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News Corporation (NASDAQ:NWSA)

F1Q10 (Qtr End 09/30/09) Earnings Call Transcript

November 4, 2008, 4:30 pm ET

Executives

Gary Ginsberg – EVP, Global Marketing and Corporate Affairs

Dave DeVoe – Senior EVP and CFO

Rupert Murdoch – Chairman and CEO

Chase Carey – Deputy Chairman, President and COO

Analysts

Jessica Reif Cohen – Bank of America/Merrill Lynch

Adam Alexander – JB Were

Imran Khan – JP Morgan

Michael Nathanson – Sanford Bernstein

Rich Greenfield – Pali Capital

Jolanta Masojada – Credit Suisse

Doug Mitchelson – Deutsche Bank

Benjamin Swinburne – Morgan Stanley

David Bank – RBC Capital Markets

Jason Bazinet – Citi

Spencer Wang – Credit Suisse

John Janedis – Wells Fargo

Michael Morris – UBS

Sarah Rabil – Bloomberg News

Barbara Miller – ABC Radio

Brian Stelter – The New York Times

Shira Ovide – Wall Street Journal

Claire Atkinson – Broadcasting and Cable

James Quinn – Daily Telegraph

Ken Li – The Financial Times

George Zallie [ph] – Hollywood Reporter

Richard Morgan – The Deal

Andrew Clark – The Guardian

Staci Kramer – ContentNext Media

Andrew Edgecliffe – The Financial Times

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the News Corporation first quarter 2010 earnings release. For the conference, all participants are in a listen only mode; however, there will be an opportunity for your questions. (Operator instructions). As a reminder, today's call is being recorded.

I will now turn the conference over to the Executive Vice President, Mr. Gary Ginsberg. Please go ahead, sir.

Gary Ginsberg

Thank you very much, operator. Hello everyone and welcome to our first quarter fiscal 2010 earnings conference call.

On the call today are Rupert Murdoch, Chairman and Chief Executive Officer, who is speaking to you from Sydney, Australia, Chase Carey, President and Chief Operating Officer, and Dave DeVoe, our CFO. Dave will give a detailed presentation of the quarter results followed by Rupert who will give his own perspective and color on the quarter, as well as what he sees looking ahead. We'll then take your questions, first from the financial community and then from the press.

But before we start, a little legalese, this call may include certain forward-looking information with respect to News Corporation's business and strategy. Actual results could differ materially from what is said. News Corporation's Form 10-K for the three months ended September 30, 2009, lists risks and uncertainties that could cause actual results to differ, and these statements are qualified by the cautionary statements contained in such a filing.

And with that, I'll turn it over to Dave.

Dave DeVoe

Gary, thank you, and good afternoon everybody. As you will have seen in our earnings release today, we are pleased with the start to our fiscal 2010. While we continue to operate in a challenged economic environment, our first-quarter operating income increased 9% over last year's level. This improvement is due largely to very strong growth at our film and our cable network segments, which offsets declines at a number of our other businesses.

Net income in the quarter was $571 million, this is a 11% increase over last year's result, and our earnings per share for the quarter were up 10% to $0.22 this year from $0.20 reported a year ago. This increase is driven by higher operating income contributions as well as improved equity earnings from affiliates.

Now I would like to provide some additional context on the performance at a few of our businesses. At our film segment, the first quarter operating income was $391 million; this is up a $140 million or 56% over last year's result. This very solid performance was driven by the strength of worldwide theatrical results from Ice Age

Dawn of the Dinosaurs. As , we incurred a substantial amount of this film's releasing cost last year, so we're recognizing sizable contributions from this record-breaking film this year. This film was just released into the home entertainment window last week and we expect continued strong contributions for the rest of the year.

At our television segment, operating income in the third quarter of $38 million declined by 45 million as compared to the first quarter a year ago. This is largely due to lower televisions stations revenues and to a lesser extent reduced Fox Network results due to higher primetime programming cost. The station's operating income decreased 26% in the quarter reflecting lower local television advertising as well as less political advertising as compared to a year ago. Moreover this result which included an increase in our market share is moderately better than our initial expectations, and Rupert will comment on our current station advertising trends in a moment.

Now moving on to the cable networks, where we continue to show very solid growth with operating income contributions up 41% above a year ago, the largest year-over-year gains in the quarter were from the Fox News Channel and this is due to higher affiliate rates and also additional subscriber growth, our international channels, from affiliate revenue increases, and the regional sports networks, reflecting higher affiliate rates. Also note that our Star operations were reorganized in the quarter, and as a result their financial results are now included this year and last year as part of this cable network programming segment. Star reported strong growth particularly from our Indian operations in the quarter. However these profits from operations were fully offset by $28 million in restructuring related costs. This compares to $29 million operating loss at Star a year ago which was primarily due to the cost of the termination of a distribution agreement.

Turning to our Italian pay television operations, Sky Italia, Sky had operating income of $128 million in the quarter, a $37 million decrease from last year. Sky Italia continues to operate in an extremely challenging business and economic environment aggravated by a significant tax increase on our subscribers. Despite these factors, Sky Italia grew local currency revenue by 1% and this is driven by a 5% increase in the average subscriber base as compared to the prior year's quarter. This growth is more than offset by increased programming cost due to the larger average subscriber base, higher SAC cost and the addition of 16 new channels over last year.

In the quarter, gross additions totaled approximately 180,000, which equals the churn, resulting in no change to our 4.8 million subscriber base since year-end. However, Sky Italia renewed approximately 94% of the $1.2 million annual contracts that expired in the quarter, which represents over 25% of our subscriber base. Sky Italia should be on course with an annual churn rate of approximately 13% and this rate is consistent with what we achieved in the prior year. Monthly ARPU in the quarter averaged €42 as compared to last year's €43. And to adjust the current weak economy, various promotions have been offered at Sky to attract new surprises. In fact on October 21, we announced a complete revamping of our pricing structure to provide greater choice and value to the Italian market.

SAC in the quarter was approximately 280 euros and this decreased from the prior year's quarter due to lower market spending in aggregate on a per subscriber basis. As a result of our subscriber initiatives at quarter end, over 1.6 million subscribers would have taken at least one premium service such as HD, DVR or a second box compared with approximately 900,000 subscribers a year ago. And the significance of this is that premium service subscriber churn rate was one quarter of the non premium subscribers.

In the newspaper and information service segment, operating income in this year's quarter was $25 million, and this is down more than 109 million from last year's first quarter, and this reflects reduced advertising in all markets that more than offset significant cost reductions. While this segment was challenging compared throughout the first half of our fiscal year, the first quarter results were still in line with our expectations. And despite the first quarter's decline, we still expect the full year results will be down only modestly from what we achieved in our last fiscal year.

In the other segment, we reported a first-quarter operating loss of $128 million, this is 27 million higher than a year ago. This increased loss primarily reflects the absence of NDS' operating profit this year due to the partial sale in early February 2009. The first quarter a year ago result at NDS was $29 million of operating income. In addition, at the digital media group, where we are in significant transition, reported higher losses principally from lower search and advertising revenues, offset in part by cost reductions from our recent restructurings. In total, our revenues declined about approximately 26% in the quarter.

And finally let me address our guidance for fiscal 2010, and as a reminder just as we did at year-end, we measured this guidance excluding some fiscal 2009 reported results, impairment, and other operating charges, as well as the $121 million in operating profit from NDS which is no longer consolidated in our operating income. As we look at measuring growth in fiscal 2010, we're comparing it to a base of 3.44 billion in operating profit for fiscal 2009. In early August, we give guidance anticipating our operating income growth rate for fiscal 2010 to be in the high single digit range, above the 3.44 billion fiscal 2009 adjustment results. Since that time, we have performed better than anticipated in our film segment on the strength of Ice Age III, in addition to the US local television environment firming up a little better than we had assumed earlier. However, it is still very early in our fiscal year, and we have significant activity ahead of us without clear visibility due to the economic uncertainties.

For example, key movies led by Avatar are yet to be released and the major programs of the Fox Network scheduled. American Idol and 24 have not yet launched. In addition, it would take longer than expected to achieve our revenue goals at some of our digital media businesses including MySpace. As a result, taking all these items into account and excluding the effect of restructuring related charges, we are increasing our operating income guidance to a growth rate range in the high single to low double digits above the fiscal 2009 adjusted results.

With that I would like to now turn the call over to Rupert for some additional comments.

Rupert Murdoch

Thank you Dave. Like Dave, I'm pleased with the quarter's results. The early steps we took to increase market share of our leading global franchises are starting to pay off as are our restructuring efforts. As I look ahead, I am seeing some encouraging trends in most of our businesses. At our US television operations, we are seeing marked improvement from last year, when we experienced the largest ever year-over-year drop in earnings in our history.

Fortunately, we appear to be emerging from the bottom of that cycle. While revenues at our TV stations declined 14% in the just reported September quarter, revenues [ph] for the December – this current December quarter look promising. Excluding political advertising, October is about flat with last year and November is up in the mid teens. These are the best results we have seen in seven quarters.

Advertising trends at Fox Broadcasting are also encouraging with scatter pricing above upfront levels, and the available inventory is selling well this December quarter. Fox ranks as the number one (inaudible) in adults 18 to 49, and is the only broadcast network to see audience gains over last season. Season to date ratings are up 16% as against the other three networks all being down. These ratings reflect the strength of our entertainment franchises as well as the power of our sports program. ALCS ratings are up 35% with the previous years NLCS and the World Series ratings are up 36% compared to last year. I'm also quite pleased with the renewed momentum at our film segment.

As David mentioned, Ice Age III, posting stellar results to become the highest grossing animated film ever outside the United States. Fox Films has proven itself adept at expanding its franchises and I'm confident we will lead the Christmas season, and I'm certain moviegoers will be as excited and moved as I was of the storytelling and technology behind James Cameron's 3-D film Avatar.

I would also like to express how confident I am in our global cable network programming segment where operating profit is up in excess of 40%. This growth is not an anomaly. Cable network generates roughly half the company's operating income and it became the mainstay of the company's cash flow and earnings growth. The strength and durability of this global business is no accident. It reflects the elite structure of our franchises, the dual revenue streams, well diversified target genres, and transportability to developing markets with untapped growth potential.

More than 70% of cable revenues in the first quarter were generated through affiliate fees which grew 18% over the first quarter a year ago. These fees provide stability in volatile end markets with the bulk of these revenues locked in with multiyear agreements with annual escalators. We leveraged our strong cable brands and diversified genres to satisfy viewer interest. The power of our brand recognition is reflected by consistently strong ratings at Fox News, Fox Sports, FX, Star, and National Geographic, a brand we feel is still very much under exploited.

Much as important is the opportunity to export the strength of these franchises in the international marketplace where we have unmatched competitive strengths. First, a deep knowledge of the international marketplace gained from being the largest distributor of movie television and news content worldwide. Second wide-ranging experience in managing paid TV services with significant ownership positions in paid TV platforms in Britain, Italy, Germany, Australia and India. This gives us intimate knowledge of what content works, whom to sell it to, and how to sell it.

And the biggest advantage of all, through the Fox International Channels Group, we already have unassailable beachhead with more than 200 cable channels of all sizes and languages in more than 60 countries reaching nearly a billion people. As strong as our cable channel business is today, it still has a lot of room for expansion. In fact, I believe the longer-term opportunity for growth will dwarf what we have accomplished thus far.

As , our digital media group is undergoing a significant transition following its restructuring and realignment earlier this year. While it is difficult to predict the timeframe in which you will see improved results, these efforts have clearly put these businesses on more solid ground for future growth. I cannot finish without making a quick comment on our newspaper business. Here in Australia, the economy is markedly better shape than in the United States and newspaper advertising trends are picking up sooner than we had anticipated just a few months ago.

For what it is worth, all our worldwide newspapers and television businesses are having a great November. The Wall Street Journal recently surpassed USA Today to become the largest newspaper circulation in the United States in spite of strong price increases. On the digital side, WSJ.com has more than will 1 million paid subscribers, which is an important data point as we work to get compensated for our online content from all our news sources.

As you can see overall, I'm very confident about both the short and long-term future of our company. Our industry and the economies we are operating in are clearly in better shape than they were a year ago. However, I am prepared to remain conservative in treating this recovery as still a little fragile. I expect 2010 to be a year of stability, that puts us in a great position to be ahead for full economic recovery, regardless of its degree of strength, and we will continue to operate smartly and confidently under the protection of our strong balance sheet.

And with that Chase, David and I would be happy to address any of your questions.

Question-and-Answer Session

Operator

(Operator instructions) And we just remind you that the executive team will take questions first from the members of the financial community and then we will move to members of the press. In the interest of time, once again, we ask that you limit yourself to one question. And we'll go to the line of Jessica Reif Cohen with Bank of America/Merrill Lynch. Please go ahead.

Jessica Reif Cohen – Bank of America/Merrill Lynch

Okay. How about one question for two people. First to Rupert, now that you seem more confident in underlying business trends, I was wondering if you could update us on your thoughts of returning capital to shareholders?

Rupert Murdoch

We don't have any thoughts about doing that. We are growing strongly, we are nervous about the future. Our businesses are doing well. But that's really an economic question, and I think that we are right to be sitting on this cash. We do have a $2 billion repayment schedule next year of debt, so it is not as huge as it looks.

Jessica Reif Cohen – Bank of America/Merrill Lynch

Okay. And then to Dave, within guidance, could you just update us on what your revenue expectations are included, advertising assumptions, and is there anything for retransmission factored into the guidance?

Dave DeVoe

No. There is nothing for retransmission. And the advertising assumption is basically slightly better than it were at year-end.

Gary Ginsberg

Okay. Next question please.

Operator

That's from Adam Alexander with JB Were. Please go ahead.

Adam Alexander -- JB Were

Good afternoon. Just looking back one year when we downgraded the outlook significantly, I think at the time one third of that was due to the strong US dollar which had accounted for about 350 million of operating income. Given the complete reversal in currencies now and the weakness in the US dollar, maybe Dave, can you tell us what the impact is on your operating income and what sort of currency assumptions you have got in that guidance?

Dave DeVoe

The income to us is still dollars recovered, nowhere as near as weak as it was. So, for example, in the current quarter, we have factored slightly less than $40 million negatively with respect to advertising – excuse me, with respect to foreign exchange rates, and we would expect that to reverse a bit over the remainder of the year since the currency is as weak in this quarter, particularly against the euro and the Aussie dollar. But today it is negative.

Gary Ginsberg

Next question please.

Operator

That's from Imran Khan with JP Morgan. Please go ahead.

Imran Khan – JP Morgan

Yes, hi. Thank you for taking my questions. In terms of international cable networks, half of your profit comes from cable networks, and in the international market, can you help us understand what kind of advertising trend you are seeing in the international market, and also how many channels do you think you're planning to launch this year, and also maybe give us some color about the margin differentiation between international versus US. Thank you.

Rupert Murdoch

No I think the international market for the most part is a new growth area. As we see relatively undeveloped markets and they are all growing in pay television I think in double digits, 15 or 18% on average throughout the world. And where we – we are on nearly all those systems with cable channels, and they will grow with those systems and with that worldwide trend. So we're pleased about that. How many channels are we going to start this year? I don't know. I think it is in the area of another 30 but I need to check that figure.

Chase Carey

I mean I guess I would add to it. I mean I think the core of our growth is in many ways going to be, we have got, we have taken the channels we have got and really driving them to their potential. I met one of the great things about the international marketplace is the US pay penetration that is early stages of where it will ultimately grow to, unlike the US where you have got relatively mature markets in terms of penetration. You have got great upside left in really most of the countries around the world and I think the heart of this growth is going to be really taking our big channels like National Geographic, Fox channels we have and not sort of adding volumes though we will do that.

We will go into territories as we go but I think the heart of it really is making the channels we have stronger, bigger, and taking advantage of the inherent growth in those marketplaces, and we have got, we really have a leadership position in terms of cable programming almost all the places we are at. We do expect solid ad growth this year but I think in many ways the international market is going to be driven by the growth of pay television over many years. So I think this is the place where we see both short and really long-term growth pay television matures around the world.

Imran Khan – JP Morgan

Got it. Thank you very much.

Operator

Our next question is from Michael Nathanson with Sanford Bernstein. Please go ahead.

Michael Nathanson – Sanford Bernstein

Thanks. I have one for Chase or Rupert. Lately you guys have been very loud about retransmission opportunities for your stations, I wonder without telling us which deals come up, I know you won't do that, can you tell us what percentage of your footprint deals expire in each of the next three years or how many potential renegotiations could we be seeing in the next one, two, three years for retransmission?

Chase Carey

Again you're probably right. We are not going to get too far into any of the specifics, we think retransmission is important for us to have a dual revenue stream for these businesses. You're probably over a three year period. The majority of our direct relationships with distributors which made the O&O relationships with distributors will come up. There is also a dimension to this that is dealing with our affiliates whether it is retransmission that sort of deals with the value of network programming that we provide there that we have that conversation. So there are really two dynamics, two dimensions to this, but the majority of this will come up over a period that I would probably say would be in the two to three year timeframe.

Michael Nathanson – Sanford Bernstein

Okay. And let me ask Dave a question. I think Rupert said that affiliate fees were up 18% and it is 17% of the revenue base or so. Does that imply advertising was still down in cable for you, could you talk a bit about your cable advertising trends, especially at the RSN level?

Dave DeVoe

Yes. I mean on the cable side sales were down a bit. We actually expect them probably be up mid high single digits for the year but for the first quarter probably down mid single digits. Probably the sports area is the one that we are going to be more dependent on automotive and categories that probably got hit a bit harder. So it is a mixed bag across those channels but I would say in aggregate yes the cable channels were down a bit. If I look at this quarter I would probably expect to be up a bit this quarter, but that said, it is sort of what the first quarter look like.

Michael Nathanson – Sanford Bernstein

Thank you.

Operator

And next from the line of Rich Greenfield with Pali Capital. Please go ahead.

Rich Greenfield – Pali Capital

Hi. Questions kind of Sky Italia, the whole situation in Italy, we have seen the VAT tax added, we have seen Berlusconi try to prevent you from advertising on TV, and both sides kind of declared victory when the court rendered its opinion, the Milan Court, today taking action on soccer rights and the whole rights situation, can you just give us a sense of obviously what is going on in Italy, and how should we think about it? And then just a quick follow-up on something Dave said about MySpace in terms of I think you search revenues were actually down and I though I was under the impression that search was fixed through next June, I mean just curious what was going on there? Thanks so much.

Chase Carey

I guess in Sky Italia, touch that one first, and I think David touched it, look in the short term, I guess it's we are dealing with, we've been dealing with a few challenges, a tough economic and a bad tax in many ways essentially is the pricing freeze. I think our focus in the short-term was to stabilize the business with those in the face of those charges. As we go forward, we feel great about this business. You still have pay television in Italy. That was mid 20% in terms of penetration and so it is an enormous upside to where we can take the business. We are continuing to – I think we are now moving forward to take some initiatives to continue to as we stabilize it pick up forward, Dave again touched on the program packages, we changed. We have had this dynamic with the government and I guess over time we will get a place where we are competing in the commercial marketplace not in the government capital and be able to take this business to it potential was we think it has great potential. We feel very good about things they have done. We have got a platform that is bumping up that 5 million subs. And we think pay television has a great future in Italy.

Rich Greenfield – Pali Capital

And then the question on search?

Dave DeVoe

The question on search, and what was the…

Rupert Murdoch

Well, I think it is quite simple, I can jump in on that. The search revenue I think Dave mentioned that we needn't go much further out. We have not been making minimum guarantees, so our search revenue will not be what was advertised much earlier, but Dave has covered that. Am I correct Dave?

Dave DeVoe

That's correct, yes.

Rich Greenfield – Pali Capital

Thanks so much.

Operator

The next question is from Jolanta Masojada with Credit Suisse. Please go ahead.

Jolanta Masojada – Credit Suisse

Thanks very much. Just to notch up the comments you made about being pretty conservative so on the economic outlook and having the $2 billion debt repayment, can you just talk about your attitude to acquisitions and whether you would be tempted by anything that may come along?

Chase Carey

In terms of acquisitions, look I mean again I think our preference is really in general to build over volume and I think that's historically how we built value in this company, and whether it is Sky or Fox News or other franchises, that has been the heart of what we've done. I think to the degree there are acquisition opportunities, I think we'd be selective and judicious about it, we'd be disciplined. But I think make sure if there is something, it fits. I think there are areas we think have growth potential, cable channels, international in the marketplace where we have some unique strengths to bring to bear. But I think if we did, we would want to make sure we're being disciplined about what we acquire and by and large most of the upside comes from things we can add to it not, we are not acquiring something and doing a lot of work to pay for it. But I think it is hard. We have great growth in the franchises we have. As we look at the businesses we have got here, great growth potential in them, I expect that to be what drives our business. And I think that is our focus. And to the degree we can find business, we can build to complement them, we will certainly pursue those. But selectively if we see an asset that we think we could acquire at attractive price, it fits, , I think we would do in a disciplined way, engage and consider it .

Rupert Murdoch

I would support that. I would just say that if you look at it historically, most of our best profit makers, I think either started from scratch or bought for peanuts. If you look at the London Sun, which is a roaring success, and very, very profitable, right through to the Fox film. We in fact paid for the Fox Studio about $300 million and it is now making on its film production and its television production nearly $1 billion a year. So we are not going to go rushing into huge things unless we see really wonderful fits.

Gary Ginsberg

Next question please.

Operator

And that will be from Doug Mitchelson with Deutsche Bank. Please go ahead.

Doug Mitchelson – Deutsche Bank

Thanks. Just want to follow up on the retrans question, if you are successful getting, I mean let's just fix $0.75 or so for sovereign retrans fees, does this…

Rupert Murdoch

Don't be so modest.

Doug Mitchelson – Deutsche Bank

Just a views number, does that fix the broadcast business model as you suggested needs to be done, and do you take that money and put it in your pocket, do you take that money and invest it in programming to start to improve sort of the trend line for the broadcast business. And then separately, films are having a really strong year, is it possible to grow further and just given the tepid home-video trends, how would you go about doing that based on what you have seen so far with your tenure at the company now?

Chase Carey

Well, first on the network and broadcasting and the transmission, I mean clearly it is not sort of a one note song and it is just the transmission addresses the business. I mean I think you have got a variety of things on, we have to attack cost of content, you've got changing windows, value identification, value reruns, there are a lot of things changing in this business, emerging, digital distribution of content, and I think all those things that you had to deal with, you figured how to be smart about it. I think I do think you have to continue to invest in content, I think this is a business where you can't survive in the middle, I think it is all about leadership. And I think some of these (inaudible) that is going to be more hit driven than ever, and if you have hits, they're more valuable than ever. We ought to be smart about how we create those hits, we have to create some great platforms to do it.

But I think the transmission in many ways is sort of a building block to sort of go address a lot of those things, I mean really I just think it is very tough to compete with the cable, the cable channel business model of dual revenue streams without having one in broadcasting but from there, they are certainly in a rally of other things that go from cost to affiliate relations to content windows and how do you create give events and capture value out of the content you're putting into the broadcast platform. So I do think there are a lot of things you need to do to continue to build this business. This can be a great business. I mean broadcast networks are still the pinnacle of the content world. They still get by multiples the biggest audience, the biggest events, and whether it is sports or American Idol or 24, they are great launching platforms for the best in content in television.

So but there is a lot of things we need to do there. So it is not just simply fight for retrans, fight for transmission. I think in the film business, clearly I think the DVD business is maturing in a decline. I think fortunately we have some sort of distribution medium that are replacing DVD. Blu-ray is growing, I think probably more importantly and ultimately in a much bigger way, VOD is emerging. It is not going to be in a year but I think if you go out a couple of years, I think you'll stabilize that, and I think have growth opportunities as you really use the electronic medium, great windows and pricing and things you can't do in a hard goods that benefit you.

I think at the same time the film business is going to clearly benefit in the short term from a shakeout in production volume, it's just not going to have any – as many releases in the marketplace, and that will help us top to bottom, certainly on the revenue side in terms of capturing windows and theatrical and video share of market, but equally in terms of cost and being more disciplined as you go into the business that is not as much free money around. And there is still question, we need to continue to get smarter about what you're not just trying to produce but market films. I think our film management team by a long margin is the best in the business. I think they have done a great job, I think they continue to do a great job, I think you see that this quarter, I think we feel great about where we are and where they are taking it, so I think we can continue to really create a leadership position with really smart guys managing a complicated business that I think as DVDs mature, we will have other distribution mediums that replace it.

Doug Mitchelson – Deutsche Bank

Thank you very much.

Operator

And next we'll go to the line of Benjamin Swinburne with Morgan Stanley. Please go ahead.

Benjamin Swinburne – Morgan Stanley

Thanks good, afternoon. Chase, to go back to some of the retrans comments, and you mentioned your affiliate relationships, could you see a scenario over the next five to maybe 10 years where all the retrans or subscription fees flow through the network and the relationship with the stations goes away effectively and if you don't, and you see the station as being sort of a key component of the affiliate fee retrans flow, does it make sense to own more stations? And then maybe for Rupert, any update on the Wall Street Journal .com as well as the e-reader stuff, there was a lot of discussion earlier this year about relationships with Amazon and the Kindle, could you just give us an update on that front as well?

Chase Carey

On the broadcasting model, I don't see stations going away. You know look I mean I think in many ways there's an opportunity to the still to sort of continue to build this model which really a station that is hard brings the best in local programming to a network which puts in place the best in national event programming, and I think that is a great mix, and I think which is why we're investing more in news and is commanding our news coverage, which is the ultimate local programming on the station side. I think it is time to share on retransmission, I think we are doing that on a basis since, what is the value in the marketplace, the content coming through these mediums, I think the stations have an important role. I don't see us probably being expanding into that. I think we are comfortable where we are, which I think is probably really focused on the biggest markets and being a global player I think it is probably a better place to really capture the to be in the markets that really set the pace and set the template for the broader business. So I think we're – I wouldn't see us expanding into it but I think long-term I think we would like to have a healthy relationship between stations and network and develop a sense of fairness to what is the value of retransmission and how should it be appropriately shared with the content.

Rupert Murdoch

Yes. On the wallstreetjournal.com, it is going ahead well. We are getting the pricing up very strongly. I think it is and we would be announcing some extra developments with it, if we haven't been addressing already, I'm not sure with the WSJ professionals. And which would be a much higher price for special disciplines in finance. But it is – on the, let me go on from that, because of the e-reader you mentioned, and Kindle. Kindle, look Kindle is a fantastic invention for reading books. It is not much of an experience for newspapers. We were -- at least Amazon was charging 9.99 for a subscription and only paying us 2.99. We have lifted that to $15 which would get over six dollars, $6.50 I think, it is not a great deal. We doesn't really think it is great (inaudible). Amazon treats those people as their customers, not our customers. So do we have the Kindle to be -- I mean they will keep developing, they are a great company. But they're not the only one. There'll probably be half a dozen e-readers of some sort on the market this Christmas. They're all very early stage black-and-white efforts. And we will certainly make ourselves available on the mall provided we get a paid share of the revenue. There is a lot of other work going on much more advanced models which I won't go on to here because it is still in the laboratories.

Benjamin Swinburne – Morgan Stanley

Thank you very much.

Operator

Our next question is from David Bank with RBC Capital Markets. Please go ahead.

David Bank – RBC Capital Markets

Thanks. Thanks for the color on the local market and it sounds like you're really saying some nice sequential acceleration there. Can you give a little bit of similar color on the network side and while we noticed scatter prices to be upfront came upwards the upfront, can you give us a little bit of kind of scatter over scatter color? Thanks.

Chase Carey

David, the network business is actually pretty – for us it is a pretty good story. I mean I guess obviously ratings as Rupert touched on, have been great. The scatter market is really strong. I mean I know we said about, I said is about upfront pricing, they probably if is anything is a bit of honesty I would say probably scatter market stronger now than it was a month or two ago. I guess they qualified all sort of saying you still have a market that is shorter term than ever and the visibility is shorter than ever and so it is tough to get very far out in front of it because advertisers are given all the market is healthier buying later and looking out, try and look out into the first quarter of 2010, and the like, you don't have the visibility you would have had a year ago.

But in the current market the scatter market is as strong as it has been but it requires a bit of a backbone because it is later than ever, so we need something like the NFL which do sell well. The ratings for the NFL are great. But it still the money comes in on a shorter time frame that it has historically in the past. But the national business is solid and there are some categories that are actually quite strong as we look at key areas like electronics, a few others.

Rupert Murdoch

I would just add that we have been greatly – mostly being greatly aided by our ratings. I mean the – we are winning like without any sensational ratings, we have winning four nights out of seven in the key demographics, and just coming of very solid performance there I think. So we are probably getting a bigger shared of what is out there. But and we have never been, I mean the last four years or five years we have been the number one network but we have never been number one so early in the season. Normally we run about third or fourth right up until the start of the American Idol, and we are already number one this year. So we have, I think we have got every reason to be pleased with our people and the job they're doing.

Chase Carey

And I would say (inaudible) a little bit, you took the September quarter, we are probably at the network level down in low to mid single digits year on year. And if you look at this quarter, we will clearly be up on year ago.

David Bank – RBC Capital Markets

Thanks very much.

Operator

Our next question is from Jason Bazinet with Citi. Please go ahead.

Jason Bazinet – Citi

I guess a few months ago I guess there was a question for Mr. Murdoch, a few months ago it seemed like the situation was pretty fluid in the Australian pay-TV market and I was just wondering if you could just update us on sort of your sense of the dynamics there and whether you think there in any role for the News Corp given your stake in Foxtel and Fox Sports? Thanks.

Rupert Murdoch

No. We're very happy at the progress of Foxtel and which we have the right to appoint the management but we only own a quarter of it. Fox Sports is very profitable but we only own a half of it, and that is the picture. There is endless talk going on with the new set up with Telstra, the privatized Telstra, the government talking about putting in a broadband network to every single home in the country for $40 billion or something. It is all in flux. That is all I can tell you. But certainly Foxtel will continue, the only question is whether we can improve our position within that.

Jason Bazinet – Citi

Okay. Thank you very much.

Operator

And next we go to the line of Spencer Wang with Credit Suisse. Please go ahead.

Spencer Wang – Credit Suisse

Thanks. You – the new management team at MySpace and Fox Interactive has been in place for a couple of quarters now, can you update us on what the new strategy is to re-stimulate growth there? And then Chase you mentioned earlier that there are a lot of changes in the business with respect to windows and the value requalification [ph], in that context, could you envision a future where News Corp shed some assets and materially alters the asset mix of the company? Thank you.

Chase Carey

I can't (inaudible) in the MySpace question. I think what we have got we have got obviously spread a bit wide and thin and I think what we are focusing on is sort of the heart of our business going forward, really being a social network around key content sites. We are not trying to complete, we are not trying to compete with Facebook, we're not trying to beat Twitter, we're trying to create a unique expertise in terms of social networking, going out to content sites, and I guess particularly like music, video, and gaming.

I think we are probably furthest along in music and I think we have taken some steps to give us pointers in the right direction. It is still clearly work in progress, I mean we are still losing traffic, so it is still – it is a business going though this transition as we try to focus on those. And so I say that's the heart of it is really creating a leadership position in terms of social networking around, focused around key content areas like music.

I think in terms of the windowing question, I think probably it is more what has to be done than has it happened, I mean by and large probably most of the prices today are probably not where they have been, I think they're probably interesting always get a little hung up on sort of hanging on to its old practices, but clearly the values are reruns and the historical windows, the waiting five year for syndication like I think will change. I think people will have to start to move and try and develop those things. I'm not sure that's the next step to disposing of the business. I always want to be looking at what you're doing where you are, but right now if I looked at the mix of businesses, certainly in the content channels, platforms, geographic mix, I think it gives us some unique strengths that we can build and develop.

Gary Ginsberg

Next question please.

Operator

And that is from John Janedis with Wells Fargo. Please go ahead.

John Janedis – Wells Fargo

Hi, thank you. You guys referenced some softness at the RSNs over the past couple of quarters, you talked about auto earlier, can you give us more detail on what you're seeing on the ad front in sports related programming at the RSNs, the Big Ten and Fox? Thanks.

Chase Carey

I mean I think rating wise, it is okay. I think in terms of ad sales, it is actually even this quarter I think we I think we expect in the quarter ended December will be up a touch on ad sales. I think the automotive category has got a bit better in supplies held up. The first quarter was a top one for ad sales but we do expect it to be to be up a touch on the year and up a touch in the second quarter, so it certainly is better. I guess I would point out on the RSNs, of all of our businesses, it is the one that is largely driven by the affiliate, the affiliate fee side. So we have businesses, so you look at the mix of affiliate fees and ad sales, it is a business that is probably at the sort of high-end of the percentage of certainly for us, by a significant margin, high end driven by the size of affiliate fees, really driving the bottom line of that business, but (inaudible) you certainly had a tough first quarter is a bit better in the second quarter.

Rupert Murdoch

I just can explain a little bit. I think on the RSNs, they were local and the automotive there comes very largely from sponsorships, from the big local car dealers, and they were having a very, very rough time in this quarter under consideration. It seems to be easing up now. On the pure national front, direct expenditure from the Fords and General Motors and so on, the Toyotas, that seems to be coming back, not to its own level, but it is certainly clearly better. Is that right Chase?

Chase Carey

Yes, that is right. That is an accurate sentence.

John Janedis – Wells Fargo

Thank you.

Gary Ginsberg

Operator, we will take one more question from the financial community and then we will go to the press.

Operator

Certainly. We will go to Michael Morris with UBS. Please go ahead.

Michael Morris – UBS

Hi, thank you. On the television station side, there was a pretty surprising impressive number, mid teens in number, can you give us some more color on that in terms of what categories you are seeing strength in, and maybe a little bit of whether, maybe how much is coming from the strong ratings that you're enjoying at the network level, so how much is, you are taking share in those markets, how much is money coming back in? And then also on the network side, as you look out beyond this quarter into the next quarter, what is your level of concern about there being a glut of inventory available given the lower up front sell out and have you seen any cancellations yet as you look out into the quarter? Thank you.

Chase Carey

I think if you look at November I mean there are a number of categories pretty positive, certainly, movies, I think fast food, financials, certain autos improved certainly, certainly sequentially, improved significantly. So they are pretty wide ranged, some are stronger than others, I mean there's a couple of big (inaudible) hi, I don't know what I did, some other voice coming in here, don't know for sure who it was -- but the, so it is a pretty -- it's a actually a pretty wide range, certainly the ratings are helping and we've got some of that, you get this World Series helping into markets like New York where New York [ph] fairly certainly helps those stations out there. It is a pretty good, a pretty good mix of categories that they are driving.

Rupert Murdoch

There has been steady -- each month has got a little bit better until finally in November it is great. But just a word of warning, the comparisons are going to be getting easier and easier, because about this time last year was the bottom part of the business. So to beat last year's figures, in the next few months should be pretty easy, because everybody, business just stopped. That is when we really took the big hit.

Chase Carey

Yes. And the other caution is certainly again back on the visibility point, I mean if you look at a couple of months, you still have a ways to go, and I guess if you looked at November a month ago, we still would have had a ways to go. So there is, money is still coming in very late in this process, which does make it more difficult to be probably able to focused out in time.

Rupert Murdoch

I think internally for our internal purposes, we have got to start looking more at comparing how we are today compared to two years ago rather than one year ago when we are clearly in a financial crisis.

Gary Ginsberg

Okay, we will go to the press, operator.

Operator

Certainly, and I will just give a quick reminder for the media. (Operator instructions). And one moment please, our first question, and that will be from Sarah Rabil with Bloomberg News. Please go ahead.

Sarah Rabil – Bloomberg News

Hi, Rupert. I was hoping you could update us on the comments you made about NBC at the annual operating? And I was wondering if is the Comcast stock or NBC are something you are still watching closely, is it something you are still looking at and how you might look to get involved with NBC?

Rupert Murdoch

No, we are not interested in NBC as such. I would just say, look, when things come around, we kicked the tires, but we are not in any talks with anybody at the moment.

Sarah Rabil – Bloomberg News

Thank you.

Operator

We will go to Barbara Miller with ABC Radio. Please go ahead.

Barbara Miller – ABC Radio

Hello. Can you hear me?

Gary Ginsberg

Yes, we can. Go ahead.

Barbara Miller – ABC Radio

Hello. Can you hear me?

Gary Ginsberg

Yes, we can. Take the next question, operator.

Operator

Certainly. And we will go to Brian Stelter with The New York Times. Please go ahead.

Brian Stelter – The New York Times

Thank you. There was much talk in the past three months about an agreement between News Corporation and General Electric to limit the attack between Fox and MSNBC. Is News Corporation continuing to seek to limit those attacks? And on a related note, do you view the tensions with the White House as being good for business or Fox news?

Rupert Murdoch

On the first thing, we did not start this abuse which we thought went way beyond personal and went way beyond -- not on me, but on others, and it was finally, we had to retaliate, and the moment they stop, we stopped. We don't believe in it and we don't think it is good business. As for tension with the White House, no, I think they have played it and it's probably been good for us in terms of ratings. But in fact we -- it was very interesting when they -- I don't know what prompted it (inaudible) a pool of press conference and all our competitors, ABC, CBS, immediately went to the White House and complained that this was not the way to treat anybody in the media because they might be next. But so we don't really have any continuing problem there at all. We cover them and they have said publicly that we are absolutely fair in our reporting of the White House. They just don't like one or two of our commentators which is I understand.

Brian Stelter -- The New York Times

Thanks.

Operator

Our next question is from the line of Shira Ovide with the Wall Street Journal. Please go ahead.

Shira Ovide – Wall Street Journal

Hi, thanks. I was interested in whether you are still running for the Travel Channel?

Chase Carey

We are not going to comment on any sort of specific properties that we haven't today publicly commented on. So I think we will probably just leave that kind of as it is at the point.

Gary Ginsberg

Next question please.

Operator

And we will go to Claire Atkinson with the Broadcasting and Cable. Please go ahead.

Claire Atkinson – Broadcasting and Cable

Hello. I was interested to know how Comcast likely acquisition of NBCU changes how you deal with Comcast given that they are likely to own a broadcast network that will rival Fox's?

Rupert Murdoch

No. I think we will treat them on those levels as competitors, whereas as a cable company in a sense, they are partners. They distribute our properties and distribute them very well. We have good relations with them and for that matter we have good relations with NBC but we compete very vigorously in the marketplace.

Claire Atkinson – Broadcasting and Cable

Thank you.

Operator

And we will go to the line of James Quinn with the Daily Telegraph. Please go ahead.

James Quinn – Daily Telegraph

Hi. Rupert, last time, the last quarter you talk about charging the news in paid websites by the end of the current financial year, by the end of June. Could you give an update on that, how that works going?

Rupert Murdoch

We are working all very, very hard at that but I wouldn't promise that we're going to meet that date.

James Quinn – Daily Telegraph

Right, okay. What's the delay?

Rupert Murdoch

With everything.

James Quinn – Daily Telegraph

Specific delay? Say it again?

Rupert Murdoch

I am not prepared to comment on that at all.

James Quinn – Daily Telegraph

Okay.

Rupert Murdoch

It is work in progress and there is a huge amount of work going on, not just with our sites, but with other people.

James Quinn – Daily Telegraph

Sure.

Rupert Murdoch

Like your company.

James Quinn – Daily Telegraph

Indeed, thanks.

Operator

And we will go to the line of Ken Li with The Financial Times. Please go ahead.

Ken Li – The Financial Times

Hi. If I understand you correctly, Chase, given that most of the contracts for retrans are expiring in the next three years, do think Fox can do better than the 200 million or so that CBS said it could generate by 2011?

Chase Carey

Again, I'm not going to get into projections. I think we did, we have great programming at Fox, we think it has great value. I think you can at what some of the channels, ESPN at the extreme, regional sports have, even the USA and TNT sched makes you are an touch with above [ph]. What you think Fox is worth, it probably actually is worth more significantly more than we will look forward, but I am not going to get into sort of what I think is probably discussions private discussion between parties and starting to quantify it. I think we will have discussions in private before we do in public.

Rupert Murdoch

I mean – I would just stress what Chase said. Just look at what ESPN gets and what its total audience is, it is a very important channel. But how many hours of viewing is there on ESPN for the average cable company, which they pay four dollars a month, and compare that with Fox. I'm not suggesting we are getting at $4, but it is just, we have to have some sense of relativity in values.

Gary Ginsberg

Next question please?

Operator

And that is from George Zallie [ph] with the Hollywood Reporter. Please go ahead.

George Zallie – Hollywood Reporter

Thank you. Chase, you mentioned that it is a good thing to do film releases every year compared to the past.

Gary Ginsberg

Can you speak up a little bit, we are not hearing you very well.

George Zallie – Hollywood Reporter

Can you hear me now?

Gary Ginsberg

Yeah.

George Zallie – Hollywood Reporter

Thank you. Chase you mentioned that it is a good thing to do film releases in the year, do you think there is going to be a further spending out from current levels (inaudible)?

Chase Carey

Excuse me, I mean release, I mean, I am not sure I heard all of it, but I think in terms of releases, I mean I think it is, I think it has declined into this season, but I think you will see further – I think you will see declines as you go forward. You obviously have the lag times, and sort of when some of the production money starts to dry up and third parties and the like will probably does affect releases still looking forward (inaudible) money out there before, it is not there now.

Rupert Murdoch

And as the stock goes, all you can say is, it's got a very good very promising slate of pictures coming up for the next 18 months. It is a very dangerous thing to predict ahead though.

Gary Ginsberg

Next question please.

Operator

We will go to Richard Morgan with The Deal. Please go ahead.

Richard Morgan – The Deal

So Rupert when you say that you're not in talks with anybody at the moment, could you sort of clarify that or put it in context regarding the Travel Channel, particularly in light of the cash flow (inaudible)?

Chase Carey

We have agreements on the Travel Channel, so we're not going to comment on the Travel Channel. On disclosures, we are not going to comment on disclosures on it. We have disclosure obligations and we're going to abide by them.

Richard Morgan – The Deal

Thank you.

Operator

And we will go to Andrew Clark with The Guardian. Please go ahead.

Andrew Clark – The Guardian

Yes. Hi. Just wanted to ask about the Wall Street Journal, can you tell us whether the Wall Street Journal is profitable at the moment?

Rupert Murdoch

Yes.

Andrew Clark – The Guardian

It is.

Rupert Murdoch

Barely, but yes.

Andrew Clark – The Guardian

Okay, and I noticed it increased its circulation very slightly, but it still increased in the recent ABC figures, pretty much everyone else was down, how did you, what magic did you work to get the circulation up?

Rupert Murdoch

We produced a better newspaper.

Andrew Clark – The Guardian

I mean does that…

Rupert Murdoch

I am sorry, but it is as simple as that.

Andrew Clark – The Guardian

Was there a lot of marketing spending that went out to get extra..

Rupert Murdoch

Not at all. Well, nothing more than in the past or nothing extraordinary.

Andrew Clark – The Guardian

All right, thank you.

Operator

And we will go to Staci Kramer with ContentNext Media. Please go ahead.

Staci Kramer – ContentNext Media

Hi. Rupert, could you please give a little bit more on how you see the digital media group playing out over the next year? You talked about the idea of entertainment definition, how does that fit in with what you're doing? And also how does that fit in at all with what you're trying to do on the pay side for the newspapers?

Chase Carey

I'm not sure I got all that but I think I got a part of it. Again I think in terms of what – where we're going with MySpace, I think I would – beyond what I said, what I sort of described, I think Dave described sort of the content arenas we're looking to develop expertise and following in, and social networking round, I think what that because it is – you know we are in a state of transition, and really it is a work in progress. So I think probably to sit here and say we've got clear vision of what it looks like, and in 12 months is probably just not (inaudible). And I think when we have gone through significant changes in terms of lay offs, restructuring and new management, everything's been in place for a quarter plus, I think you have done a good job getting in the right direction, but it is still very much a work in progress.

We are probably further along in probably the music category is the one, I think we are the furthest along in but it is -- but I think it is – it is work in progress and I would not (inaudible) and say we've got a vision what it is going to look like in 12 month, I think. We know some of the things, some of the things we think are opportunities, and we are trying to pursuing them, but we will see as it goes along. I guess I got to know, there is, I don't know whether there is a pay wall question, but really the pay wall question is not, is not related to MySpace, they are not, they are really not, they are really two separate initiatives. They are largely additional, we sort of, but on the one hand we have an additional fundamental percent of as we create content, the content we cerate, whether it is new content, entertainment content, sports content, how do you distribute that content in a digital world?

And the pay wall initiative is all part of that and how we are distributing our content. I think that is one, sort of major strategic trust for us, I think there has been the others is how do we compete in the digital world that is not a direct extension of our content. Those two connect in places but I think the MySpace initiative is really much more competing, first and foremost in this digital universe. It is not a direct extension of our content and against MySpace over time clearly would have opportunities to work with our franchise, but right now the pay wall initiative is a very different one, they are really not connected and it's independent of our MySpace initiatives.

Staci Kramer – ContentNext Media

And Rupert, that $900 million guarantee from Google is extremely important in terms of rationalizing MySpace acquisition when it was made, how far short are you going to fall in the 900 million?

Rupert Murdoch

I don't know. I don't know but I would think I would be getting to answer that, but it will be a real figure.

Chase Carey

It'll be significant. I mean it would be a touch over half, but it'll be…

Rupert Murdoch

Certainly it'll drop 300 (inaudible) it was tied to very high guarantees which we have not met.

Chase Carey

It was something, Rupert, around 10% or something like that of the total spend, 100 million-ish type thing.

Staci Kramer – ContentNext Media

Okay, so..

Gary Ginsberg

We will stop with one last question, operator.

Operator

Certainly. That would be from Andrew Edgecliffe with The Financial Times. Please go ahead.

Andrew Edgecliffe – The Financial Times

Thank you. Can you update us on your plans for Dow Jones indexes has been sort of reporting that you've had approaches on interest, do you intend to keep full control or partial control?

Rupert Murdoch

No. We intend to keep absolute control of the name and the content of the index. Whether we merge without other index companies or something is another matter. And as a matter, I can't comment on at the moment.

Andrew Edgecliffe – The Financial Times

Thank you.

Gary Ginsberg

Thank you everybody for joining the call. If you have any further questions please call us in New York, talk to Teri Everett or Jack Horner who would be happy to answer your queries. And have a good day.

Operator

Ladies and gentlemen, this conference is available for replay that starts today at 6:30 PM Eastern, and will last until November 14 at midnight. You may access the replay at any time by dialing 800-475-6701 or 320-365-3844. The access code 118492. That does conclude you conference for today. Thank you for your participation. You may now disconnect.

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