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News Corp's Negative Outlook Hammers Stock

Thursday, 6 Nov 2008 | 4:05 PM ET
News Corp.'s headquarters in New York.
Mark Lennihan
News Corp.'s headquarters in New York.

Rupert Murdoch's media empire is doing worse than Wall Street thought, and even worse than Murdoch himself expected. After the bell Wednesday, the company reported a nearly 30 percent decline in net income for its fiscal first quarter, hurt by an advertising downturn, weaker performance at its movie studio, and a writedown of its investment in a German Pay TV company.

But what really shook the stock—sending it down 11 percent in after-hours trading Wednesday and down even more Thursday—is its outlook. The company expects operating profit in its current fiscal year, which ends June 30, to be down double digits (a low to mid teen percentage drop). Just three months ago the company expected a four to six percent increase in operating profit over the same period.

It's been a tough year for NWS stock—so far this year the stock is trading down over 60 percent, which looks like it's around a 12 year low. Murdoch remained positive on the earnings conference call, saying he believes the company is doing better than the marketplace. He also pointed to the strong growth of Fox Interactive Media, the division that includes MySpace, which showed a 17 percent increase in revenue. But even that division showed a slower growth rate than in recent quarters.

The acquisition of Dow Jones last September benefited News Corp's newspaper division—helping sales at the newspaper group rise 37 percent. But Murdoch said ad revenue at Dow Jones has declined more than the company expected. There's no question that ad sales are struggling industry-wide, and News Corp's local TV networks really suffered from that. Murdoch acknowledged that less reliance on ad markets would be preferable—as illustrated by a 31 percent increase in operating income for its Cable TV operations, driven by higher subscription fees. News Corp may boast that its Fox network brings in top ratings, but that didn't help save the company's bottom line.

Now all eyes shift to Disney , reporting after the bell: Will it weather the slowdown better than its competitors?

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.