News Corp. Saved by Movies and Cable, Hammered by Broadcast and Print

The theme we’ve seen from big media players that aren’t Google (GOOG) so far this quarter: The worst may be over, but things aren’t exactly great quite yet. In many cases–see: Viacom (VIA), Time Warner (TWX) et al–improvement just means top-line decreases are slowing, while cost-cutting has improved the bottom line.

And the first look at results from News Corp., which owns this Web site, seems similar. Revenue of $7.2 billion are in line with Wall Street’s expectations, and the company figured out how generate earnings of 22 cents a share, a nice bump from the 18 cents a share consensus.

Just as Time Warner reported this morning, News Corp.’s most valuable assets are its film studio and its cable TV business. Its broadcast TV business is wobbling, and its print business has been in decline for some time. A quick look at each sector:

• Movies: Operating income up due to yet another “Ice Age” movie, among other releases.
• TV: Fox’s local stations saw operating income drop 26 percent due to crummy advertising; the Fox broadcast network also dropped because programming costs increased and ad revenue dropped.
• Cable networks: Booming. Operating income up 41 percent, as News Corp. is able to extract increased fees from cable operators for the likes of Fox News Channel.
• Newspapers: Getting hammered. Operating income was a mere $25 million, a decrease of $109 million in the last year. You know why, but for the record: The Wall Street Journal saw ad revenue decline, though price increases boosted circulation revenue.
• MySpace/Web properties. News Corp. doesn’t offer much transparency here, but does say that “earnings contributions” from its Web unit dropped $22 million because of lower search and advertising revenue. Sure we’ll hear more about this during the call.

Beyond the macro take, News Corp. (NWS) is worth paying attention to because of Rupert Murdoch’s increasingly pugnacious stance toward what he calls the Internet’s “Philistine phase”–the one where just about everything on the Web is free. And because Murdoch almost always makes for entertaining earnings calls, where he frequently veers off script.

I’m covering the earnings call as it happens. All notes below are paraphrased unless I use quotes.

CFO David DeVoe notes the digital group (MySpace, etc.) is in “significant transition.” Revenue was down 26 percent at the unit. Says MySpace revenue goals will take longer than expected.

Rupert Murdoch:
Looking ahead, seeing “encouraging trends in most of our businesses.” Broadcast TV business appears to have hit bottom of cycle. Advertising pacing for December looks good. October flat, November up in midteens. Cable TV ads doing well. “Quite pleased” with momentum at film biz.

Cable now generates half of company’s operating income, which is “no accident.” Love those dual-revenue streams, especially when we can jack up affiliate fees.

Digital media group: Difficult to predict when we’ll see improved results, but overhaul has clearly helped it for long-term.

Newspapers: For what it’s worth, all of our newspaper and TV businesses are having a great November.

Very confident about short- and long-term future. Clearly in better shape than a year ago. But recovery is “still a little fragile.” [Note: Rupert is clearly sticking to his initial script this time.]

Q&A

Question: When will you start cutting shareholders some dividend checks?

Murdoch: Not thinking about it. We’re right to be sitting on this cash. We have a $2B debt repayment due next year, so pile isn’t as big as it looks.

Question: How does international cable market look?

Murdoch: For the most part, it’s a new growth area. Markets are relatively undeveloped. So they’re all growing double digits, 15, 18 percent on average. May start another 30 channels this year.

Next, there’s a question about retrans (getting paid for broadcast programming): How many renegotiations will we see in next few years? Murdoch offers a nonanswer, for the most part.

Question: You said affiliates fees were up 18 percent and that affiliates fees represent 70 percent of revenue. So that means cable ads are down, right?

David DeVoe: Yes, but I think they’ll be up a bit this quarter.

Question: How can MySpace search revenue be down? Isn’t Google (GOOG) kicking in a fixed amount through next year?

Murdoch: Quite simple. “We have not been making our minimum guarantees,” so our search revenue will not be what we’d expected.

Missed most of the M&A question and answer, but it Murdoch evidently said he wouldn’t rush into anything. That doesn’t mean that much.

Question: Can we get an update on The Wall Street Journal and the relationship with Amazon (AMZN) Kindle, other e-readers?

Murdoch: Oh. WSJ.com going well. Pricing up very strongly. Will be announcing some “extra developments” with it “if they haven’t been announced already, I’m not sure.” Kindle: Look, it’s a fantastic invention for reading books. It’s not great for newspapers. We’ve gotten them to charge $15/month for WSJ and give us $6.50, but that’s not a great deal for us. Half-a-dozen early-stage e-readers on market for Christmas, and we’ll be available on them provided they give us a good deal. But there’s much more advanced work going on.

Question: What’s the new strategy at MySpace?

Chase Carey: Obviously, we got spread a bit wide and thin. No focusing on heart of business being a social network focused around key content sites. “We’re not trying to beat Facebook. We’re not trying to beat Twitter.” Music, gaming, etc. Farthest along with music. “Clearly a work in progress. We’re still losing traffic.”

And now for some press Q&A. This usually makes Rupe a bit testy, which is fun:

Question: Any interest in NBC?

Murdoch: No. “When things come around, we kick the tires, but we’re not in any talks with anybody at the moment.”

Question: What’s up with MSNBC-Fox News truce, which appears to be broken? 

Murdoch: “We didn’t start this abuse, which we thought went way beyond…finally, we had to allow people to retaliate. When they stop we’ll stop.” 

Question: And is it good for you to have antagonistic relationship with the White House?

Murdoch: No.

Question: Bidding on Travel Channel?

Carey: We’re not going to comment on any specific properties [mumbles].

Question: How will Comcast-NBCU deal affect way you deal with Comcast (CMCSA)?

Murdoch: It won’t. We’ll be competitors with NBC as broadcasters and partners with Comcast when it comes to cable.

Question: What’s up with plans to erect some sort of paywall at all News Corp. newspaper sites in 2010?

Murdoch: “We’re all working very hard on this, but I wouldn’t promise that we’re going to meet that date…it’s a work in progress, and there’s a huge amount of work going on.”

Question: Is WSJ profitable?

Murdoch: “Yes. Barely. But Yes.” How did you do that? “We produced a better newspaper.”

Question: Please talk about digital/MySpace some more.

Carey: Going to repeat what I said already, basically. “We’re in state of transition…work in progress.” Can’t tell you what it will look like in 12 months because I don’t know. “Work in progress.” “Work in progress.”

Question: Google promised you $900 over three years. How far short will you fall?

Murdoch: “I don’t know. But it will be a real figure….It will certainly drop by $300M.” Carey or DeVoe corrects Murdoch, noting that it will be closer to 10 percent. I’ll ask News Corp. PR for a ruling and get back to you. UPDATE: Ruling from News Corp. PR–MySpace will be about $100M short on its Google payment for this year.