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News Corp's Earnings Surprise

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

NewsCorp blew expectations - and last year's results - out of the water.

The phenomenal success of Avatar and strong performance at the cable networks helped grow the company's revenue 19 percent over last year to $8.8 billion.

Earnings per share for the fiscal third quarter are 32 cents per share compared to last year's adjusted EPS of 15 cent and analyst expectations of 25 cents per share.

The company does not expect next quarter to keep up this run. (And there are some obvious challenges, like declining DVD sales, the loss of Simon Cowell from "American Idol," and MySpace.)

News Corp updated guidance - saying it now expects its film business to be down $100 million next quarter from a year earlier, even considering Avatar's strong DVD performance. Comparisons to last year are just too tough. But CEO Rupert Murdoch said on the earnings call that the ad market is seeing strong, across-the-board growth, particularly in the U.S. and Britain, and he's optimistic about trends and sees clear momentum in the business going forward. They also see new revenue from retransmission fees for the broadcast networks as "a real breakthrough."

On the earnings call Murdoch itemized the five reasons why he feels good about the rest of the year and beyond. Atop that list: the "primacy" of News Corp content - be it Avatar, the Wall Street Journal, or Fox News Network.

Murdoch is bullish on the potential to monetize that content through new distribution streams. The WSJ.com iPad application has already drawn 64,000 users. Now Murdoch has something new up his sleeve, saying "we will soon develop a digital subscription model to deliver content to consumers whenever, wherever they want it."

What will News Corp do with all the cash on the balance sheet?

Murdoch said that the company is aware of the "inefficient capital structure" and are evaluating the use of surplus cash. We can expect answers in the next quarterly earnings call.

Call it the Avatar effect - Rupert Murdoch better be thanking James Cameron. News Corp's filmed entertainment division grew operating income 76 percent over a year ago to $497 million, its highest operating income in 20th Century Fox history! And it wasn't just "Avatar," the company says that "Alvin and the Chipmunks: The Squeakquel" and strong home entertainment performance of a number of films from last year bolstered results.

The cable division also provided a huge boost - they now contribute about half of the company's operating income. Across the division ad revenues gained 19 percent and cable affiliate fees grew 16 percent. The sports channels continue to show double digit increases.

Sky Italia continues to suffer - its operating income dropped by about half from the year earlier. And the "other" division, which includes MySpace, continues to disappoint -- operating income losses nearly doubled from a year ago. But newspapers, which had suffered from dramatic advertising declines showed improvement, growing operating income to $131 million from $102 million a year ago.

The impressive number here -- advertising at the Wall Street Journal grew 25 percent over last year.

Questions? Comments? MediaMoney@cnbc.com