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News Corp.'s Upside Surprise

Rupert Murdoch's media giant surprised Wall Street with earnings and revenue that beat last year's numbers and surpassed Wall Street analyst expectations.

News Corp.'s earnings per share came in at 25 cents, excluding one-time charges, up from 12 cents (also excluding one time charges) in the year ago quarter. Revenue rose to $8.68 billion, breezing past last year's $7.87 billion take, and well ahead of analyst expectations.

Advertising is returning — not just to cable and network TV, but also to newspapers.

News Corp.'s newspapers and information services division showed a jump in operating income from $200 million to $259 million for the quarter. News Corp. attributed this to higher advertising at the Wall Street Journal and lower costs, saying that advertising revenues increased over the course of the quarter. Murdoch says the ad cycle has "shortened" and they have less ability to see into the future.

As expected, growth came from the movie division, which got a boost at the end of the quarter from "Avatar," "Alvin & the Chipmunks, the Squeakuel" and strong sales of its X-Men and Ice Age franchises. Operating income for the quarter nearly tripled to $324 million on higher revenue. On the earnings call, the company pointed out that the full impact of "Avatar" and "Alvin" profits weren't felt in this quarter, but will benefit the company in coming quarters.

News Corp's digital properties (including MySpace) continue to drag on the company: digital media earnings were down $32 million from a year ago, while "digital media dispositions" resulted in a $29 million loss. The problem was no surprise: lower search and ad revenue. The company says revenue goals for its digital media properties are taking longer than anticipated. Sky Italia is also suffering, as is Sky Deutschland, both of which News Corp. wants to fix this year.

Analysts were dying for some guidance. As expected News Corp. boosted its operating income growth rate from high single digits to high teens. The company also boosted its dividend by 25 percent.

Rupert Murdoch raved about the future potential of News Corp:

"Content is not just king, it is the emperor of all things electronic. We're at the cusp of a digital dynasty from which our company will profit from greatly."

He enumerated the company's successes this past quarter, kicking off with "Avatar." He says there's no question whether people will pay for content; the only question now is valuation. We'll be watching what News Corp.'s newspaper pay models look like when they roll out.

Murdoch dropped hints about upcoming deals. He says that they're in talks with media companies and device companies around models to monetize digital content. We'll see whether it's a deal with the iPad or some new gadget. Murdoch sees he needs technology on his side to get consumers to pay for digital content.

Time Warner and Comcast report earnings before the bell tomorrow.

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