If Rupert Murdoch reckons charging people to get information from News Corp websites is going to repair his balance sheet, then at 78 years of age, he needs a rest.
But then Murdoch’s understanding of technology has always been weak; from the huge amounts he lost a decade ago in unwarranted plunges into tech and net companies, to completely stuffing up MySpace, bought for more than half a billion dollars four years ago and now a shadow of itself. Mr Murdoch has wasted billions of dollars in shareholder funds in claiming he knows best.
Now there’s another $US680 million in impairment and other charges in the 4th quarter, much of it the lower value for MySpace and Fox Interactive, to go with the $US2.8.billion write-down of The Wall Street Journal last December among $US8.4 billion of impairment charges taken at the half way mark of the year.
Normally the full year figures are the story, but the current recession and advertising slump is being told in quarter to quarter movement: the trough was in the March quarter, this one was a bit better, but the damage to News’ business model is best illustrated by looking at what happened in the June three months.
Mr Murdoch told the tele conference for the results overnight, that the day was coming closer when the content charges would start and indicated that would happen in the current financial year.
Just imagine telling people they will have to pay to access program information from a Fox TV or Fox cable website in the US, or weather from the London Sun or Daily Telegraph in London and Sydney respectively. And what will his partners in the rapidly growing Hulu TV website think? Partners like NBC and Disney would rebel because they know users would go elsewhere and return to file sharing sites and the slowly building business model at Hulu would be destroyed.
So the charging, when it comes, will be selective and targeted: in Australia it gives Fairfax the best chance for years to gain ascendancy over Murdoch by not charging for its news websites. Charging for access to information in his Australian papers and News.com.au would drive surfers to Fairfax in droves.
Murdoch could try charging search companies like Google, but so far there’s no sign of a new revenue-sharing agreement for advertising on MySpace and other News sites with Google (described as parasites by some of Murdoch’s hench people this year).
Mr Murdoch’s problem was outlined in the top line of the quarterly report, revenue, not the profit line. News Corp’s quarterly revenues fell 10.7%, or more than $US900 million in quarterly revenue on falling advertising sales at its local TV stations and newspapers. Revenues for the year fell 8%, or around $US2.5 billion, with all of that coming in the second half as advertising at the company’s papers and TV businesses fell sharply.
While Mr Murdoch said the worst may be over for the global media conglomerate, it’s clear from his comments (and those of News Corp’s rivals), that they have no path back to revenue (and therefore earnings) growth other than hoping for a general economic recovery. TV revenues fell 26.7% in the quarter in the US, newspaper revenues from the US, UK and Australia dropped 24%. He said the fall in newspapers was exacerbated by the plunge in classified advertising (jobs, cars, real estate) which he says won’t come back to levels that it was before the crunch started.
Replacing the $US2.5 billion in lost revenues from online charging and other revenue enhancement measures is verging on the loopy. It hasn’t saved the Wall Street Journal from suffering a slump in revenues and earnings in the quarter.
News had a net loss of $US203 million for the June quarter, mainly due to impairment charges for Fox Interactive Media, the unit that houses the MySpace social network. Net earnings for the June quarter of 2008 was $US1.13 billion. On an operating basis, earnings fell to $US948 million from $US1.353 billion.
Of interest were the following comments from the News Corp SEC filing, which illustrate Mr Murdoch’s structural problems:
The Television segment reported fourth quarter adjusted operating income of $95 million, a decline of $184 million versus the same period a year ago. For the full year, segment adjusted operating income decreased 85% to $174 million. The quarterly and full year results were driven by decreased operating results at the Fox Television Stations, FOX Broadcasting Company and STAR.
Fox Television Stations’ fourth quarter adjusted operating income decreased 67% from the same period a year ago. For the full year, adjusted operating income decreased 57% versus fiscal 2008. These results reflect the overall weakening of the local advertising markets and the absence of contributions from eight stations that were sold in July 2008. Local television station advertising markets declined 27% in the quarter and 21% for the year compared to the same periods a year ago, reflecting particularly weak automobile, financial and movie entertainment advertising trends.
At the FOX Broadcasting Company, fourth quarter and full year operating results declined due to higher programming costs driven by increased license fees for returning series, higher NASCAR costs and lower advertising revenue. The increase in entertainment programming costs was primarily attributable to lower costs in the prior year as a result of the Writer’s Guild of America strike. Lower advertising revenues reflect ratings declines that more than offset higher pricing.
The Newspapers and Information Services segment reported fourth quarter adjusted operating income of $96 million, a decrease of $167 million compared with the same period a year ago, and full year adjusted operating income of $466 million, a $320 million decrease versus fiscal 2008. The adjusted operating results primarily reflect lower advertising revenues and the strengthening of the U.S. dollar against the Australian dollar.
The U.K. newspaper group reported lower fourth quarter operating income contributions due to 18% lower advertising revenues in local currency terms, as well as higher marketing and production costs. For the full year, operating income contributions were below those of a year ago as reduced depreciation expense on printing presses that were decommissioned during fiscal 2008 was more than offset by 14% lower advertising revenues in local currency terms and higher marketing and production costs.
The Australian newspaper group reported fourth quarter and full year operating income decreases primarily due to 18% and 10% declines in advertising revenue in local currency terms for the quarter and year, respectively, reflecting lower display and classified advertising, especially in the employment and real estate sectors.
Dow Jones & Company’s fourth quarter operating results declined from the same period a year ago, due to lower advertising revenue at The Wall Street Journal and lower information services revenue that more than offset reduced operating expenses and increased circulation revenues, which were driven by price increases at The Wall Street Journal.
The star for Murdoch was the company’s Cable Network Programming which “reported fourth quarter operating income of $US434 million, an increase of $US121 million over the fourth quarter a year ago. For the full year, segment operating income increased 32% to $1.7 billion. This growth was driven by higher contributions from the FOX News Channel, the Fox International Channels, the Big Ten Network and the FX Network.”
But that won’t drive the group as a whole, nor will higher revenues at the film studios, magazine inserts or Sky Italia (which is now facing cost and TV ad revenue pressures as the Italian economy sags).
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