference call with analysts, CEO Bob Iger said the company, especially its cable unit, performed admirably in a tough economic climate, adding that while there is some signs the economy is stabilizing; it is too early to make a solid prediction of recovery.

March