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Chernin: Blu-ray Consumer Spending to Top $1 Billion in 2008

4 Feb, 2008 By: Erik Gruenwedel

Despite a near 15% drop in operating income, News Corp.'s filmed-entertainment unit reported second-quarter (ended Dec. 31) income of $403 million — the highest among the company's eight operating segments.

News Corp. posted operating income of $1.4 billion — the highest in its 54-year history — compared to $1.1 billion during the same period last year.

Filmed entertainment, which includes 20th Century Fox Home Entertainment, reported top DVD sales from The Simpsons Movie, Live Free or Die Hard and Fantastic Four: Rise of the Silver Surfer. Leading video-on-demand titles included Night at the Museum and Borat: Cultural Learnings of America for Make Benefit Glorious Nation of Kazakhstan.

Top theatrical drivers included Alvin and the Chipmunks and Oscar-nominated Juno, which have grossed $310 million worldwide and $110 million (U.S.), respectively, at the box office since their releases.

Last year, filmed entertainment posted record operating income of $470 million, spearheaded by DVD sales of Ice Age: The Meltdown, X-Men: The Last Stand, Oscar-nominated Little Miss Sunshine and The Devil Wears Prada.

“This is a great result even though down from a year ago,” said CFO David DeVoe, in a call with investors. “Despite this difficult financial comparison, we had a very solid result this year reflecting strong home entertainment releases.”

President and COO Peter Chernin said filmed entertainment generated the fourth highest revenues ever, which he said should alleviate fears regarding a slowdown in DVD sales.

“I know some concern exists over the future of DVDs, but we are not seeing this business fall off the cliff by any means,” he said. “If you deliver strong films theatrically that people enjoy to see, you should still see strong sales on DVD.”

Chernin said DVD sellthrough in 2007 at Fox was down only about 2.7% while spending on new releases increased. He said he expects to see an uptick in sales of Blu-ray releases following last month's decision by Warner Bros. to release future titles exclusively in the format.

"Consumer spending on Blu-ray DVDs should grow to over $1 billion in 2008," Chernin said.

He said the format would deliver greater margins than DVD. The COO said including digital files on select DVD releases and offering movies on Apple's iTunes would help facilitate the eventual transition from packaged media to electronic sellthrough.

Fox's special edition of Live Free or Die Hard last November included a digital copy on the DVD.

“While we are keen on protecting our lucrative DVD business, we are also mindful the consumers are changing their habits and we need to provide them with access to our product in whatever manner they desire,” Chernin said.

News Corp. chairman and CEO Rupert Murdoch said the Feb. 3 Super Bowl telecast — highlighted by a late victory by the New York Giants over the previously unbeaten New England Patriots — was the highest rated Super Bowl in history, the most-watched TV event in 25 years and the second-highest-rated TV show in history.

He said the telecast generated $250 million in gross revenue, the biggest tally in News Corp.'s history.

Overall, News Corp. posted second-quarter income of $832 million on revenue of almost $8.6 billion, compared to income of $822 million and revenue of $7.8 billion last year.

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