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Avatar Expected to Bring News Corp a Strong Q3

Avatar
AP
Avatar

James Cameron's blue Avatars should give Rupert Murdoch's media giant a big boost. News Corp reports fiscal third quarter earningsafter the bell, and is expected to bring in earnings of 23 cents per share on $8.18 billion in revenue. This is compared to the year-ago earnings of 15 cents per share on $7.37 billion in revenue.

Avatar's record-breaking performance — $2.7 billion in ticket sales worldwide, more than any other film (unadjusted for inflation) — should give 20th Century Fox record results. The studio is expected to generate $1.92 billion in revenue this quarter, more than any other division, according to Street Account. Though Avatar's recent DVD and Blu-Ray release has bucked the trend of declining DVD sales, those revenues are included in next quarter's results. Hits like "Sherlock Holmes" and "Alvin & the Chipmunks: The Squeakquel" should help home video numbers, but we can still expect plenty of questions on the earnings call about how the studio's DVD business is holding up.

As usual, cable with its dual revenue stream is a source of strength.

With an advertising recovery and higher retransmission fees for cable channels, the division is expected to provide the company's biggest chunk of operating income. JP Morgan analyst Imran Khan projects that cable networks will drive more than half of the company's total operating income this year, which he projects will grow 40 percent over last year. Now analysts are looking for insight into how much upside there is in higher fees for Fox's cable networks and new retransmission fees for its broadcast channels.

A stronger ad market should benefit the broadcast and cable TV businesses, and we can expect some upbeat comments ahead of the upfront ad sales season. But the question is whether — and how much — advertising is improving at the newspapers? Murdoch himself has been investing plenty of money and attention in his pet project of late — a new New York section at the Wall Street journal, which is unabashedly competition with the New York Times. We'll see if he has any comments about how his $35 million investment in this division will pay off.

On the earnings call News Corp's plan to return capital to investors will be in the spotlight.

With cash piling up on its balance sheet Wall Street analysts are hoping for stock buybacks. Alternately News Corp could use its cash to buy the 60 percent interest in BskyB that it doesn't own. A number of analysts expect News Corp will raise its estimates for the full year. I'll report on the numbers right after the closing bell and will have analysis of the earnings call later today.