News Corp. beat earnings expectations, but shares reversed their move upward and headed into negative territory on the media giant's lowered outlook on concerns about the European economy. CEO Rupert Murdoch sat the call out, with COO Chase Carey taking his place, fielding analyst questions. But Wall street quickly ignored the fact that adjusted earnings of 44 cents came in a penny better than expected and a nickel better than last year and focused on the lowered outlook. Now the company expects operating income in the current fiscal year, which ends this summer to grow by "mid-to high single digits" down from the outlook given in November of "high single to low double digit percentage growth."
The biggest disappointment this quarter was at Sky Italia, which suffered from economic weakness in Italy, driving a decline in subscribers. Operating income at the Satellite TV division swung to a loss of $20 million. Carey says they "do not expect the economy to improve in the short term," so the company is working to reduce programming costs, by not renewing some agreements, and modifying others. Carey says that the company "needs to get to a double digit profit margin without progress in the economy."
Another source of weakness was Fox Broadcast Network, where Carey said "clearly 'X Factor' was a disappointment for us." Lower ratings at Fox, three fewer World Series games, and higher football costs offset higher political and a more than doubling of retransmission revenues.
(Read More: What Do 'Cable Nevers' Mean for TV's Future?)
News Corp.'s strength continues to be its cable networks, which saw a 7 percent increase in operating income and a 18 percent increase in revenue. On the earnings call there was a lot of talk about a potential national sports network, which Carey called "the world's worst kept secret." Carey wouldn't commit to any details of a plan, but said "we think we have a lot of assets in place we think we can utilize. We want to be focused on building businesses instead of acquiring business ... [sports] is an important part of the portfolio."
Carey said that the Dodger rights deal, with Time Warner Cable secured, was "too rich for our blood." But he said that News Corp. has "a unique combination of rights and assets," ticking off everything News Corp has invested in, from Nascar, to baseball. Of course these sports costs come at an increasingly high cost, but sports is also one of the few things that can consistently draw viewers to watch in real-time.
The company says it's on track to complete its spin-off of its publishing and cable assets by the end of its fiscal year.
—By CNBC's Julia Boorstin; Follow her on Twitter: