Cable Cash Drives News

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News Corp., on the verge of becoming a U.S.-based company, reported one of its strongest fiscal years ever, driven by huge gains at its cable networks and movie studio.

The media giant reported fiscal fourth-quarter revenue of $5.5 billion, up 20% from $4.6 billion in the previous-year period.

Consolidated operating income of $747 million was up 31% versus $570 million in the year-earlier quarter. Net profit rose $29 million to $399 million from $370 million in the prior-year quarter.

For the full year, News Corp. posted revenue of $21 billion, up 20% from $17.5 billion in the previous year; operating income of $3.1 billion, up 21% from $2.5 billion last year; and net profit of $1.6 billion versus $1 billion in fiscal-year 2003.

The company said its operating income from cable-network programming was $154 million in the fourth quarter and $617 million for the full year, representing increases of 60% and 43%, respectively.


News Corp. added that the results reflected continued growth across all of its primary cable channels, as well as the absence of losses from Major League Baseball’s Los Angeles Dodgers, sold during the third quarter.

Fox News Channel chipped in with operating-income growth of more than 40% for both the fourth quarter and the full year as higher advertising pricing drove strong double-digit revenue gains compared with the previous year.

Operating profit at the media giant’s other cable networks — FX, Speed Channel and its regional sports networks — rose 46% for the fourth quarter and 27% for the full year, primarily driven by revenue growth at the regional sports networks and FX, News Corp. said.

At the sports channels, increased affiliate rates and direct-broadcast satellite subscribers combined with improved advertising sales to drive operating-income growth, which was partially offset by higher programming costs from additional events and rights increases versus a year ago.

At FX, increased growth was driven by advertising revenue from strong ratings, higher pricing and a 5% expansion of its subscriber base, offset by increased costs related to entertainment programming.

On a conference call with analysts, News Corp. president and chief operating officer Peter Chernin said advertising revenue at Fox News Channel was up 30% in the quarter. Margins should continue to increase at the network, he said.

He added that in the upfront, Fox News had double-digit increases in CPMs and volume.

Chernin was also excited about FX, in which News Corp. has made a substantial original programming investment. That money is beginning to show big returns at the network.

FX had double-digit CPM growth, 32% volume growth and affiliate revenue was up in the high-single digits for the year.

“We’re in the process of renegotiating many of our original carriage agreements at sizeable increases, which will continue to drive affiliate revenues up in 2005,” Chernin added.

News Corp. chairman Rupert Murdoch added that the media giant has ideas for at least a half dozen new channels and plans to launch “a couple” within the next 12 months, “and hopefully another couple in the year after, of different importance and size.”

News Corp. already has announced it will launch a reality-TV channel later this year.

With a strong quarter and fiscal year behind it, Murdoch hinted that the media giant could be joining a long list of cable companies that have announced plans to buy back their own shares.

Leverage at the company is at about 2.5 times trailing cash flow, one of its lowest ratios in years.


And while Murdoch said that paying down debt is still an option, so is buying back shares.

“The possibility of buying back shares will be high on our agenda,” Murdoch said on the conference call. “No decision has been made. We like the idea of having low debt. We have some capital expenditures coming up — nothing big, or to worry about, or [which] won’t be covered by existing cash flow — but the equity prices are coming down so much, maybe there will be opportunities that will be very tempting. But probably nothing as tempting as buying back stock. We’ll see.”

Earlier in the week, News Corp. said its board of directors has approved a plan to move the company’s headquarters from Australia to New York. As a U.S.-based company, News Corp. can gain an asset-based stock to be traded on the New York Stock Exchange.