Media Stocks: News Corp, Viacom

Here is a quick analysis of a couple of media companies who announced their rather lack luster quarterly results last month. News Corporation (NWS) had been on a roll until last quarter with impressive Q4 results. However, the Q1 results for its new fiscal year were disappointing.

Q1 revenues of $7.5 billion reported a growth of 6.3% over the year compared to the market’s expectations of $7.7 billion. Earnings came in at $0.20 per share against the market’s expectations of $0.23, and reported a 15% reduction over the year.

By segment, Movie revenues fell 20% to $1.3 billion and Television revenues fell 15% to $974 million with Ad revenues at the TV stations reducing by 17% over the year. There was some hope with cable network programming revenues rising by 19% to $1.3 billion. Newspapers and information services grew by 37% over the year to $1.7 billion, primarily driven by the acquisition of Dow Jones & Co. last year. The Fox Interactive Media group grew by 17% over the year to $220 million.

Sky Italia continued to post robust growth and added 359,000 subscribers during the quarter, taking its subscriber base to more than 4.6 million.

Going forward, the company is expecting the movie division to pick up with releases of “Night at the Museum 2,” and “X-Men Origins: Wolverine” expected this year and the television business is geared for the new season of “American Idol.” The company is very hopeful on the mobile media, especially for Asia and recently, MySpace announced the launch of video streaming on the mobile phone.

However, with advertising revenues having taken a plunge for both the local broadcast television and newspapers and with the U.S. dollar having strengthened against the euro and the British pound by 20%, and against the Australian dollar by 25%, its future outlook did not seem rosy either. Despite announcing cost cuts, the company revised its outlook for the 2009 operating income downwards to low-mid teen growth from the $5.13 billion in the previous year.

The stock, meanwhile, is following the industry’s trend of nose-diving to record lows. After having reached a low of $6.38 last month, it is now trading slightly above $8 levels.

Viacom (VIA), one of my other favorite Media stocks', results for the quarter were relatively better than the rest of its peers. With Q3 revenues of $3.41 billion, the company reported a growth of 4% over the year and beat the street’s expectations of $3.3 billion. EPS fell by 55% over the year to $0.55 but was in line with the market’s expectations.

Segment wise, Media Networks revenues grew by 6% over the year. Like others, the company also saw a slowdown in advertising revenue, which was down 2% overall. Affiliate fees, however, grew by 12% over the year and was driven by rate increases and expansion of subscriber base across its core channels.

During the quarter, the company repurchased 7.6 million shares for a total cost of $215.0 million.

Going forward, the company is now expecting mid-single to low-double-digit growth in adjusted diluted earnings per share compared to the previous year.

The company continued with its right moves by bringing out better products and content for its users. During the quarter, the company launched products such as HD-VOD, transaction VOD, and its content continued to improve through the launch of interactive TV games, and international channels. Its Rock Band ancillary was a raving success and it has shipped more than 7.0 million units in 13 countries. 26.0 million songs have been downloaded to date and by year-end, it expects to have a library of at least 500 songs available via disc and paid download.

The company recently announced a tie up with the Beatles Apple Corp. to create the “first ever interactive video game centered on the legendary music of the Beatles.” It will be a custom game title spanning the Beatles’ entire career. The company is also engaging its Community through innovative components such as a new game called Backchannel, which is a “chat interface that runs live online while The Hills airs. Viewers post and rate comments in a shared chat window throughout the show and the top rated ones are posted on the site’s leader board and runs on air when the show repeats.”

The strength of its content is illustrated through the user ratings for MTV and MTV2 where the ratings grew 23% over the year. Its Comedy Central series got three Emmy awards for three of its top-rated series. Paramount also continues to grow through partnerships with some of the greatest talent such as Spielberg, Martin Scorsese to name a few.

Despite its efforts, and not surprisingly, the stock fell to a record low of $14.66 earlier this month and is currently trading at $16.01. It's still a good company!

Disclosure: None