NEWS CORP. DEFENDS WEB-BUYING STRATEGY

Execs Take Cautious Approach Regarding VOD Plans for Fox TV

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NEW YORK (AdAge.com) -- As News Corp. released its most recent financial results yesterday, its executives addressed bubbling questions about its Internet buying spree and its place in the rapidly emerging business of prime-time video on demand.

While the company said it was “very pleased” with its fiscal first-quarter performance -- which despite an earnings loss included a 10% increase in revenue of $5.7 billion for the three months that ended Sept. 30, up from $5.1 billion in the equivalent period a year ago -– Chairman-CEO Rupert Murdoch acknowledged some investors’ concern over its recent purchases. News Corp. this year has spent some $1.4 billion to buy Web properties like MySpace, a social networking site, and IGN Entertainment, an online video-game network.

News Corp.'s FAQs
“The questions you hear most frequently are, in no particular order, ‘What’s your overall strategy,’ ‘Will you stop at $2 billion in investments’ and ‘How much money can you make from the Internet?’” Mr. Murdoch said. “To sit on the sidelines while more and more advertising revenue migrated to the Internet and broadband expanded very fast would have been a dereliction of our responsibility.”

News Corp. can now offer its movies, TV and sports content to vast numbers of consumers who use the recently-purchased Web sites, Mr. Murdoch said. At the same time, he said, the company can offer advertisers new routes to elusive young men and women.

Mr. Murdoch was also pressed to elaborate on statements he made last August, when he said News Corp. had reached advanced talks to buy a search company. Talks were ongoing, he said, adding any investment would not be large and the target had more to do with video search than general search.

In a week in which NBC and CBS announced plans to offer prime-time programming through video on demand, News Corp. executives faced questions about its plans for the Fox network.

'Moving carefully'
“We are in discussions with various people both on the demand front and on the mobile front,” said Peter Chernin, president-chief operating officer. But the company is moving carefully, given that the business models now emerging could set the tone for some time.

“The last thing we’re worried about is that we’re going to miss opportunities here,” Mr. Chernin said. “We’re talking about establishing precedents.”

Operating income at the TV division fell 31.6% to $160 million from $234 million during the same quarter last year. Fox Television Stations were partly responsible for the drop, with the company citing higher local sports rights costs and investment in expanding local news. For Fox Broadcasting, revenue actually grew thanks to a 16% increase in ratings of the much coveted 18- to 49-year-old demographic, but gains were more than offset by accelerated promotional and programming costs due to an earlier start to Fox’s new TV season. Higher license fees for several returning series were also cited as a reason for decreased operating income.

Cable, film divisions
In selected other results, cable network programming brought in operating income of $197 million, up 18.7% from $166 million, which was largely attributed to a strong showing by Fox News Channel and the regional sports networks. The filmed entertainment division reported $368 million in operating income, up 26% from $291 million last year, thanks to a strong syndication performance and its films turning in strong worldwide theatrical and pay-TV revenues. Home entertainment sales of Family Guy and 24 also helped.

Its newspapers unit generated income of $125 million, up 5.9% from $118 million. That increase was driven by higher ad revenue in Australia and the inclusion of results from the Queensland Press Group, which News Corp. bought in November 2004.

Consolidated operating income totaled $909 million, up 18.7% from $766 million during the quarter a year ago. The company reported a loss of $433 million, or 13 cents per share, compared with a net profit of $625 million, or 21 cents per share, a year earlier. Excluding various costs, News Corp. would have earned $580 million, or 18 cents a share, two cents higher than analysts surveyed by Thomson Financial had expected.

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