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News Corporation (NASDAQ:NWS)

F1Q09 (Qtr End 09/30/08) Earnings Call

November 5, 2008 4:30 pm ET

Executives

Gary Ginsberg - EVP

Rupert Murdoch - Chairman and CEO

Peter Chernin - President and COO

Dave DeVoe - CFO

Analysts

Rich Greenfield - Pali Capital

Jessica Reif-Cohen - Merrill Lynch

Michael Nathanson - Sanford Bernstein

Doug Mitchelson - Deutsche Bank

Benjamin Swinburne - Morgan Stanley

Jolanta Masojada - Credit Suisse

Mark Wienkes - Goldman Sachs

Michael Morris - UBS

Spencer Wang - Credit Suisse

Jason Bazinet - Citigroup

Adam Alexander - JBWere

Imran Khan - JPMorgan

Anthony DiClemente - Barclays Capital

David Bank - RBC Capital Markets

Alan Gould - Natexis Bleichroeder

James Quinn - The Daily Telegraph

Ria McLennan - AAP

Ken Lee - Financial Times

George Silino - The Hollywood Reporter

Dave Hayes - Variety

Shira Obaid - Wall Street Journal

Robert McMillan - Reuters

Operator

Welcome to the News Corp. first quarter 2009 earnings release conference call. At this time, all phone lines are in a listen-only mode. Later, there will be an opportunity for your questions. (Operator Instructions). As a reminder, today's conference call is being recorded.

And with that, I'd now like to introduce your opening speaker for today Executive Vice President, Gary Ginsberg. Please go ahead, sir.

Gary Ginsberg

Thank you, operator, and welcome to our fiscal first quarter 2009 Earnings Call. Joining me today are Rupert Murdoch, Chairman and CEO of News; Peter Chernin, President and Chief Operating Officer; and Dave DeVoe, our CFO.

As is our custom, Dave will begin the call with the summary of the results, followed by some general commentary from Rupert. And given the lateness of the hour and the fact that so many of us were up late last night, we will then go straight to your questions.

This call is, of course, governed by the Safe Harbor provisions. On this call, we will make statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors, including those described in News' public filings with the SEC that could cause actual results to materially differ from those in the forward-looking statements.

Finally, please note that certain financial measures we will use in this call, such as EPS and net income, are expressed on a non-GAAP basis and adjusted to exclude certain items. The GAAP to non-GAAP reconciliation will be posted on our website on our Investor Relations earnings release page.

With all that, I'll turn the call over to Dave.

Dave DeVoe

Gary, thank you, and good afternoon, everyone. As you have seen in today's earnings release, News Corporation reported mixed year-over-year comparisons for the quarter ended September 30. Some businesses, particularly SKY Italia and our Cable Networks, showed continued underlying growth.

As expected, our film segment declined from its near record of prior year performance while our other divisions, principally our advertising sensitive businesses, were affected by the economic slowdown and reported lower contributions in a year ago. As a result, operating income for this first fiscal quarter declined 9% to $953 million from last year's record first quarter of $1.05 billion.

At our associated entities, we reported equity losses of $359 million in this quarter, compared to $246 million in income a year ago. This variance is primarily attributable to the inclusion of $447 million in losses from Premiere, principally representing a write-down of our investments, as well as the absence of equity earnings from DIRECTV and from Gemstar, both of which were disposed off in the latter half of fiscal 2008.

Our other income line reflects the gain on the sale of eight television stations and an unrealized gain for mark-to-market adjustments on our BUCS liability. The company reported net income for the quarter of $515 million, as compared to $732 million in last year's first quarter.

The absence of $131 million results from property sold, including DIRECTV, Gemstar and eight television stations contributed to this decline. Earning per share for the quarter was $0.20, a $0.03 decrease from last year's reported earnings per share of $0.23.

Given you should now have a copy of our earnings release, I would not review all of business segments; however, I would like to provide context on the performance of a few of our businesses.

At our film segment, operating income declined as expected from the near record first quarter a year ago. The segment reported $251 million in operating income, decline of $111 million from last year's result, which included theatrical releases of the Simpson Movie and Live Free or Die Hard.

This year, our new releases including Meet Dave, X-Files, I Want to Believe, and The Rocker did not match the results of those prior year's releases. Since the end of the quarter we released two titles, Max Payne and The Secret Life of Bees, which are both performing well.

At our television stations, operating income in the quarter of $54 million, declined by $129 million just compared to the first quarter year ago. This result reflects the impact of lower station advertising revenues [and charges] STAR approximately $30 million related to the termination of a channel distribution agreement and the absence of earnings from the sale of eight stations in July. These eight stations accounted for revenue and earnings declines of $63 million and $17 million respectively.

Revenues at remaining stations declined 17% and operating income decreased 44% in the quarter. This result reflects the current week local television advertising markets and, in particular, the automotive, telecom and movie categories.

At the Fox Broadcasting Network profits were in line with year ago results, as lower programming cost offset the absence of results from the Emmy Awards which were broadcasted year ago on Fox.

Now, moving to the Cable Networks where we continued to show very strong growth and operating income contributions were up 31% above last year. This is an increase to affiliate and advertising revenues. The largest year-over-year gains in the quarter were from the RSNs. This reflects higher affiliate rates from the Fox News Channel due to higher rates and additional subscribers and advertising revenue increases.

Our International Channels performed well, increasing from both advertising and affiliate increases, led by our Latin American and European channels. And finally, greater reduce losses at the Big Ten Network reflecting their new distribution agreement all contributed to this very strong result.

Moving to SKY Italia, who also posted an extremely strong result, with operating profit of $165 million, a $117 million increase from the first quarter year ago. Roughly $70 million or 60% of this increase relates to the timing of revenue recognition associated with our premium soccer packages. In prior years, this would have been recognized over the remaining three quarters of our fiscal year, since we did not broadcast programming on these tiers in July and August; however, this year as we expanded our programming on these tiers to run throughout the year. As a result, we now recognize the revenue from these tiers evenly over the year.

Consistent with this programming initiative, ARPU in the quarter averaged €43 compared to last year's reported €39. Other metrics were more in line with year ago results. SKY added 38,000 net new subscribers in the quarter as compared to 45,000 in a year ago quarter. SKY now has over 4.6 million subscribers.

Churn was below year ago levels and is on track to achieve an annual churn rate of around 10% and SAC in the quarter was little under $300, which was slightly above year ago levels, reflecting increased marketing to support a price increase in the quarter.

In the Newspaper and Information Service segment, operating income in this quarter was $134 million versus $93 million in the year ago period. It's important to recall, however, that last year's first quarter included approximately $100 million in charges related to higher accelerated depreciation and related cost in connection with our UK printing initiative. So excluding these items, operating income declined approximately $60 million which was principally the result of advertising revenue declines.

In United Kingdom, advertising revenues were down nearly 10% from declines in display and classified advertising principally at a quality titles. In Australia, display advertising was about even with the prior year level. However, classified advertising revenues declined 7%. This is principally the result of reduced employment advertising.

Also in the quarter, Dow Jones financial results have been included with ours since the completion of the acquisition in December 2007. So the prior year reported figures do not include comparative amounts. And as a result, our revenues benefited in the first quarter of fiscal 2009 by nearly $500 million. The impact of Dow Jones on operating income was not significant in the quarter, as profits from operations were offset by purchased accounting expenses.

Shifting to our Book Publishing segment, first quarter operating income contributions were down $33 million compared to last year due to lower sales at our General Books Group, higher return provisions and reduced third-party distribution income.

Last year's results included strong sales from The Dangerous Book for Boys and distribution profits from the release of Harry Potter. And our Other segment reported a first quarter operating loss of $101 million, $58 million higher than a year ago. This higher loss is primarily due to lower contributions from NDS as well as higher losses at our developing Eastern European television businesses.

At Fox Interactive Media, revenue in the quarter of $220 million, were up 17% compared to a year ago as a result of higher search and advertising revenue. Operating income contributions were similar to a year ago levels, as the revenue gains were offset by planned increases in operating and production costs associated with MySpace's domestic and international expansion and the additions of new features.

And finally, let me address our guidance for fiscal 2009. As a reminder, you will recall that we measure this guidance, excluding from fiscal 2008 results, the $253 million of operating profit contribution from businesses or assets sold in fiscal 2008, which are no longer included in our ongoing results, namely the eight TV stations, the RSNs, Liberty and the UK land sale. So as we look at measuring comparisons of fiscal 2009, we are comparing it to a base of $5.13 billion in operating profit for fiscal 2008.

In early August, we indicated that we are anticipating our operating income growth rate for fiscal 2009 to be in the 4% to 6% range, above the $5.1 billion fiscal 2008 adjusted results. Since that time, we have seen a marked deterioration in confidence and in economy conditions related to the current global financial crisis. The direct impact of this to us has been that the advertising environment for the local broadcast television has weakened and similarly so have newspaper, advertising trends in all of the territories in which we operate.

Additionally, the US dollar strengthened by nearly 20% against the euro and the sterling and over 25% against the Australian dollar, reducing translated US dollar contributions from our principal international operations. As a result, taking all of these factors into account, and considering that we have only limited visibility into calendar '09 advertising and currency trends, we are reducing our fiscal 2009 operating income outlook to now be down on a percentage basis in the low-to-mid teens from the $5.13 billion fiscal 2008 results.

Looking at the change in our outlook from August to to-date, roughly one-third of the change in this outlook is due to the strength in the US dollar, a further 40% of the change is from the challenging advertising markets in our US television and international newspaper businesses, and the remainder reflects our view on business trends and the rest of our business operations.

Again we want to stress that in developing our outlook, we have only limited visibility into trading conditions in the second half of our fiscal year, as a result our outlook assumes that exchange rates and advertising trends remain where they are today. While we are continuing to run our businesses on a lean cost base, we are also intensely focused on cost reductions to respond to these revenue challenges.

And with that, I'd now like to turn the call over to Rupert for additional some comments.

Rupert Murdoch

Thank you, Dave, and good afternoon, everyone. The revised guidance Dave just gave is a clear reflection of the current economic downturn which we believe will persist throughout fiscal 2009, compared to extremely challenging media sector.

I want to stress that we this is covering next year where most of the media companies have been given guidance for last three months and this year. But having weathered many down cycles in the past and emerged even stronger, we are prepared ourselves well for this cycle. We have consistently maintained a strong balance sheet and the strategic array of businesses.

As a result, we are well positioned possibly to face what may well turn into a prolonged economic slump. We've instituted a stringent cost cutting measures across all our businesses to operate even more efficiently. We're managing down our already lean headcount wherever appropriate. We have given our strong cash position. We are also not going to stop our businesses. And where appropriate, we'll continue to invest in those businesses and opportunities that represent our next generation of growth. We intend to come through this with strengthen and more profitable franchises in all our businesses.

We have confidence that the strategy which has profit us and profited us so consistently this decade will continue to be the right course even in these difficult days, maintaining diversified assets at different stages of growth and keeping a strongly yet flexible balance sheet.

As Dave just mentioned, our businesses across the board have been challenged right now by weakening end markets and our group wide result is further being impacted by progressively weakened foreign currencies when translating these results to US dollars but there are bright spots to balance that picture.

Our cable group continues to perform extremely well, with Fox News continuing to dominate the US cable news market. Fox International Channels are generating some of the highest margin in the international cable industry and the Big Ten Network is poised to break into profit in the second year of operation.

Sky Italia continues to be a tough performer with more than 4.6 million subscribers and our Internet revenues continue to grow very well. On film division admittedly got off to a slow start, but we have a very strong holiday slate with Australia, to DeVoe, [Sustu] Molly and me.

In the spring we have two highly anticipated sequels that should do strong business. "Night At The Museum 2," and "X-Men Origins: Wolverine". An American Idol and [Tony Borkum] rolling back in January to FOX Broadcasting.

Finally, we remain convinced in the promise with the breadth of Down Jones businesses to give us an international platform to deliver specialized financial information that the world's burgeoning middle and investor classes are demanding.

Indeed the Wall Street Journal is the only newspaper in America to increase this fully paged circulations year-over-year. We also remain convinced that our balance sheet with approximately $5.5 billion in cash and average debt maturity of more than 22 years will give us much needed stability.

There is little doubt that our businesses will continue to face tough challenges in the coming year. And we remain confident that our strategy will help us we weather the economic storm ahead. Thank you very much.

And now, Dave, Peter and I will be happy to take any questions.

Question-and-Answer Session

Operator

(Operator Instructions) The executive team will take questions first from members of the financial community, then immediately move to members of the press. Our first question, Rich Greenfield with Pali Capital. Please go ahead.

Rich Greenfield - Pali Capital

Yes. I have a question for Rupert. News Corps constantly evolved and you've entered new businesses such as Cable Networks that you didn't have a decade plus ago, and you have exited businesses where you felt less comfortable like DIRECTV in the US.

When you look at your asset mix now, are you happy with the overall asset mix? What would you like to add? What would you like to trim? You've obviously been involved with something like Premiere. Is that something for expansion?

Also, how do you think about businesses that you should be exiting given where secular trends are now? Then a question that keeps popping up, it's related to this is, would you ever consider breaking apart any of your businesses structurally versus keeping them altogether? Thanks.

Rupert Murdoch

No, we wouldn't consider breaking up. We have a very, very good mix and I don't see what we would trim. However, in terms of going forward, I would like to see a much better emphasis on subscriber-based businesses.

We are seeing in our cable channels the great benefits of the twin revenues coming from both subscribers and from advertisers. So, we will be looking to start new channels where there are opportunities and we certainly see that in the big scale internationally.

Rich Greenfield - Pali Capital

And where does Premiere fit into that?

Rupert Murdoch

Well, Premiere, it is developing. At the moment, the management is developing a clear plan for business. At the appropriate time, and once that strategy is developed, we will determine our position in detail. In the meantime, we just continue to follow the situation closely.

Rich Greenfield - Pali Capital

But you would consider at the right price or right time buying more of this company, the extended distribution like you deal with SKY Italia?

Rupert Murdoch

We are not at any stage to make a statement like that at the moment.

Rich Greenfield - Pali Capital

Okay. Thanks.

Operator

Our next question is from the line of Jessica Reif-Cohen with Merrill Lynch. Please go ahead.

Jessica Reif-Cohen - Merrill Lynch

Thank you. I have a question about the Cable Networks. Specifically, can you give us a sense of where Fox business channel is relative to expectations and what kind of losses we should expect? And can you comment on the increasing competition in India and how you feel your relative position is down?

Rupert Murdoch

No, I don't think we break up the profits of the different channels, do we, Dave?

Dave DeVoe

No.

Rupert Murdoch

We can talk pretty honestly about it. Our position is yes, it will probably cost us best part of $60 million to $70 million this year. We are fighting very hard for greater distribution. We are achieving it slowly. And when we get over 50 million subscribers, we will turn on a lot more heat, we will turn better programs and we think we will be much more aggressive in getting advertising. But I think that's another year to two years away.

Jessica Reif-Cohen - Merrill Lynch

And India?

Rupert Murdoch

India is just fine. Again, we have to break down the figures. But I can tell you this that we are, Star Plus advertising is running 20% ahead of last year, in advertising.

Operator

Our next is from the line of Michael Nathanson with Sanford Bernstein.

Michael Nathanson - Sanford Bernstein

Thanks. My question is for Rupert or Peter. When you look at what is happening to the stations right now in terms of fast following local TV. I wondered if anything you could do structurally, your stations to improve profitability, would you add more national programming hours in late night or morning? So is there anything you are doing or thinking about to maybe turn.

Rupert Murdoch

No, we don't think that will be right. We, of course, have many syndicated programs which are national, some we make ourselves and some we buy. But our strength, I think, is to keep developing more local news and that separates us very much from the hundreds of cable networks that are out there. So we saw the benefit of that in this political season where I think the industry had an increase of about 20% in political advertising and our stations had 100% increase.

Michael Nathanson - Sanford Bernstein

What I was thinking about, we are looking at the two buckets of money, national TV or local TV. National is more resilient and I wondered would that makes sense as well?

Rupert Murdoch

No, that's not proving true. We are down in all categories, and so are all our opponents. We believe in spite of our bad figures here that we have increased our share of market to different markets plus by different amounts. And we are doing as well as we can. Can we do things like merging more back-office functions and things like that? Yes, slowly we can.

But I don't think you are going to see huge amounts of money there. If you look at, for instance, the automotive business, the automotive advertising has represented I think between 30% and 40% of all business in the local stations, and that is down by 40%. In some cases, like General Motor is down by more than 50%. So, it is going to take time for that to come back or to come back from other sources or to be replaced.

But it is down also in financial advertising with a [traffic concentrate] on specific markets. It is down even in movie advertising at the moment. So it is a pretty grim picture for all local television stations across the country, whether it is ours or other people. But we are fighting it very hard every moment of the day.

Michael Nathanson - Sanford Bernstein

Thank you.

Operator

Our next question is from Doug Mitchelson with Deutsche Bank. Please go ahead.

Doug Mitchelson - Deutsche Bank

Thanks. I guess with the limited visibility right now, maybe we'll look out a bit longer-term, Rupert. I believe you said recently, that you would like to see Dow Jones over time get to about $1 billion of operating income and certainly that would prove the value of that deal, given they have just put up about breakeven this quarter. Can you give us the levers that you think will bridge that gap over the years following on?

Rupert Murdoch

The breakeven was because of the purchase accounting, but it was certainly down on past year. It is going to take time. As I have said, we are moving up the subscription rates. We are moving them up every year for the next three years. But the fact is people take subscriptions out for a year. So you only get 1/12th of your subscribers up every month.

So, it takes time to work us way through. The advertising is not down a lot, but it is certainly a bit below what we budgeted. Today and tomorrow I think we are right on budget, but financial advertising, we know what's going on in the financial world and they are going to cut back.

Doug Mitchelson - Deutsche Bank

What I'm asking you is….

Rupert Murdoch

I'd just say the big profit measure which is going to be the website is the one website that people charge for, people are very happy to pay for. We are getting it. I better be careful what I say and much sure the exactly figure, probably a $100 million in subscriptions there. And that certainly is over $100 million in advertising on that one website. Then, of course, that's really only half the business, the paper and the website.

The other half is the special news services, the indexes and various and very specialized financial services which we keep developing because of state of the financial industry in this country, we are putting even more emphasis than normal on international expansion.

Doug Mitchelson - Deutsche Bank

Okay, great. Thank you.

Rupert Murdoch

One last platform that we really see a big hope for in Asia certainly is mobile, putting our website on mobile. So there's a lot of work ahead of us there.

Doug Mitchelson - Deutsche Bank

Right.

Rupert Murdoch

But we also see a lot of opportunity. It has never been more important for companies and people to have up-to-date and first class financial information.

Doug Mitchelson - Deutsche Bank

Thanks.

Operator

Our next question is from Benjamin Swinburne with Morgan Stanley. Please go ahead.

Benjamin Swinburne - Morgan Stanley

Hi. Good afternoon. Thanks. I want to ask one question on the guidance and then on the film segment. One point of clarification on the guidance, are you assuming credit currency trends to worsen from here using sort of current spot rates in your low-to-mid teens guidance?

Then one business that has actually held up pretty well over the last couple of years and been a nice source of growth is syndication on the television studio, domestic, but also in particular, international. A couple of your peers have talked about some deal slipping in this fall until next year or further out. Can you comment on that business of the FOX Television Studio and whether that needs to hold up pretty well, both in terms of domestic syndication on off-net and first-run, and also what's happening internationally? Thank you.

Rupert Murdoch

Yes, on the guidance, with respect to the currency, we're assuming spot rates that exist today, which has affected guidance, changing guidance by about a third.

Peter Chernin

This is Peter. But I would say, in terms of the syndication market we're actually seeing that hold up quite well. Our international pricing is still quiet robust. We're not seeing any signs of softness. And we have a couple of big international franchises in "24", in "The Simpsons" and "Prison Break", and all those are holding up very well.

On a domestic syndication front, we have just or we have largely completed the syndication of "How I Met Your Mother", which will go out in syndication next September and that's probably exceeded our expectations. It looks like we're going to do somewhere in excess of $2.5 million an episode between broadcasting, cable and border domestically.

We're about to go out in syndication with "My Name Is Earl" in the next month or so. So, so far, I think the syndication world seems to be a world of haves and haves not. If you have strong products, there is quite a bit of demand for it, especially on the cable's front. Some of the weaker product may be getting hurt a little more.

Benjamin Swinburne - Morgan Stanley

Thank you, Peter.

Operator

Our next question is from the line of Jolanta Masojada with Credit Suisse. Please go ahead.

Jolanta Masojada - Credit Suisse

Thanks very much. I wondered if you could clarify the losses from Eastern European TV in the quarter and what your expectations are for ongoing investments in subsequent quarters. Can you clarify what were the tax benefits on the one-time items in the quarter?

Rupert Murdoch

We have sold our station in Poland, not finding that a satisfactory area to be, and we are continuing to do extremely well on Bulgaria.

Dave DeVoe

Yes. I think Masojada was asking the results of roughly about $31 million loss in the current quarter versus around $15 million loss a year ago. It is probably worse than a year ago. And I think you are asking effectively with respect to the sale of the TV stations, we are able to capital losses to offset that gain. So the way to look at our effective tax rate, our tax rate is significant below a year ago. That's the second question if you want to.

Operator

Thank you. Our next is from the line of Mark Wienkes with Goldman Sachs.

Mark Wienkes - Goldman Sachs

Great, thank you. Could you talk to the market for sports rights visa-a-visa the recent deal for the Olympics at SKY Italia and then the ongoing BCS talks?

Peter Chernin

Well, I would say the market for sports rights still continues to be quite robust. I think you are going to see, given the success that NBC had with the Olympics, fairly aggressive Olympic bidding for the next two Olympics. In terms of the BCS, we are absolutely right in the middle of that negotiation right now and don't have much to say about it other than we like the events and we are prepared to pay appropriate price.

And if the price goes above that, we won't go that far. But I think, in general, the marketplace for sports rights seems to be pretty robust. And frankly, the performance of sports, certainly our sports performance both on the cable side and the broadcast side is holding up quite well.

Mark Wienkes - Goldman Sachs

Okay. Thank you.

Operator

We have a question from Michael Morris with UBS. Please go ahead.

Michael Morris - UBS

Thank you. Going back to the TV stations briefly. It seems that local advertising and large markets is significantly underperforming small markets. Given that you just rotated out of those small markets, can you talk about whether or not this seems to be true and what you think could be driving that?

And then secondly, you mentioned in the past that the stations serve as the backbone of the network. Can you talk about that a little bit more? What's the risk to owning the Fox Network and not having any stations? Thank you.

Peter Chernin

Well, I think I will go first and then Rupert do you want to jump in? I would say right now we are seeing somewhat, a little bit greater softness in the large markets. But there is also certain amount of geographic softness. There seems to be more softness up and down the East Coast and Texas and the West Coast which coincides with the large markets and some of the smaller markets are in the Midwest which actually seems to be going a little bit stronger.

So that may have something to do with. I think the real estate market maybe a little bit worse particularly in some of the suburbs of the large markets and that seems to affect us. I do think we are at the right number of stations strategically and certainly as we look at managing our television business, we look at it fairly holistically and we look at it sort of combination of broadcast networks of stations, our studio and to some degree even some of the cable channels where we take advantages of our ability to create new programming.

And I think you want to have big strong affiliates, particularly in those big markets in order to maximize the sort of whole strength of the company as the television business. So at least in my opinion, I don't think we should be decreasing the amount of stations we own or certainly not owning just the network and no television stations.

Michael Morris - UBS

Okay. Thank you.

Operator

Our next question is from Spencer Wang with Credit Suisse. Please go ahead.

Spencer Wang - Credit Suisse

Thanks. Good afternoon I just want to return to the changing guidance. I believe, Dave, you said that about a quarter of the change is related to other business trends you're seeing. I was wondering if you could clarify is that maybe a slowdown on TV sales or is that greater investment spending in other parts?

Dave DeVoe

I mean Peter may want to jump in as well. I mean, partly it's slightly lower, it's lower earnings at the film company. It's the loss that we haven't discussed this, but basically lower performance on the world series of the network and just the general affect on the other businesses due to the economic conditions that exist in the world today. The World Series at the network, sorry.

Spencer Wang - Credit Suisse

If I could follow up with one question. I know you said FOX Interactive revenues grew 17%. Could you give us the breakdown of the growth in search versus display? Thank you.

Dave DeVoe

Yeah, display is up 16% and search is down slightly.

Spencer Wang - Credit Suisse

Up 10%?

Dave DeVoe

Up 10%.

Spencer Wang - Credit Suisse

Thank you.

Dave DeVoe

Okay. Advertising is up 16% and search is up 10%.

Spencer Wang - Credit Suisse

Thanks.

Operator

And thank you. Our next question is from the line of Jason Bazinet with Citi. Please go ahead.

Jason Bazinet - Citigroup

Two questions on the $304 million of other net on the income: can you elaborate on that? Then on the equity losses of affiliates, I think you said it is $447 million losses related to Premiere. Is that principally the write-down, should we view that as a one-time?

Dave DeVoe

Yes, it's roughly $420 million and that is the write-down of our investments in Premiere. The other is the gain including the other is the gain on the sale of stations and the mark-to-market adjustment of the company's convertible securities, BUCS securities that we have outstanding.

Jason Bazinet - Citigroup

Okay. Thank you very much.

Operator

Our next is Adam Alexander with Jb Were. Please go ahead.

Adam Alexander - Jb Were

Peter, this one is for you on Fox Interactive Media, I think you made some comments during the quarter that it was running ahead of expectations. I'm just wondering whether this still the case and the target of the 30% revenue growth in this division, how that sort of tracking today?

Peter Chernin

I think we were quite pleased with our performance in the quarter and we made a lot of progress in some of the revenue generating areas, a lot of progress in adding new features etcetera. And so overall, I think we were feeling a little ahead of expectations. We started off this quarter also feeling good. We are beginning to be honest to see some softening at the end of this calendar year and looking into the first couple of quarters, the beginning next year.

I still believe that we're doing slightly better than the marketplace. But it's clear from everybody else that there is a lot of softening in the display advertising marketplace and we are beginning to feel some of that. So I think still from our own sort of anecdotal appraisal of the business, we are pleased with the progress they are making.

We think a lot of areas, the launch of MySpace Music, the launching of SelfServe Ads, the increase in the quality and number of advertisers etcetera. We are pleased with their progress, but we are just beginning sort of December and then moving into January to begin to see some of the softness in the marketplace catch up to us.

Adam Alexander - Jb Were

Okay. Do you think the developments been, they will slow down for the remaining three quarters or you take most of that in the first quarter?

Peter Chernin

I think look we are certainly monitoring our costs very closely. Our costs went up almost exactly the same levels our revenues this first quarter which was about what we felt comfortable with, and to the degree that our revenues slow down we will certainly slow down our spending to keep track of it.

We are trying to find the right balance between continuing to progressively grow the revenues of the business and what we continue to believe is a growth business and one there was so much international investment going on, there was so much new future investment going on.

And we want to make sure that we keep doing that. We still believe this is a growth category and we should be participating aggressively. But to the degree that we see our revenue slowdown, we have a pretty good handle, we think we have a pretty on costs right now. And we'll ratchet them down accordingly.

Adam Alexander - Jb Were

Okay. Thanks.

Operator

Our next question is from the line of Imran Khan with JPMorgan. Please go ahead.

Imran Khan - JPMorgan

Yes, hi. Thank you for taking my questions. I have two. One regarding newspaper where an operating profit was down $60 million adjusted for the accelerated depreciation. Could you talk about what kind of cost cutting initiatives you can take so that we can minimize some of this decline? And secondly, in terms of the Fox Cable Networks affiliate renegotiations, how confident that you can get the similar deal that you got in the past for the upcoming deals for Fox News? Thank you.

Rupert Murdoch

We are confident about the Fox News. People are lining up, as the contracts come due, they will pay that price and because it has a very passion following. As for the savings in the Wall Street Journal, there are many things, they increment a lot of them. Prints as we print now in 17 different locations and plants which we own at the Wall Street Journal.

Our plan over the next year maybe 15 months would be to close 10 of those and outsource that printing to other newspapers, both the printing and the delivery. Each place will average at least 3 million annual savings. So it's going on and we're planning the merging of the back-offices of purchase in the Wall Street Journal. Wherever we can find to sit, these are fit all individually reasonably small amounts of money that they add up to a lot.

Imran Khan - JPMorgan

Did you want to tell, what you were doing in Australia, in the United Kingdom as well?

Rupert Murdoch

In Australia and the United Kingdom. Yes, we've had big economy drives, which are, but we did it before we believe it started. But we did it all over again now, and you'll see even leaner operations at both those places. I am not prepared to say how many people, I know, but I don't want the headlines about it across the board cuts.

Imran Khan - JPMorgan

Thank you.

Operator

Our next question is from Anthony DiClemente with Barclays Capital. Please go ahead.

Anthony DiClemente - Barclays Capital

Thanks for taking my questions. Questions for Rupert. Rupert, to your credit, you actually predicted a lot of deterioration in the environment that we've seen over the summer. And I remember a lot of analysts and shareholders were at the time clamoring for a big buyback.

The question is, other of your peers are now facing margin calls, but you are kind of the guy with the cash. You could either commit to the return of capital to shareholders here at a much cheaper valuation or you could certainly acquire from distressed media assets out there at steep discounts.

So the question is, do you think that at this time fast forward a couple of quarters from your comments over the summer and media evaluations have bottomed enough to warrant doing either of those things? Thanks.

Rupert Murdoch

No, I think that we don't want to do anything until we can see that there is a great deal, more visibility in the market. I believe that probably there will be some great bargains coming at lower prices than they are today, but we don't have anything firmly inside or in mind there, but we'll be ready for as the right things comes. But we are not going to buy that or do anything like that until we can see, until things settle down and we can see forward a long way further.

Anthony DiClemente - Barclays Capital

Thank you, Rupert. And second for Peter, if you could just elaborate for us on DVD trends that you're seeing heading into the holiday period? Thank you.

Peter Chernin

Yes. I would say we are actually in just the last three or four weeks beginning to see quite a bit of softening in the DVD business, quite honestly more among other studios titles. We track pretty closely everybody else's titles. And some of the titles that have come out in the last three or four weeks have in our opinion underperformed what we expected of them. So we are actually a little bit cautious about the DVD business going forward.

Our guidance assumes a certain amount of caution. We haven't had a big release in the past five or six weeks. So it hasn't really impacted us, yet. And we certainly have enormous confidence in our retailer relationships, our category management of Wal-Mart etcetera. So we have some confidence we can outperform the market, but there are cautionary signs coming out of the DVD market in the last three or four weeks.

Anthony DiClemente - Barclays Capital

Okay. Thank you.

Operator

Our next question comes from the line of David Bank with RBC Capital Markets. Please go ahead.

David Bank - RBC Capital Markets

Thanks very much. Thanks so much for the color on the TV business. I think you've given us a really sense of how challenging it is on the local side. Could you give us a little bit more color in terms of the network side and have you seen any material levels of cancellations for the first quarter coming in? Is there any real change to the tone of the scatter market?

Rupert Murdoch

Peter would like to answer, but I have just surprised them to sales director a few minutes ago. We are having in cancellations of the upfront at worst average, and as I said it's about 3%. We are still selling in spite of what about posted this money. We're still selling scatter advertising at rates at least as good as the upfront. So we're in surprisingly good shape on the network.

Peter Chernin

Yeah. I would echo that. I think the network business is looking fine here. We are obviously cautious, but we were probably to be honest expecting worse, the cancellations for the first quarter really come in this past week. And we're expecting something more serious than we got which we haven't gotten. So we're feeling good that.

The being said, we are cautious. There is not a lot of visibility into the second calendar quarter you had and we're going to be cautious about that. And scatter is okay. We are selling some scatter and we're selling it largely at upfront pricing a little better than that. I think the other thing, it's important to point out is one of our benefits on the national front is most of our auto advertising has enormous sort of promotional integration.

Our biggest single auto advertiser in the second half of the year is Ford. They are heavily integrated into American Idol. And I think the big advertisers tend to look at that integration as being sort of bonus or added value, and make that advertising some of the last stuff they will cut.

So far we look at the national business as pretty good. And just to add on to that, the national cable business is also quite good right now. I think benefiting from some of the weakness in the broadcasting business. But the same national trends are going there. We are through most of our cancellations, which look to be on the low end of normal, and we are seeing decent, not great but decent scatter.

David Bank - RBC Capital Markets

Thanks very much.

Rupert Murdoch

I'll just add to that. I understand that our audience took part in this season, while not great is as good as last year while our competitors have fallen quite a lot. Is that right, Peter?

Peter Chernin

Well I agree, I wouldn't say it’s as good as last year. Given that our ratings are down, I think about 10% so far for the season. But they are down less. They are pretty much equal to be as down less than the other guys.

I think the most important thing is that the gap between us and the number one network the last I saw was a one-tenth of a rating point. And I think at this point last year, we were about three-tenth of a rating point.

And so we’re pretty confident, as we get "24" and "American Idol" back on, we got some other shows live, we’re quiet excited about. We are pretty confident that we’re going to be the number one network again and be the number one network by a pretty significant margin.

Gary Ginsberg

Operator this would be our last question please.

Operator

Thank you. The last question then will come from the line of Alan Gould with Natexis Bleichroeder. Please go ahead.

Alan Gould - Natexis Bleichroeder

Thank you. Rupert, based on what you’ve heard through the campaign season, I was wondering what political changes you think would occur under an Obama administration that would affect News Corp. media concentration being one of the obvious ones?

Rupert Murdoch

I don't think there is going to be any effort of breaking up existing media companies at all. I would imagine under any Democratic Attorney General's department, Justice Department that mergers will get a much less friendly reception.

Gary Ginsberg

Operator, we will go to the press calls please.

Operator

Pretty good. Ladies and gentlemen, we'll now take questions from the press. [Operator Instructions]. Our first question from James Quinn with The Daily Telegraph. Please go ahead.

James Quinn - The Daily Telegraph

Thanks. Rupert, you touched earlier on the UK and Australia and further cuts. Could you talk a little bit more about the advertising downturn in the UK?

Rupert Murdoch

The advertising where, in the UK?

James Quinn - The Daily Telegraph

Yes.

Rupert Murdoch

Yes, it's strange. In our popular papers the Sun and News of the World. Certainly, until this week there has been very little movement. I think the News of the World has held us, it's been fully and Sun might be down 3%.

In the losses in the last loss of business in the last few weeks, not enough for this whole period, but in the last few weeks in the Sunday Times and the Times has been a lot more considerable.

James Quinn - The Daily Telegraph

And can you see that continuing?

Rupert Murdoch

What's that?

James Quinn - The Daily Telegraph

Can you see that continuing?

Rupert Murdoch

Yes. Well, we don't see any change from it. We hope that we can turn it around.

James Quinn - The Daily Telegraph

Yeah. Okay, thank you.

Rupert Murdoch

It's led by the minor advertising and by the classifieds.

James Quinn - The Daily Telegraph

Yes.

Rupert Murdoch

As the same in Australia. I don't think we are down at all particularly in display advertising or retail advertising, but we are suffering there in particularly job advertising, mainly in the small local newspapers. But it is not a big part of our business compared to our competitors.

James Quinn - The Daily Telegraph

Thank you.

Operator

Our next question is from the line of Ria McLennan with AAP.

Rupert Murdoch

The problem with Australia is that we are down 6% in business and 27% in currency. Sorry.

Gary Ginsberg

I am sorry, next question.

Ria McLennan - AAP

Hi, Can you hear me? Yes.

Gary Ginsberg

Yes, go ahead.

Ria McLennan - AAP

I am a bit confused about the guidance. So I was wondering if you could clarify. It’s a downgrading guidance from 4 to 6 to sorry I missed that part, if you could repeat that. Thanks.

Peter Chernin

Regarding from low to mid teens down from a year ago.

Ria McLennan - AAP

Okay, thanks.

Operator

Thank you. Our next question…

Peter Chernin

Excuse me, it's actually low to mid teens from an adjusted year ago operating earnings of $5.128 billion to be specific.

Gary Ginsberg

Next question?

Operator

Our next question is from the line of Mark. Please go ahead.

Unidentified Analyst

Yes. Thank you. I have two questions concerning the German pay-TV operator Permira. First one is, how do you estimate the developments of the number of subscribers of Permira within the next 12 months. And the other is what kind of conduct or services do you want to ask to Permira to be successful at or what kind of conducive services should be enlarged? Thank you.

Peter Chernin

That’s a question for Permira and not for News Corp. So we’ll go to the next question please.

Operator

Our next question is from Ken Lee with Financial Times. Please go ahead.

Ken Lee - Financial Times

Given the current market conditions, I wanted to follow-up on a thin question earlier up. Can you give us some more realistic growth rate for same revenues in fiscal 09?

Peter Chernin

You know, I don't think we are prepared to give out or predict a growth rate. We get out the first quarter stuff, and as I said, we think we’re in a world where we are pleased with how our performance is relative to market, but we also see the market beginning to soften. So I don't think we want to predict exactly where it’s going to end up.

Ken Lee - Financial Times

Okay. Thank you.

Operator

Our next question is from George Zili, Hollywood Reporter. Please go ahead.

George Silino - The Hollywood Reporter

Thank you. Rupert talked a little bit about how he expects Democrats to be little tough on mergers. I was wondering if you have any issues in the industry that you would like the administration to address right now?

Peter Chernin

We don't currently have any issues before just start to anticipate any going forward.

George Silino - The Hollywood Reporter

Thank you.

Operator

Our next question is from Dave Hayes with Variety. Please go ahead.

Dave Hayes - Variety

Hi, just curious about the film studio and whether you are looking at any operating changes just consistent with some of the other moves we’ve seen from other companies who have gone to fewer releases, and basically kind of trimmed back a bit. I mean you are projected to have 20 releases in calendar ‘08. Rupert, you mentioned the sequel is coming up, obviously

Rupert Murdoch

We've trimmed back before, I know people who did, and we are very happy with the schedule we have. It was unfortunate the timing which is affecting us and that we didn't have anything big this summer. We know we got a very big list of strong release next summer. Their profits and probably even including Memorial Day picture the main profits will be falling into the next fiscal year.

Peter Chernin

I would add to that. I think we feel good about the current structure, we feel good about the number of movies we are making, we clearly feel good about the management.

And I think, probably the thing we are most optimistic about is to see the number of movies by the industry begin to decline, not only from the studios, but even more importantly from some of, I think we are beginning to see a tightening of the independent money coming in to town, and we think that will be the best that could happen to the movie business we think.

Rupert Murdoch

A little while ago we were getting hedge funds affecting the movies. And that’s obviously going to dry up. But the trouble is there are still quite a lot of movies out there that have been, waiting to be made waiting to release. So we are not going to see the release number of movies going into the market for a few months.

I think that what's in the work and then the works at the moment. But I think this time next year and beyond that we are going to see quite considerably a smaller number of movies which would be good. And they will come from the main (inaudible) and we should get a bigger share of the box office.

Dave Hayes - Variety

Okay. Thanks.

Gary Ginsberg

And the next question?

Operator

Our next from is from Shira Obaid with Wall Street Journal. Please go ahead.

Shira Obaid - Wall Street Journal

Hi, thanks. Can you update us on the status of deal conversations with Yahoo! or Microsoft or other internet players?

Rupert Murdoch

We have no conversations that I am aware of. Have we Peter?

Peter Chernin

We have no conversations going on.

Shira Obaid - Wall Street Journal

Just one more for Peter. I believe your employment agreement expires next summer. Have you started to work on a new contract?

Peter Chernin

We are having conversations.

Shira Obaid - Wall Street Journal

Would you characterize those as sort of preliminary or…

Peter Chernin

I wouldn't characterize them at all. I just characterized them as you know we’re having good constructive conversations, which is…

Rupert Murdoch

I would characterize them as constructive and friendly.

Shira Obaid - Wall Street Journal

Okay.

Operator

Our next question is from Robert McMillan with [Reuters].

Robert McMillan - Reuters

I just wanted to shift attention to Europe for a moment. I was curious about how threatened News Corp. might be regarding a bid from ESPN and Disney, for the live Pay-TV broadcast rights to Germany’s top soccer games. I heard that Disney and ESPN were going to be bidding for those rights.

Peter Chernin

That too is a question for Permira. And so we’re not going to answer it, I’m sorry. Taking up next question, actually we have follow-up.

Robert McMillan - Reuters

Nothing, thanks.

Peter Chernin

Thanks, we’ll go to next question.

Operator

I think at this time we have no further questions in the queue.

Peter Chernin

Great. Okay, thank you very much everybody, have a good night.

Operator

And ladies and gentlemen today’s conference call is being made available for replay starting today at 6:30 pm in the Eastern Time zone and running through Saturday November 15th, 2008.

You can access our replay service at any time by dialing 800-475-6701 or 320-365-3844 and entering today’s conference access code of 966140. Those numbers once again, toll free 800-475-6701 and 320-365-3844 with the access code of 966140.

And that does conclude our conference call for today. Thank you for your participation. You may now disconnect.

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