News Corp Profits Slammed by Falling Ad Revenue

Rupert Murdoch's News Corp cut its full-year forecast and posted a worse-than-expected 30 percent drop in quarterly profit because of falling TV advertising. Shares dived 12 percent.

The international media conglomerate said display advertising at its Web holdings, including the MySpace social network, was beginning to weaken, and that it was instituting stringent cost-cutting measures company wide.

Mark Lennihan / AP News Corp.'s headquarters in New York.

"We're managing down headcount wherever appropriate," Murdoch told analysts on a conference call, adding his company had a good handle on its costs and "we'll ratchet them down accordingly."

"The businesses across the board are challenged right now by weakening markets, and our group-wide results are further impacted by progressively weak foreign currencies when translating these to U.S. dollars," he said.

News Corp's assets include: the Fox TV network, 20th Century Fox movie studio, BSkyB and The Wall Street Journal.

News Corp now expects fiscal 2009 operating income to fall in low- to mid-teen percentage terms, compared to its previous forecast for growth of 4 percent to 6 percent.

Fiscal first-quarter 2009 net income was $515 million, down from $732 million in the same quarter a year ago. The decline was because of lower TV ad sales as well as a drop in equity contributions from affiliates, including $447 million in losses from Premiere AG, the German pay TV company in which it owns a sizable stake.

Earnings per share in the quarter ended Sept. 30 fell to 20 cents from 23 cents, with a lower number of shares outstanding. Analysts were expecting profit of 22 cents per share.

Overall operating income fell 9 percent to $953 million and revenue rose 6.3 percent to $7.5 billion.
    
Fewer Costs, Weaker Ads

The company reported good performance at MySpace, which pushed Fox Interactive Media revenue 17 percent higher. Online display advertising is beginning to weaken, however.

"I still believe we're doing slightly better than others," said Chief Operating Officer Peter Chernin on the call.

News Corp's cable networks also did well, with operating income up 30 percent on ad revenue gains at the Fox News Channel and other networks. Fox Television Stations' first-quarter operating income fell 48 percent from the same period last year because of weaker advertising and competition from the Summer Olympics.

Its satellite broadcaster Sky Italia reported operating income of $165 million, up from $117 million last year.

News Corp stock has lost about half its value in the past 12 months, in line with other big U.S. media conglomerates who have been hit hard by the advertising downturn as the financial crisis sapped away advertisers' budgets.

"There's probably still going to be negative sentiments on the sector since people are starting to realize ... that we're probably not going to be getting out of a recession for another three quarters or so," said Miller Tabak analyst David Joyce.

Murdoch did not provide many details on the company's cost cutting, but said one example was the merging of back-office operations of his two high-profile New York holdings, The Wall Street Journal and tabloid daily the New York Post.

He also plans to close 10 of the 17 U.S. printing plants that produce the Journal. Still, he said, "We're not going to starve our businesses."

News Corp shares fell to $8.60 in after-hours trading, after closing down 9.94 percent at $9.79 on the New York Stock Exchange. In Australia, News Corp shares were down as much as 20 percent in the Thursday session.

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