Double-digit growth at News Corporation’s cable channels FX, Fox News and regional sports networks led the company to a 55 percent increase in net income in the three month period that ended Dec. 31, offsetting lingering costs related to a phone-hacking scandal and the cost of an upcoming split of the media conglomerate into two publicly-traded companies.
On Wednesday, News Corporation reported net income of $2.38 billion, or $1.01 per share, compared to $1.06 billion, or $0.42 per share in the same three-month period a year earlier. The gains rested largely on an 18 percent increase in revenue at the company’s cable network segment. Overall, revenue rose 5 percent to $9.43 billion.
On a conference call with analysts, Chase Carey, News Corporation’s president and chief operating officer, said the company would complete its separation into two publicly-traded companies by the end of fiscal year 2013. Fox Group will include the company’s cable channels, 20th Century Fox studio and Fox Bradcasting. The company’s newspapers, including The Wall Street Journal and The New York Post, its Harper Collins book publishing unit and a suite of Australian pay-TV assets will make up a new, slimmed down company called News Corporation.
The company’s second quarter results highlighted how disparate Rupert Murdoch’s media empire has become â€" with its cable channels making up more than 60 percent of the company’s overall profit as its publishing business, while stronger than last year, continued to face industrywide headwinds.
News Corporation has faced particular struggles at its British tabloids, which have been the subject of an ongoing investigation into phone-hacking and bribing of public officials. The costs associated with the scandal in Britain appeared to have at least temporarily waned. The company’s gains on Wednesday were only partially offset by the $56 million spent on ongoing investigations related to the closure of the News ! of the World, compared to $87 million spent in the same period of 2011.
Overall, the publishing division reported modest improvements from the same period last year, which Mr. Carey attributed in part to the transformation to digital storytelling. The introduction of the Sunday edition of The Sun in Britain contributed to a $16 million increase in operating income to $234 million. Sluggish advertising revenues at the company’s Australian newspapers continued to drag on the division.
But the real driver of News Corporation’s growth came from its cable channels, which reported operating income of $945 million, a 7 percent increase from the previous year. The company continues to invest in sports rights, including a deal with the Ultimate Fighting Championship.
Mr. Carey called speculation about News Corporation introducing a cable sports channel that could compete nationwide with ESPN “the world’s worst kept secret,†but declined to comment on when that channel may premiere. “Almst everywhere we’ve invested in sports around the world it has been not just important, but a cornerstone,†he said.
Mr. Carey also emphasized the importance of continued investment in original programming like the gory anthology series “American Horror Story†and “The Americans,†a spy drama on FX which last week marked the channel’s highest-rated drama premiere.
Affiliate revenue at the cable channels spiked 13 percent at domestic channels and 42 percent at the company’s international channels. Advertising revenue at the domestic cable channels grew 8 percent compared to a year earlier. “Our domestic cable business continued to hit every target we set and execute superbly,†Mr. Carey said.
Broadcast television didn’t fare as well. Sluggish ratings in the fall season at Fox Broadcasting contributed to lower national advertising revenues.
Fox reported a 19 percent increase in operating income, due to retransmission consent agreements with cable and satell! ite opera! tors and an increase in local political advertising. Mr. Carey said he was “disappointed†in ratings for the singing competition series “The X Factor†and had hoped the show would gain momentum. “At the Fox Network it has been no secret that we had a tough fall,†he said, emphasizing that he would stick to the network’s current management team.
The company’s movie division racked up critical and box office successes in Lincoln and Life of Pi, which grossed over $500 million worldwide. The sequel Taken 2 also helped the division in the second quarter, bringing in $375 million in worldwide box office revenue. Still, the film division’s operating income fell slightly to $383 million, compared to $393 million in the same period a year ago.
In a statement, Mr. Murdoch, chief executive and chairman of News Corporation, said the company “seized opportunities to invest in our core businesses for long-term and sustainable growth.†He added: “As we make progress toward the proposedseparation of our entertainment and publishing businesses later this year, I am confident in the future prospects for both businesses.â€
