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News Corp. Q2 Filmed-Entertainment Operating Income Up 8%

6 May, 2009 By: Erik Gruenwedel


International television licensing and domestic syndication revenue contributed to News Corp. reporting an 8% rise in third-quarter (ended March 31) filmed-entertainment operating income to $282 million, compared to income of $261 million during the prior-year period.

Filmed entertainment, which includes 20th Century Fox Home Entertainment, generated more than $1.4 billion in revenue, down 10% from an excess of $1.6 billion last year.

Peter Chernin, president and COO in his last earnings call (he’s leaving the company), attributed the revenue short fall to underperforming DVD releases in the quarter compared to last year’s releases that included The Simpsons Movie and Die Hard With a Vengeance.

“We are just starting to work through the DVD cycle [on new releases],” Chernin said in a call with analysts. “It’s just a timing issue.”

He said packaged-media releases of big box office titles that play well to Middle America Wal-Mart customers appear to be resilient to the recession at the retail level. He said the same could not be said about library titles, which are in decline.

Chernin did say consumers — due to the economy — have scaled back consumption of packaged media, buying two or three titles compared to four or more previously.

“It is too early to say it is a secular decline,” he said.

The company said filmed-entertainment results continued to improve, underscored by the $85 million opening weekend box office for X-Men Origins: Wolverine. It said home entertainment releases of Marley & Me, Oscar winner Slumdog Millionaire and Taken were doing “quite well.”

“The movie business is booming right now,” said Rupert Murdoch, News Corp. chairman and CEO.

The media veteran said he “couldn’t be happier” with the early box office success of Wolverine, thus far the biggest domestic opening in 2009 (excluding $73 million in global revenue) and the best ever for the “X-Men” franchise.

Murdoch said the movie business is proving itself anti-cyclical, with global box office up 15%. He said he expects continued premium pricing on Blu-ray Disc releases and wider consumer adoption as BD player prices decline.

Chernin said the much-publicized security breach in the post-production of Wolverine had resulted in about 1 million illegal downloads of the film. He called it an isolated incident and a wake-up call.

“It’s as big an act of industrial sabotage as has been seen,” Chernin said. He said piracy is what has motivated the company to develop legitimate online business models, including repurposed content site Hulu.com.

The executives said they remain impressed with the rollout of Hulu, which News Corp. co-owns with NBC Universal and the Walt Disney Co., which they said represent a “great lesson” to other segments in the company.

“It is the only [streaming site] that collects any revenue,” Murdoch quipped.

Chernin added that Hulu was looking into electronic sellthrough and video-on-demand (VOD) options that don’t cannibalize the DVD business.

Overall, News Corp. reported flat net income of $2.7 billion on revenue of $7.3 billion, down about 16% from revenue of $8.3 billion last year.

Through internal restructuring and cost cutting, News Corp. has laid off about 3,000 employees worldwide.


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