In a stark sign of how economic conditions are battering media companies, News Corp. said it expects profit to fall significantly in the current fiscal year ending June 30, dragged down by weakening advertising markets, bumpy financial conditions and a strengthening U.S. dollar.News Corp. said Wednesday it expects adjusted operating profit in the current year to be down from the previous year by a percentage in the low- to midteens. Just three months ago, the company said it expected a 4% to 6% increase. News Corp. is the owner of Dow Jones & Co., publisher of The Wall Street Journal.
Rupert Murdoch, chairman of the New York-based media giant, said the gloomier outlook is "a clear reflection of the current economic downturn," which he said on a conference call could turn into a "prolonged economic slump."
Mr. Murdoch said the company would cut costs in response to the weak media climate.
His comments came after News Corp. reported a nearly 30% decline in net income for its fiscal first quarter, hurt by softer advertising, a weaker slate of movies from its film studio and a writedown of its investment in the Germany pay-television market. The results were released after the stock market's close.
News Corp.'s stock price has dropped in recent months as the economy has soured, falling more than 50% since the start of the year. On Wednesday, News Corp.'s Class A shares fell $1.09, or 10%, to $9.79 in 4 p.m. New York Stock Exchange composite trading. The shares declined another 12% in after-hours trading.
Net income for the quarter ended Sept. 30 fell to $515 million, or 20 cents a share, from $732 million, or 23 cents a share, a year earlier. Revenue increased 6.3% to $7.5 billion. Operating earnings fell 9% to $953 million. That excludes the Premiere losses and the absence of earnings from its stakes in DirecTV Group and Gemstar, both of which News Corp. sold in the past year.
The Fox broadcast network and cable-TV networks, such as Fox News, held up well despite tough economic conditions. Other divisions were weaker.
Company executives have warned in recent months about a slowdown in advertising at News Corp.'s local TV stations, a trend that continued in the latest quarter. Slower quarterly revenue growth at Fox Interactive Media, which includes social networking site MySpace, mirrors the recent weakness at Yahoo Inc., Time Warner Inc.'s AOL and other major Internet companies.
Another factor in the profit decline was $447 million in losses from German pay-TV operator Premiere AG, in which News Corp. is the largest shareholder. The losses mostly reflected a writedown of that holding.
Operating profit of $54 million at News Corp.'s television segment was less than half that of a year earlier, which included contributions from TV stations the company has since sold. The company said softer ad markets and competition from the Beijing Olympic Games offset an uptick in political advertising.
"It's a pretty grim picture for all local television stations," Mr. Murdoch said on the conference call. But he said the Fox network is in "surprisingly good shape."
Cable-TV operations were strong as higher fees the company received to carry its regional sports networks and the Fox News Channel helped drive a 31% growth in operating income.
Operating income at the film-and-television production unit dropped nearly 31% from last year's quarter, which included blockbusters like "The Simpsons Movie" and an installment of the "Die Hard" franchise. Lower contributions from DVD releases also weighed on results. Executives said the reduced outlook assumes softening DVD demand.
At Fox Interactive Media, revenue rose 17%, thanks to advertising and search-revenue growth at MySpace. But the growth rate slowed significantly from recent quarters. For the year ended June 30, Fox Interactive Media revenue rose 57%.
At the division including News Corp.'s newspapers, operating income rose 44% to $134 million as lower depreciation expenses outweighed declines in advertising revenue in the U.K. and Australia, where it owns more than 100 papers. Dow Jones, which News Corp. acquired in December, stunted operating profit by $4 million. Mr. Murdoch said advertising revenue at Dow Jones has declined more than the company expected.
