News Corp. Misses Estimates, Huge Write-Off, Lowering Guidance: Murdoch Says It’s Worse Than He Thought

Published on February 5, 2009
by Peter Kafka

Even though analysts had been moving their estimates down at the company’s urging, News Corp. still underperformed the consensus for its quarterly earnings report card. And the company is recording an $8.4 billion write-off related to its TV and newspaper businesses. (News Corp. is the owner of Dow Jones and this Web site.)

Quote from CEO Rupert Murdoch: “Our results for the quarter are a direct reflection of the grim economic climate. While we anticipated a weakening, the downturn is more severe and likely longer lasting than previously thought. As a result, we have been taking actions to preserve a solid level of operational profitability and a strong balance sheet without sacrificing future growth. We are implementing rigorous cost-cutting across all operations and reducing head count where appropriate. We believe our businesses are well positioned to withstand a lengthy downturn and to emerge stronger as the current economic situation improves.”

News Corp. (NWS) knocked down guidance for the rest of its fiscal year (which ends this summer) again: Last fall it had said it would expect operating income to drop to the low- to mid-teen range for FY ’09; today it says it’s planning on a 30 percent decline.

Excluding the write-down, the company posted earnings of 12 cents a share on revenue of $7.9 billion; Wall Street had been looking for 19 cents and $8.39 billion, respectively. Including the charge, the company lost $6.4 billion, or $2.45 a share.

Murdoch’s comments about things being worse than he thought should be more worrisome than similar quotes we’ve heard from other media CEOs. That’s because Murdoch has been one of the most bearish of moguls since last spring. And last fall, he began guiding down expectations again.

But the market seems to be taking all of this in stride, and News Corp. shares were up slightly in aftermarket trading. Either investors are relieved that things aren’t worse or they are encouraged by Murdoch’s remarks, which were peppered with both pledges to cut costs and an optimistic refrain that things will get better one day.

Here’s the breakdown of the company’s operating performance–note the huge drop in the company’s TV business (click to enlarge):

MySpace/Fox Interactive Media falls under “other.” Here’s some more info on that from the release: “The decline in FIM operating results was driven by increased costs associated with the growth in unique users, international expansion, the launch of MySpace music and new features, as well as lower subscription revenue at IGN.”

Update from the call: FIM revenues of $226 million are down three percent year-over-year, due to lower subscription rates at IGN, the game-centric business News Corp. bought around the same time as MySpace in 2005. The good news: MySpace ad revenues are flat compared to last year, which is pretty good, considering the rest of the Web.

Asked about his views on the Web as an ad medium in general, Murdoch gave a nuanced but fairly mainstream take: It’s great to sell search ads, but the rest of the online ad business is plagued by an “almost infinite increase in inventory” which keeps pushing rates down. On MySpace: “In the social-network area, we’re getting 80 to 90 percent of total revenue, but that is not a particularly relevant number….We need to find new ways to monetize our huge audience.”

The breakdown on the write-off:

$4.6 billion on “indefinite-lived intangibles (primarily FCC licenses)”
$3.6 billion of goodwill
$185 million on “Newspapers and Information Services fixed assets”

Still reading? Then you should know that Murdoch still doesn’t want to buy the New York Times: “I’ve got no interest. I’ve got no desire to be an even bigger public enemy. Or target.”

Return to: News Corp. Misses Estimates, Huge Write-Off, Lowering Guidance: Murdoch Says It’s Worse Than He Thought