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News Corp. Beats The Street but Succession Questions Swirl

Following the media company trend this week, News Corp. reported better than expected earnings and revenues in its fiscal first quarter. The one segment that suffered was its scandal-plagued publishing unit, which reported a 38 percent drop in operating income.

News Corporation
Bebeto Matthews
News Corporation

But growth in all the other segments more than compensated for that decline. A "buoyant national ad market" and double-digit-percentage revenue growth at its cable networks, movie studio and broadcast TV division all drove results higher.

The hacking scandal couldn't be avoided. News Corp.'s earnings report included a $91 million charge related to the closure of the "News of the World" publication.

It's notable that CEO Rupert Murdoch sat out the call, with COO Chase Carey taking the lead. Straight off the bat, he addressed the hacking scandal, saying, "there's not a lot more to say beyond what's already been said," and reiterating that the company is cooperating fully.

The main issue on analysts' minds is whether the scandal is distracting the company from business at hand. Carey tried to assuage those concerns, saying that despite the time spent on the scandal, "it's been a real time of progress" for the company.

Another hot topic: Succession plans when Rupert Murdoch eventually steps down. In recent quarters, by giving Carey a prominent role on the earnings call, the company has made it increasingly clear that he'd replace Murdoch, should Murdoch step down any time soon.

If Murdoch leaves in a couple of years, his son James was considered the natural successor, though the "News of the World" scandal has called that into question. Carey faced the question flat-out on the earnings call: whether the company was contemplating any "changes" when it comes to James. "No," was the answer.

Needham analyst Laura Martin says the most pressing question for News Corp. now is whether James Murdoch is still the heir apparent, and whether he still will have a job. Vanity Fair's latest issue includes an article about the company's attempt to save the family dynamic — apparently the Murdochs were seeing a family therapist before the hearings. This is one question that's not going away any time soon.

Analysts looking for the company to update its stock buyback plans were disappointed. Despite being pressed by analysts, the company wouldn't give any guidance about buyback plans until after it's completed its $5 billion program.

What about rising sports costs? Carey dismissed concerns, saying that other than the Los Angeles market, most of their deals are locked up in longer-term contracts. What about my colleague Darren Rovell's report that News Corp. might have to buy the Dodgers? Carey didn't mince words: "We're not buying the Dodgers."

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