News Corp sees economy hurting advertising

NEW YORK Thu May 8, 2008 5:12am EDT

Chairman Rupert Murdoch in San Francisco, October 17, 2007. Murdoch's News Corp said on Wednesday its quarterly net profit rose three-fold on higher advertising sales at the Fox TV network and Fox News Channel, as well as a one-time gain from its stock swap with Liberty Media. REUTERS/Kimberly White

Chairman Rupert Murdoch in San Francisco, October 17, 2007. Murdoch's News Corp said on Wednesday its quarterly net profit rose three-fold on higher advertising sales at the Fox TV network and Fox News Channel, as well as a one-time gain from its stock swap with Liberty Media.

Credit: Reuters/Kimberly White

NEW YORK (Reuters) - Rupert Murdoch said on Wednesday stress in the U.S. economy is squeezing advertising budgets, adding that News Corp's NWSa.N Fox Interactive Media would miss an ambitious $1 billion annual revenue goal by 10 percent.

But FIM, which oversees the MySpace online social network, is a "very healthy" business and expects "well over" $1 billion in revenue in fiscal 2009, Murdoch said on News Corp's fiscal third-quarter earnings conference call.

"There's no doubt the consumer economy is stressed. You're seeing it affected in advertising, more short-term planning and booking," said the News Corp chairman and chief executive.

The media conglomerate said fiscal third-quarter profit tripled on higher advertising sales at the Fox TV network and Fox News Channel, as well as a $1.7 billion one-time gain from its stock swap with Liberty Media LINTA.O.

News Corp, which also owns the 20th Century Fox film studio, said its net profit rose to $2.7 billion, or 91 cents per share, in the quarter ended March 31, from $871 million, or 27 cents per share, in the year-ago period.

Revenue rose 16 percent to $8.75 billion, compared with the average Wall Street forecast of $8.6 billion. Profit excluding special items was 30 cents per share, apparently missing the Street's 31 cents forecast, but it was not immediately clear if the two numbers are directly comparable.

Pali Research analyst Richard Greenfield said News Corp continued to log strong operating income growth from its television division compared to peers.

"You've now got three straight quarters of industry-leading growth," Greenfield said. "When will investors give them credit for their growth?"

Operating income at News Corp's television division, which includes the FOX TV network and TV stations, rose 53 percent from lower prime-time programming costs and higher advertising sales from its broadcast of the Super Bowl.

Fox News Channel contributed to the company's cable network operating profit growth of 17 percent.

Overall operating income in the quarter grew 16 percent to $1.4 billion, News Corp said, affirming that full-year operating income would rise at a mid-teens percentage rate.

EUROPE SLOWS, AUSTRALIA BOOMS

Murdoch said News Corp's Australian business (NWS.AX) was booming, and that its U.K. business, which includes pay-TV firm BSkyB BSY.L, was "very healthy."

"In Europe, whether that will follow the American path or not, I don't know. Certainly, I'm told business is slowing down on the continent," he said.

News Corp's forecast that Fox Interactive Media would only make about $900 million in revenue for fiscal 2008, which ends in June, was somewhat anticipated, as its latest, twice-reduced estimate was for revenue to reach nearly $1 billion.

The company also indicated it was not participating actively in the Internet industry consolidation sparked by Microsoft Corp's (MSFT.O) bid for Yahoo Inc (YHOO.O).

Asked if News Corp had any current interest in deals with Microsoft, Yahoo or Time Warner Inc's (TWX.N) AOL, Chernin said, "I don't think we have any level of interest."

Concerns about slowing Internet advertising growth, as well as Murdoch's continued pursuit of acquisitions in the straggling U.S. newspaper industry, have dragged shares of the company 10 percent lower this year.

But executives said they were confident recent actions to bolster FIM's advertising forces would yield big gains soon.

"It took Google five years to hit $1 billion (in revenue); it took Yahoo eight years. And we'll get there in a little over three years," Chernin said of FIM.

In the quarter, FIM revenue rose 55 percent to $210 million, while ad revenue rose 18 percent. Operating profit rose to $27 million. Most of its profits were reinvested into the business, the company said.

"We don't want to take our foot off the growth accelerator," Chernin said.

News Corp shares rose 1.2 percent to $18.65 in light after-hours trade, after ending 38 cents lower at $18.42 on the New York Stock Exchange on Wednesday.

(Additional reporting by Tiffany Wu, editing by Richard Chang, Toni Reinhold)