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News Corporation (NASDAQ:NWS)

F1Q08 Earnings Call

November 7, 2007 4:30 pm ET

Executives

Gary Ginsberg - Executive Vice President, Global Marketing and Corporate Affairs

David F. DeVoe - Chief Financial Officer, Senior Executive Vice President, Director

Rupert Murdoch - Chairman of the Board and Chief Executive Officer

Peter Chernin - President, Chief Operating Officer and Director

Analysts

Michael Nathanson - Sanford C. Bernstein

Jessica Reif Cohen - Merrill Lynch

Rich Greenfield - Pali Capital

Doug Mitchelson - Deutsche Bank

Anthony DiClemente - Lehman Brothers

Anthony Noto - Goldman Sachs

Jolanta Masojada - Credit Suisse

Jonathon Jacoby - Banc of America

David Bank - RBC Capital Markets

Adam Alexander - JB Were

Spencer Wang - Bear Stearns

Jason Bazinet - Citigroup

Jason Helfstein - CIBC World Markets

Tuna Amobi - Standard & Poor’s

Imran Khan - JP Morgan

Kit Spring - Stifel Nicolaus

Heath Terry - Credit Suisse

Alan Gould - Natexis Bleichroeder

Michael Morris - UBS

Alex Pollak - Macquarie Research

Media

Ken Lee - Reuters

Gillian Wee - Bloomberg News

Stacey Kramer - Gate Continent

Aline van Duyn - The Financial Times

George Sivali - The Hollywood Reporter

Operator

Ladies and gentlemen, thank you for standing by and welcome to the News Corporation first quarter 2008 earnings release. (Operator Instructions) I would now like to introduce the News Corporation Executive Vice President of Global Marketing and Corporate Affairs, Mr. Gary Ginsberg. Please go ahead.

Gary Ginsberg

Thank you very much and welcome to our first quarter fiscal 2008 earnings conference call. Joining me today are Rupert Murdoch, Chairman and Chief Executive Officer of News Corp.; Peter Chernin, President and Chief Operating Officer; and Dave DeVoe, our CFO.

As is our custom, Dave will begin the call with a brief summary of the results, focusing on items not immediately obvious from the reading of the earnings release, which I hope you all have at this point. Rupert will then give some general commentary on the quarter followed by a more extensive discussion of our focus and successful efforts to transform the company to the digital age. We’ll then take your questions.

Today’s 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 public filings with the SEC that could cause actual results to materially differ from those in the forward-looking statements.

Given our pending acquisition of Dow Jones, this call may also contain discussion regarding our agreement to acquire Dow Jones & Company. We urge you to read the registration statement and proxy statement filed by the transaction participants with the SEC, as they contain important information about the transaction. Any discussion regarding the transaction on this call does not constitute an offer or [solicitation] to buy or sell any securities and any offer of securities will only be made in accordance with the requirements of the Securities Act of 1933.

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 have been adjusted to exclude other net in first quarter of fiscal ’07. The GAAP to non-GAAP reconciliation is posted on our website on our investor relations, earnings release page.

And with all that, Dave, it’s all yours.

David F. DeVoe

Thank you, Gary and good afternoon, everyone. As you have seen in today’s earnings release, we are off to a great start in fiscal ’08. With the first quarter operating income growth of 23% over the first quarter a year ago. This strong performance was driven by 19% revenue growth, with film entertainment, cable networks, and Sky Italia all reporting significant profit increases.

And while our net income of $732 million for this quarter is below the $843 million reported a year ago, this is principally due to last year’s inclusion of $428 million in other income resulting primarily from the sale of our interest in Sky Brazil and Phoenix. Excluding these gains, net income increased 30%.

Earnings per share for this quarter were $0.23. This is down from $0.27 reported for the first quarter a year ago, and excluding last year’s other income gain, earnings per share increased by over 28%.

Given you all should now have a copy of our earnings release, I am not going to run through the financials for each of our business segments. However, I would like to provide context on the recent performance at a few of our businesses.

Our film segment operating income was $362 million. It’s up $123 million in the quarter, or over 50%. This very solid performance was driven by the strength of the theatrical results from The Simpsons and Live Free or Die Hard, as well as higher contributions from television and film home entertainment titles, including Aragon, Night at the Museum, Family Guy, and Prison Break.

At our television segment, first quarter operating profit of $183 million declined slightly from last year. With solid profit growth at the Fox Broadcasting network and STAR offset by lower station contributions and by a full quarter of losses at My Network, where we expect to see significant improvement for the remainder of the year.

Stations earnings declined 9% compared to the first quarter a year ago, as higher primetime Fox station revenues were more than offset by greatly reduced political revenues and lower contributions from the My Network stations.

At our cable networks, we had a 16% improvement in operating profit to $289 million. This is a very solid result considering the fact that this result includes the inclusion of start-up losses of $33 million in the aggregate at the Big Ten network and the launch of our business channel. This is offset in part from the consolidation of National Geographic international results.

The largest year-over-year gains were from the Fox News channel new affiliate deals and from the RSNs and growth at our international channels.

Sky Italia also continues to deliver strong financial growth with local currency revenues up 11% and operating income of $48 million. This is a $61 million improvement from last year. This marks the first time we have achieved a first quarter operating profit at Sky Italia.

The financial improvements are largely driven by net subscriber additions of 410,000 subscribers over the last 12 months, resulting in 4.24 million subs at year end. There were 195,000 gross new subscriber additions in the quarter as compared to 150,000 last year. Net new subscriber acquisitions in the quarter were 45,000, which compares very favorably to the 3,000 net subscriber additions in the first quarter a year ago and that quarter was affected by last year’s soccer scandal.

Sky’s churn in the quarter was below year-ago levels and is on track to achieve an annual churn rate of around 10%. On last quarter’s earnings call, as you may remember, we told you about a new Italian law introduced last April allowing subscribers to cancel at any time with just 30 days notice. The initial effects of that law, which spiked churn in the last quarter of fiscal ’07, appear to have subsided. In fact, we renewed approximately 94% of the 1.7 million annual contracts that expired in the quarter.

ARPU for the quarter was approximately EUR39. This is consistent with a year ago, and SAC was favorable in the quarter, declining to approximately EUR250 from the EUR330 level we reported in the first quarter a year ago. And this largely reflects this quarter’s lower aggregate marketing spend spread over a higher number of gross additions in the quarter.

At our newspaper segment, the underlying operating trends are better than a quick look at the reported operating income results would indicate. Reported operating income of $93 million for the quarter declined $31 million from a year ago. This is largely due to an incremental $70 million accelerated depreciation and costs related to our older printing facilities in the U.K., as our new plants now will come online earlier than planned. These

incremental costs will substantially subside by the third quarter of this fiscal year.

Regarding the underlying newspaper segment results, advertising trends in the United Kingdom were relatively flat, with higher color display offset by declines in classified. Our Australian newspapers reported a very good result, with advertising revenues up 8% in local currency terms, driven by display advertising growth across most key categories and by higher classified employment advertising.

Finally, looking at our other segment, losses at our other segment of $43 million improved by 41% from the first quarter a year ago. This is primarily due to improved results at Fox Interactive Media, offset in part by start-up losses related to our Eastern European broadcast initiatives.

FIM’s revenues in the quarter of $188 million were up roughly 80% from the same quarter a year ago. This is primarily due to growth at MySpace.

Operating income for FIM was $4 million, which reflects our continued investment in the business to support its growth, as well as higher acquisition related management retention and amortization costs, and Rupert will talk more about that in a moment.

Finally, let me address our guidance for fiscal 2008. Three months ago, we indicated an expectation of operating income growth for fiscal 2008 to be in the low teens. This guidance excluded the gain of approximately $140 million expected from the sale of property in the United Kingdom, as well as the Dow Jones acquisition. Based on our actual results to date and on our assumptions inherent in our projections, we remain comfortable with this expectation for fiscal 2008.

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

Rupert Murdoch

Thank you, Dave. Good afternoon, everyone. Once again, another very strong quarter, during which we grew our operating income 23%, an exceptional -- in fact, a record result on its own. It also marks the fourth consecutive quarter with year-over-year operating income growth of high teens or better, and our growth far outpaces that of any of our competitors. This despite spending to expand our cable and television portfolios and greatly upgrading the color capacity at our newspaper group.

These continued robust results demonstrate how the company is well-balanced and well-positioned for a prosperous future. Our unique structure provides the resiliency to continue to grow even in periods of uneven economic growth.

Unlike many of our peers, News Corporation is a truly global company, operating a diversified collection of international businesses, generating nearly half its consolidated revenues outside of North America and holding market leading positions in emerging economies.

We have major standalone businesses leading their markets in India, Australia, Italy, United Kingdom, and Latin America; smaller or developing assets in China and throughout other regions in Asia, Western and Eastern Europe, and significant revenues from international distribution arms of U.S.-based film, television and book content businesses.

All told, these operations generate just under 50% of our consolidated revenues.

You will see us continue to expand internationally, as we are this year with additional free and pay TV channel launches and expansion of MySpace in more markets. Not only does this diversification provide earnings stability but we expect it to provide above average financial growth.

We are also operating in many markets with economies in earlier stages of development or growing at a different pace than that of the United States.

In addition to the advantages of international diversification and expansion, our revenue streams are derived from numerous types of business activity and are not overly dependent on one source.

I know there is concern about potential U.S. advertising weakness. Given the size of our company and its businesses, we clearly have exposure to it. However, less than 45% of our total company revenues are derived from some form of advertising. [inaudible] include international advertising as well as coupons at in-store marketing, only about 23% of or company revenues are dependent on U.S. television advertising.

Nevertheless, despite our lessened exposure, advertising at News Corp remains as strong as ever. [Scatter] is up by strong double digits. Pacings are up in the mid single digits and we are currently 95% sold on Super Bowl ads at up to $2.7 million per unit, pacing far ahead of previous years.

Our station group continues to enjoy overall record market share, and our print businesses, all market leaders, are showing continued resilience in competitive environments.

At a time when pundits are heralding the demise of newspapers, all of our newspaper groups are reporting year-on-year revenue growth. For instance, the Wall Street Journal print revenues were up 7% in October and online revenues were up 30%.

As Dave just outlined, much of the company’s growth for the most recent quarter came from one of our developed assets, Fox Filmed Entertainment, and from two of our developing assets, our cable channels business and Sky Italia.

The revenue drivers for these developing businesses are more in our own control, not the markets, with the lightest gains coming from subscription growth. We are confident they will remain key sources of organic growth for the next several years.

Clearly we are positioning and investing to seize the opportunities of operating in a global society that’s becoming increasingly dependent on digital media, where destinations like MySpace are becoming essential to our way of life.

When I was in Silicon Valley, I went to a conference a couple of weeks ago, the excitement that you could feel surrounding MySpace was infectious. It’s become so much more than a social network. It connects people, but it’s evolved into a place where people are living their lives, a social platform packed with search, video, music, telephony, games. And having the chance to spend time talking with the innovators and leaders of the tech world made it even more clear to me there are no limits to continuing that extension, to building, expanding, and monetizing MySpace and our dozens of other smaller sites.

Just last week, MySpace joined forces with Google to launch Open Social, an open platform for social application development, a move that underscores our commitment to fostering innovation in an increasingly social web.

Essentially, Open Social will create a de facto standard for social networking, enabling developers to write a widget to a single standard and gain immediate distribution to 200 million homes.

And we just announced a new initiative this week; Self-Serve by MySpace, the first ever ad platform to offer customized tools for small businesses to create and target display ads to their desired customers in a social media environment.

There are 23 million small businesses in the United States and less than 1 million advertise online. With Self-Serve, we hope to bring that new class of advertisers to MySpace.

But even with this environment, there’s been a lot of chatter lately about MySpace’s ability to maintain its leadership position in the evolving world of social networking and it’s ability to truly monetize it’s vast audience.

I am more convinced than ever that any fear is misplaced. Just look at the numbers. Nearly one in every four Americans is on MySpace. We are the most trafficked site in the United States. Last month, we delivered over 45 billion page views, which represented nearly 10% of all page views on the Internet. Three-hundred thousand new users around the world join MySpace every single day and we grew our unique users during September, up slightly from August, and up nearly 23% from the same time a year ago.

With more than four years under its belt, MySpace is seeing a stable and steady growth curve consistent with any market leader.

What is changing is the marketplace. The space as a whole is growing and developing. As it continues to mature, there is plenty of room for other platforms and what we need to do is ensure that our user experience remains unique.

Obviously MySpace’s most talked about competitor is Facebook. While it has grown rapidly over the past several months, it is still only 45% of MySpace in terms of the unique users and about 33% in terms of page view.

Every MySpace unique user spends over three hours monthly on the site. Competitors are not cannibalizing our audience. For instance, according to Nielsen Online, in the U.S. 74% of Facebook’s users are also active on MySpace.

Most importantly, the two platforms are very different in the user experience. MySpace is a place for self-expression, where users’ MySpace pages become their home on the Internet. It is where they discover people, content, and culture -- where they share information, communicate, and consume. Facebook, on the other hand, tends to be a web utility, similar to a phonebook.

And MySpace users are extraordinarily engaged. It is this engagement we are translating into stronger advertising dollars. Display advertising revenues for our first quarter at MySpace were up 32% versus a year ago and we expect this to increase as we further implement our ad serving strategy called hyper-targeting by MySpace.

In the most basic sense, hyper-targeting is focusing advertising on what users are telling us interests them, rather than the traditional model which guesses users interests. We rolled out the first phase of hyper-targeting in July to 50 advertisers by submitting our audience into 10 unique interest groups, from movies to finance to fashion.

Top brands, including Proctor & Gamble, Microsoft and Ford participated in the trial and we are very encouraged by the early results. Performance lifted up to 300% for those using hyper-targeting.

We expect this hyper-targeting to pick up momentum as we enter the next stage, which includes adding an additional 100 sub-categories. By the end of the year, we expect the number of interest segments to move into the thousands as we offer advertisers a wide variety of choices for their brands.

Nobody else on the web is approaching this level of sophistication.

While MySpace is the centerpiece of our interactive business, I think it is important to point out the depth of our offering. Aside from the clear number one social networking site, Fox Interactive Media houses the number one photo sharing site, Photobucket; the number one gaming site in IGN; the leading site for sports video in Foxsports.com; the number one men’s lifestyle site in AskMen; and the leading television site in Americanidol.com. In all, we reach over 175 million people globally.

That scale and that connection with a user base that advertisers covet is translating into real financial growth. It’s been just two years since we first invested significantly in this business and in that short time, we have already reached profitability. In fact, this past quarter, FIM generated nearly $200 million in revenue, which is an increase of 80% over the prior year. We were profitable despite additional investments and retention expenses that Dave spoke about earlier, compared to the loss we recorded a year ago.

We expect this rapid financial growth to continue, despite heavy investment in the MySpace platform. For example, MySpace TV, a new phone service, will start and continue spending to roll out MySpace internationally. To date, MySpace has been launched in 20 countries with at least 10 more on the way, and now reaching nearly 40 million monthly active users outside this country.

Undoubtedly, the digital platform we have built is strong and is delivering real profits. Combined with the continued first rate performance of our traditional assets, we think we are in a great position to deliver another solid year of growth.

With that, we would be very happy to [open the call and entertain] questions. Thank you very much.

Gary Ginsberg

Operator, we’re ready to take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question will come from the line of Michael Nathanson with Sanford Bernstein. Please go ahead.

Michael Nathanson - Sanford C. Bernstein

Thanks. I have two for Rupert and they are on MySpace, as you could guess. As you know, there’s been a lot of chatter on the web about what you said and Web 2.0 and expectations for the year. Has there been any change for your expectations about the revenue growth that you laid out on the fourth quarter call for MySpace and FIM?

Rupert Murdoch

That was only two weeks ago. I don’t think there’s been any at all other than continuing reports of the good results on the hyper-targeting, which we believe will bring more advertising. But no, nothing drastic.

Michael Nathanson - Sanford C. Bernstein

Okay, and the second one was with only $4 million profits at FIM so far in this quarter, is there any seasonality to when the profits come through for the year? Could you talk a bit about how you see the year unfolding on a profit basis at FIM?

Rupert Murdoch

I think there’s definitely seasonality. This will be the weakest quarter and I wouldn’t want to really be more specific than that. Peter would like to comment on it.

Peter Chernin

Let me just add to that. Look, I think we started off the quarter a little slower than we expected in July and August. We’ve actually seen great momentum since then in September and October. I think our revenues are up 40% since July. Our revenues are up 15% just from September to October and we’re seeing great lift in CPMs, probably a blended 30% increase in CPMs in that four month period.

So while we were maybe a little bit behind at the beginning of the quarter, right now I think we’ve got pretty good operating momentum and I think it’s too early to say where we are going to end up for the year but we feel pretty good about the momentum we have going right now.

I think the other thing I would like to point out is there are two specifics that affected this quarter. We don’t have any American Idol in the first quarter, and so that will impact the profitability in the second part of the year. And we also sold the remainder of [Intermix] at the end of last year, so that affected the quarter also.

Michael Nathanson - Sanford C. Bernstein

Thanks.

Operator

And our next question comes from the line of Jessica Reif Cohen with Merrill Lynch. Please go ahead.

Jessica Reif Cohen - Merrill Lynch

Thank you. I have two questions as well, and I guess the first one is for either Dave or Rupert, and the second is for Peter. So on the first, cash continues to build up. I wonder if you could just give us your most recent thoughts on -- in terms of potential acquisitions, share buy-back, maybe even a dividend.

The second question for Peter, I know you are involved in the negotiations, but now that a strike has actually started, can you give us your view of how long you think it might last, what the impact is to your businesses? Do you think it will drive advertising from television online, et cetera?

Rupert Murdoch

Dave, do you want to answer that? No, I think the -- what was that, the cash?

Jessica Reif Cohen - Merrill Lynch

Yes.

Rupert Murdoch

No, we have no specific targets in sight and whereas, if we had any, we might be looking for some bargains internationally. I think the value of the dollar today cools any passion for that. So no, we don’t have anything planned at this moment.

Jessica Reif Cohen - Merrill Lynch

Can you discuss a potential buy-back, or accelerated buy-back?

Rupert Murdoch

No, we’re not going to accelerate it. We think that -- we’ll see how we go. We’ll be doing a little bit of it, I imagine, the next couple of few weeks, but basically just reading the papers and watching the ticker, we’re sufficiently nervous. I think we ought to wait. I mean, just to go slow, put it that way.

Jessica Reif Cohen - Merrill Lynch

And just on that question, can you answer when the Liberty deal will close?

Rupert Murdoch

I wish I could.

Jessica Reif Cohen - Merrill Lynch

Thank you.

Rupert Murdoch

There’s a meeting on it at the Justice Department today, another one tomorrow, and we are very hopeful it will then move to the FCC, where we really can’t see any problems. But I can’t be more specific than that. That’s all I know.

Peter Chernin

Jessica, in terms of the strike, first of all, I have no idea when it’s going to be over. It’s particularly frustrating because, by all accounts, there was a pretty constructive day of negotiations on Sunday, yet the writers still chose to go out on strike that evening. So it’s hard for me to know.

I think there’s a deal to be done. I think it’s particularly frustrating that we can’t seem to get there but I have no idea how long it is going to take.

As for how it will impact us, my guess is that during fiscal ’08, a strike is probably a positive for the company. We save more money in term deals and story costs and probably the lack of making pilots than we lose in potential advertising.

The other thing is we believe that it would cause a significant growth in market share on the Fox Broadcasting Network. We think that the Fox Broadcasting Network, something we’ve been working on for a long time, but is better positioned for a strike than any of our colleagues.

We’ve got American Idol coming, we’ve got a wide array of reality programming. Most of our animated shows are generally about a year ahead, so those would be original, so we would be in original programming virtually every night of the week for the remainder of this broadcast season in the event of a strike.

So we would expect that it would, if anything, lift our market share and have us win this season by an even greater margin than we expect to.

A longer strike, a strike longer than eight months or a year would obviously begin to affect all three parts of the business, but boy, I sure hope it doesn’t go that long.

Gary Ginsberg

Operator, if we could just limit questions to one so we can get through as many analysts as possible, we’d appreciate it.

Operator

Certainly. Our next question comes from the line of Rich Greenfield with Pali Capital. Please go ahead.

Rich Greenfield - Pali Capital

Thank you. Can you hear me?

Gary Ginsberg

Yes. Rich, go ahead, we can hear you.

Rupert Murdoch

We can’t now.

Operator

Mr. Greenfield, please re-queue up. We’ll move on to the next question. That comes from the line of Doug Mitchelson with Deutsche Bank. Please go ahead.

Doug Mitchelson - Deutsche Bank

Thanks. Good afternoon, gentlemen. So it’s my understanding that Sky Italia has signed a co-marketing deal with Telecom Italia, which means you would have marketing agreements now with all the top broadband and wireless providers in Italy. So competition in Italy is just a few spots of cable and then Digital Terrestrial Television, so is that correct?

And then as part of that, the margins seemed pretty good this quarter. You look like you are pacing ahead of your usual $200 million a year of EBIT improvement. Is there a chance that we do a little bit better this year than we normally expect? Thanks.

Rupert Murdoch

Yes, however, we’re not counting on it. We are buying in more rights for sports, but we’ll certainly do what we said we would do. I hope we’ll do better but I wouldn’t want to promise that yet.

And we have a good deal with Telecom Italia. You’re quite right.

Doug Mitchelson - Deutsche Bank

So the competitive environment in Italy now, is it really just you and Digital Terrestrial Television? Is that what we’re looking at?

Rupert Murdoch

Yes, but they’re not really a big factor. I mean, the other night on the football, I think we got eight times their audience.

Doug Mitchelson - Deutsche Bank

Great. Thanks.

Operator

And our next question will come from the line of Rich Greenfield with Pali Capital. Please go ahead.

Rich Greenfield - Pali Capital

Sorry about that. A question on the Big Ten network; when you look at the Big Ten network situation, you obviously haven’t gotten the carriage that you were hoping to get from cable operators. You’ve now gotten both satellite operators. I’m wondering what your game plan is, how long your tolerance is before dropping your pricing demands.

Time Warner Cable this morning said that this is not something that their subscribers are clamoring for and it didn’t sound like they wanted to budget, so I’m just curious what the plan is. This seems like a significant swing factor for you over the next couple of years and I would love an update. Thanks.

Peter Chernin

Look, we obviously have tremendous patience. We think this is probably about as good a product available on a regional sports basis, and if anything, the product gets stronger. On some regards, football -- during the football season, we’re limited to essentially a series of games once a week. As we move into basketball and hockey season, I think the pressure ratchets up significantly.

We have deals with virtually every other provider in those markets, ranging from both the two satellite providers to any of the over-builders, to the telcos, et cetera, and we believe that this is something -- certainly the number of calls we’ll getting, the number of calls state legislatures are getting, local mayors, local municipalities are getting, indicates to us that there actually is a pretty big demand for the product. We’ll begin to get actual subscriber numbers in the next month or so from both the cable guys and the satellite guys, and so we’ll have a very accurate view of how many subs they may be losing in those markets.

But look, we feel great confidence in the quality of the product and its value for the price and we’ve got plenty of patience and plenty of tolerance to get there.

Rich Greenfield - Pali Capital

Just as a follow-up, is there any way to think about how many subscribers you need to turn this from a start-up loss to into profits?

Peter Chernin

One of the things I think worth pointing out is this is I think second to Fox Business Channel, the second-largest launch of a cable channel in the history of the business. We launched this channel with 30 million subs, so this is already a widely distributed -- there are additional subs in those inner markets, primarily from Time Warner and Comcast, and we are optimistic about our ability to get there.

Rich Greenfield - Pali Capital

Thanks a lot.

Operator

And our next question comes from the line of Vijay Jayant with Lehman Brothers. Please go ahead.

Anthony DiClemente - Lehman Brothers

Good afternoon. This is Anthony DiClemente for Vijay. A question for Peter, just on your exposure to the advertising environment; I was wondering if you could give us a little more color on that as to where you might be seeing pockets of weakness, and if you can parse national versus local exposure to the ad environment, and then even on a category basis, if you could talk a little bit about real estate and financial services. Thank you.

Peter Chernin

I would say first of all, we really aren’t seeing -- the only thing I would point to as a pocket of weakness I guess would be political on a local station basis. If you look at the shortfall in the television segments, it all comes out of local and it almost all comes out of the lack of political spending this year versus last year. That comparison actually ends this week because we had the election last week. We are hopeful that we’ll actually see some local political as we get into the heart of the primary season later in December and January.

As for the rest --

Rupert Murdoch

Last year we had $200 million of political at this time.

Peter Chernin

As for the rest of the market, national broadcast extremely strong. National cable extremely strong. Local we’re seeing our pacings pick up in November, December and January, so that feels pretty good.

And categories, you know, we had seen some weakness in cars earlier in the quarter. That’s actually bouncing back. We are seeing great strength in the movie category. We are seeing actually pretty good strength in retail.

So right now, in some ways advertising feels -- I don’t want to say too good to be true, but it feels very strong.

Also, the other thing I want to point out is very, very strong sports advertising and that’s particularly heartening given the strength of our sports schedule coming forward with the remainder of the NFL season, the BCS, the Super Bowl, the 50th anniversary of the Daytona 500, and I think that sports will get even stronger if we see a lot of repeats on the other networks because of the strike.

Anthony DiClemente - Lehman Brothers

Thank you.

Operator

And our next question comes from the line of Anthony Noto with Goldman Sachs. Please go ahead.

Anthony Noto - Goldman Sachs

Thank you very much. I was wondering, Dave, if you could give us your perspective on the advertising revenue at FIM in terms of both the search revenue and the display. I know that you mentioned $200 million in total, but how that broke out.

And then Peter or Rupert, could you comment a little bit on your perspective as it relates to the broadcast network industry as it relates to audience trends? Obviously the Fox Broadcasting Network, excluding sports [on a live only basis], is the only network up about 8% year-to-date, so you are actually in a position of strength. As we get into C-plus-3 in the new year, do you believe there could be a significant amount of deficiencies in [make goods] by other networks that are currently not accruing for them because the measurement system hasn’t been audited yet? Thanks.

Peter Chernin

I would say of the total FIM revenue, which a little bit less than a third of it is search and the rest of it is display and performance advertising. The search will stay steady on a monthly basis through the year and so all of the growth that I talked about earlier that was taking place from July into October, was essentially all growth in display and performance advertising, since search is essentially steady.

Anthony Noto - Goldman Sachs

And Peter, you’re selling that display yourself, 100%?

Peter Chernin

We are selling what we call category one display 100% ourselves. Category two, which is largely performance, we sell mostly ourselves, and then there’s some remnant advertising which we sell given the number of page views we have, which we sell through various ad networks. We are generally the largest supplier of inventory to almost every ad network because we have so much inventory.

But the bulk of that revenue is stuff we’re selling ourselves, category one, top 200 advertisers.

I also would point out that we expect to see a lot of positive pressure as this self-serve advertising product launches in the next 30 days. As Rupert said, there are 20-plus million small businesses. More importantly, we estimate that there are 5 million to 10 million small businesses already having MySpace pages -- local hairdressers, local trainers, local restaurants, local bars, local cleaners, et cetera. And we believe this is the first self-serve product for them to create their own display advertising on the Internet. Up until now, the only thing they’ve been able to do is do search, and we think that this is a great opportunity for them to continue that.

So we are seeing growth on all the display stuff, particularly the stuff that we sell ourselves.

As for the network business, I think you are right. We are the only network that is up season-to-date. We are also the only network that is up in the first five days of the sweeps. We are not thrilled with our performance. I think the point that I would make that is most telling to us, I believe at the beginning of the sweep last year, we were somewhere between nine-tenths and a full rating point out of first place.

At the beginning of the sweep this year, I think we were three-tenths of a rating point out of first place. So we would expect to be the number one network, particularly given Idol coming and the Super Bowl coming, we’d expect to be the number one network by an even larger margin this year.

What we are seeing out of C-plus-3, the first thing we are seeing is confusion coming out of Nielsen. They are really far behind in reporting those results. I think we’ve gotten either three or four weeks of those results, and those results for us have been largely what we expected, which is the C-plus-3 essentially by the time you get there is essentially flat with what our program ratings were last year, up a tiny, tiny bit. But we’ve gotten so little data out of them.

Our budget was based -- our assumptions were that those would be flat, up a tiny little bit and so far, they are mirroring what our assumptions were.

Operator

And our next question will come from the line of Jolanta Masojada with Credit Suisse. Please go ahead.

Jolanta Masojada - Credit Suisse

Thanks very much. You referred on the call to management retention costs at FIM. Can you talk about what the incremental expense this year will be compared with fiscal ’07? And will there be another step up coming through in future years?

David F. DeVoe

It’s about -- I think it’s around $20 million of incremental year over year.

Rupert Murdoch

This year.

David F. DeVoe

Yes, this year over last year, about $20 million related to it.

Jolanta Masojada - Credit Suisse

And then looking forward?

David F. DeVoe

Well, it depends on the [profitability] of the business, so we hope it’s more because it’s a function of profitability.

Jolanta Masojada - Credit Suisse

Thank you.

Operator

And our next question comes from the line of Jonathon Jacoby with Banc of America. Please go ahead.

Jonathon Jacoby - Banc of America

Thanks. Just on the cable start-up costs, how should we expect that to moderate throughout the year? And then, I would love to hear your thoughts on the initial rollout of Fox Business, or color on how you think it’s going. Thanks.

David F. DeVoe

Well, it’s not going to moderate. It’s going to get slightly worse as the quarter by quarter -- we had the Fox Business Channel launched really not until our second quarter. So you see those costs rise, and I guess, Peter, the Big Ten costs --

Peter Chernin

The Big Ten will be --

David F. DeVoe

-- will be pretty static over the --

Peter Chernin

-- unless we make some deals.

David F. DeVoe

Yeah.

Rupert Murdoch

We budgeted -- we might as well be quite open about this -- to spend $130 million on Fox Business to break even over three years, and we expect to lose about 60 of it this year.

Unidentified Participant

Yeah, it’s a little more.

Rupert Murdoch

What, 70?

David F. DeVoe

You should roughly see the losses will be slightly higher every quarter between now and the end of the year as it ramps up.

Peter Chernin

But again, I think it’s important to point out that we made these investments [frequently in the past] and a lot of why our cable segment is growing so rapidly is that we are constantly investing in the next generation of growth drivers, and as Rupert said, we would expect Fox Business to break even within three years and start being a real profit driver. And then on the same side, we would expect Big Ten to break even sooner than that.

Rupert Murdoch

All I’ll say is I think it’s -- we don’t have any numbers, Nielsen can’t give us any numbers yet, but we’ve just -- we had wonderful reviews from everybody and some of that is anecdotal, some of it is in the business press. And looking at it, we are pretty proud of the product. I think they’ve had a fantastic start-up. It’s been an extremely professional product right from day one.

Jonathon Jacoby - Banc of America

Thank you.

Operator

And 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. Just a quick follow-up again on FIN. I was wondering if you’d comment on -- if not the actual number of sales -- number of sales people you have at FIN right now, maybe the -- and how you see that growing throughout the year in absolute headcount. Can you talk about growth targets for the sales force at FIN over the next 12 months? And do you see any change in the quota per sales person over that period of time? Thanks.

Peter Chernin

We don’t release those details of headcount. We have been adding lots of sales people and our budget assumes we add quite a few more sales people this fiscal year, and obviously given our assumptions about growth, their quotas also increase and their targets also increase as the year goes on.

David Bank - RBC Capital Markets

Okay, thanks.

Operator

And our next question comes from the line of Adam Alexander with JB Were. Please go ahead.

Adam Alexander - JB Were

Thank you. Rupert, before you talked about the large portion of your revenues that are derived from outside the U.S. I’m just wondering if you could comment a bit further on how the weak U.S. dollar affects your business, and whether or not that might add a couple of percentage points to your operating income growth for the full year?

Rupert Murdoch

Certainly, I think David’s covered that.

David F. DeVoe

No, we haven’t but the weak U.S. dollar is a positive to us and probably in the current year, it would add about -- this, by the way, the majority of this is taken in consideration in our guidance, around $100 million of operating earnings for the year compared to a year ago.

Rupert Murdoch

At the most, yeah.

Adam Alexander - JB Were

Okay, thanks.

Operator

And our next question comes from the line of Spencer Wang with Bear Stearns. Please go ahead.

Spencer Wang - Bear Stearns

Thanks. Good afternoon. I know you haven’t closed on Dow Jones yet, but I was wondering -- I know there’s been chatter about potentially converting the Wall Street Journal online to free. I was wondering if you could just update us on your thoughts there.

And then on the MySpace self-serve platform, how is that inventory going to be priced? Is that fixed price or is that an auction or something else? Thanks.

Rupert Murdoch

What was the second half of that? Oh, I don’t know the answer to the latter part but the wsj.com, making it free, we are examining the possibilities of doing that. There are a lot of pros and cons. We passed 1 million people now who are paying for it, and getting very, very high cost per thousand for advertising.

On the other hand, if that was to jump to 10 million or 20 million people around the world, it could be a wonderful thing for the brand. We would be selling the ads at a lower cost per thousand but I think we’d be in front.

But we have to -- there are other considerations; how will it affect things like Factiva, our archive business, and also the newswires, which are very profitable.

Spencer Wang - Bear Stearns

Thank you.

Operator

And our next question comes from the line of Jason Bazinet with Citigroup. Please go ahead.

Jason Bazinet - Citigroup

I believe it was over the summer that you announced your intent to put Gemstar, the Russian outdoor business, and the TV stations on the block. I think that was before the credit market dislocated. I was just wondering if you could give us any update on your thoughts on those assets. Thanks.

Peter Chernin

We are in the process with both the sale of the -- of all three of those assets, the stations, News Outdoor, and I think we’ll have more -- we have nothing definitive to say right now about it but we’ll have more information for you as we get along in our second quarter.

Jason Bazinet - Citigroup

But nothing’s changed from your perspective?

Peter Chernin

No, nothing has changed. Obviously --

Rupert Murdoch

Well, if we get offers and if we sell -- let’s be realistic, they wouldn’t be as good as they would have been six months ago. But if we get offers and it doesn’t represent too much of a haircut, we’ll take it.

Jason Bazinet - Citigroup

Okay. Understood. Thank you.

Operator

And our next question comes from the line of Jason Helfstein with CIBC World Markets. Please go ahead.

Jason Helfstein - CIBC World Markets

Thanks. When do you expect to see the impact of this Open Social initiative? And will this be part of any other efforts to reformat user pages, making them more amenable to advertising? Thanks.

Peter Chernin

We’re hoping to be able to finish all of the integration within the next 60 days by the end of the year and we believe we’ll be able to do that. We have a number of other innovations and products that we are working on in terms of MySpace and the page, and additional ad products and we’ll announce them as we are ready to go with them.

Jason Helfstein - CIBC World Markets

Thank you.

Operator

And our next question comes from the line of Tuna Amobi with Standard & Poor’s. Please go ahead.

Tuna Amobi - Standard & Poor’s

Thank you very much. Rupert, I think by all accounts, you’ve been spending a fair amount of time at Dow Jones now since the deal was announced a couple of months ago. I was just trying to get a sense of how -- any update that you might share with us in terms of your thoughts on how that asset could be integrated? I think you’ve talked about it, $100 million of low-hanging fruit. How soon do you think that will be realized? And looking further out, how much more, if I can use the word synergies, do you expect to squeeze out from this deal?

Rupert Murdoch

The cost savings are not synergies, and there will be other ways that we’ll probably spend some of that money in developing the brand and making it a much better paper.

I’ve not spent as much time down there as I would have like to, or has been publicized. But all that I see gives me great faith in the potential.

Tuna Amobi - Standard & Poor’s

Okay. Thank you.

Rupert Murdoch

Sorry, in all their lines of business.

Tuna Amobi - Standard & Poor’s

Thank you.

Operator

And our next question comes from the line of Imran Khan with JP Morgan. Please go ahead.

Imran Khan - JP Morgan

Thank you for taking my question. Rupert, I wanted to get your perspective -- one of the big challenges on the Internet is fragmentation that the portal guys faced over the last four or five years. And if I look at the social networking space and the social networking platform, MySpace clearly is the leader but some of the second and third numbered players are growing significantly faster. So are you concerned that you might experience a similar kind of fragmentation, which might impact your growth rate?

Rupert Murdoch

They are only growing faster in a percentage basis, not an absolute basis. I think it’s going to become just a much, much bigger thing. Whereas now, only a very small part of web advertising is on social networks, I think that’s going to change and we are going to see a lot more advertising coming to social networks and it being just a bigger business in every way.

Imran Khan - JP Morgan

Thank you.

Operator

Our next question comes from the line of Kit Spring with Stifel Nicolaus. Please go ahead.

Kit Spring - Stifel Nicolaus

What’s your appetite for pursuing some non-advertising revenue streams at the Fox Television Network? Perhaps either cash cable retransmission or fees from your affiliates? Thanks.

Peter Chernin

I would say -- look, we have an appetite to pursue anything we can get. First of all, to be fair, most of our retransmission is signed up for two to three years out, and we’ve always said consistently that our goal is to maximize the financial return on our retransmission. And we’ve been reasonably neutral about whether we get that in the form of additional carriage, the ability to create new cable channels or cash.

My guess is you will see that begin to change a little bit, just because I think analog spectrum is filling up and I think cable operators are probably not going to be launching as many new services, and if that’s the case, we’d be happy to be paid in cash.

In terms of fees from our affiliates, I think we already have the most financially productive relationship with our affiliates than any of the broadcast networks. We get significant reverse compensation and honestly, they are very good partners. I think it’s a good relationship for both of us. They help to fray a fair amount of our sports expenses and they’ve been good partners about stepping up to help us pay for those things and I think our relationship is significantly materially advantaged over any of the other broadcast networks.

Kit Spring - Stifel Nicolaus

Thank you.

Operator

And our next question comes from the line of Heath Terry with Credit Suisse. Please go ahead.

Heath Terry - Credit Suisse

Great. I was wondering if you could just talk a little bit about what you’ve been seeing from a monetization standpoint on MySpace since the Google arrangement, and to what degree -- how far along in that process of partnering with Google we are right now from a technology standpoint?

Peter Chernin

I think the most significant thing I would say is -- I sat down with Eric Schmidt a couple of weeks ago, and I know he said this also at their Google conference a few weeks ago, that as far as they are concerned, this whole deal is now profitable for them and they are running ahead of their modeling and ahead of their projections when they made the deal.

So for us right now, we are essentially running at the level of our guarantee and what it does is probably give us hope that maybe we’ll get past that guarantee as we get into the latter part of that deal.

I think it’s a good indication of how valuable social networking is and how important it is in a monetization sense, and I think that the fact that Google is running well ahead of where they expected to be a little bit more than a year ago when they made the deal is an extremely positive sign for both of us.

Heath Terry - Credit Suisse

Great. Thank you.

Operator

Our next question comes from the line of Alan Gould with Natexis. Please go ahead.

Alan Gould - Natexis Bleichroeder

Thank you. A question for either Rupert or Dave; typically, you like to have a lot of cash on the balance sheet and after the Dow Jones deal, it will be five-point-some billion dollars less. I realize you have plenty of leverage capability. What are your net debt to cash flow targets, or cash balance targets that you have?

Rupert Murdoch

We’re not going to have five left --

David F. DeVoe

After Dow Jones -- $5 billion less. It will be slightly -- might be $5.5 billion less, but I think if you look at the company over the last two to three years, we like to have about $2.5 billion of cash on a minimum basis. That’s where we’re comfortable. I think I’ve said this before, as far as with regard to the debt, I think our target levels for debt are somewhere between two and three times max. And given the conditions that exist in the financial markets today, we would be certainly heading toward the low, low end of that range until we find out where the markets are going to end up.

Alan Gould - Natexis Bleichroeder

Thank you.

Operator

And our next question comes from the line of Michael Morris with UBS. Please go ahead.

Michael Morris - UBS

Thank you. A follow-up on Dow Jones; can you provide some current thoughts on where you see international opportunity for Dow Jones? And in particular, are there certain markets where you expect to have to, or look to invest in the print business for the Wall Street Journal? And are there I guess opportunities beyond the print platform to expand the brands, maybe using some of your television platforms? Thanks.

Rupert Murdoch

Yes, well, we’ll certainly be using our television platforms to be promoting and pushing very hard on our online services. The current international editions of The Wall Street Journal are a lot less than satisfactory and we’ve got to get to them as fast as we can. Although really, the number one priority absolutely is to get The Wall Street Journal itself as we’d like it. We respect it. We think it’s great in many, many ways but we believe we can improve that. Absolutely we can improve the online service, and there -- that’s the two absolute priorities, and then we’ll get to the international perhaps in a few months time.

We have -- I’ve had people in this morning from the [inaudible] Times. We have a deal there with a new financial paper. They are associated with us. They are associated with our name. In fact, we don’t have any shareholding in it. We have some small amount of revenue from it and there are other places where we have little bits and pieces. And there are other certainly big opportunities.

But first, we’ve got to get it absolutely right here and the paper that we are proud of and that will grow and be seen as the number one journalistic product in the world.

Gary Ginsberg

Operator, we’ll take one more question.

Operator

And that next question will come from the line of Alex Pollak with Macquarie. Please go ahead.

Alex Pollak - Macquarie Research

Thanks for that. My question is really for Rupert, actually, and Dave and Peter, and it was just in the context of 23% operating income growth for the three months, the guidance for the full year of low teens looks a little low. I was wondering whether obviously you know some things that we don’t about the back nine months of the year and why the growth might be a little bit lower. That was the first part.

And the second part was I know that [inaudible] was quoted in the paper as saying, with respect to deals and Yahoo!, nothing is ruled out. I wonder whether News Corporation was one of the nothings that he was not ruling out.

Rupert Murdoch

And it’s nothing that we’d rule out either but we are not lusting after it or having any serious discussions with them at the moment.

As for the guidance, all I can tell you is we seem to be starting the second quarter extremely well, but we don’t want to -- we’ll have a look at our guidance again at the end of the year, but right now all the economic indicators are that next year could be rough. So we are not going to give guidance until we are a little bit closer to it.

David F. DeVoe

I think it’s fair to say, Rupert, that we are extremely confident in the guidance that we’ve given but again, as Rupert said, it’s only the first quarter, there’s a lot of economic uncertainties and I just think at this time, maintaining the current guidance levels is appropriate.

Gary Ginsberg

Okay. Thank you very much. Why don’t we go into the press call right away, if we could, Operator?

Operator

(Operator Instructions) Our first question will come from the line of Ken Lee with Reuters. Please go ahead.

Ken Lee - Reuters

Can you discuss the rational behind nominating, or the intentions to nominate Natalie Bancroft for a board seat at News Corp?

Rupert Murdoch

We believe she’ll be a very fine director. I’ve met with her, the head of our nominating committee has met with her, as have other people, such as our Chief Counsel. They are a funny family and they couldn’t decide between themselves who to nominate and that’s about all I can say.

We went through it and by a process of elimination and meeting people and speaking to people, we chose Natalie and we’ll looking forward to having her as a colleague.

Ken Lee - Reuters

It’s just that corporate governance experts we had heard from are already saying, ahead of the actual nomination, they are already saying that that could be viewed as a disservice to News Corp shareholders.

Rupert Murdoch

Well, that’s rubbish. If you listen to corporate governance experts, just remember what they said when Google floated. They said it was the worst corporate governance model they had ever seen.

Ken Lee - Reuters

Okay. Thank you.

Operator

And our next question comes from the line of Gillian Wee with Bloomberg News. Please go ahead.

Gillian Wee - Bloomberg News

I just had a question about Internet revenue. How much revenue do you get from online now and how much do you think you can get in the next year, with the launch of more MySpace advertising programs and possibly the making of the Journal’s website free?

Rupert Murdoch

I don’t know. Are you talking about the Journal?

Gillian Wee - Bloomberg News

Internet revenue, MySpace plus Journal, I guess --

Peter Chernin

We don’t own the asset yet and we are not wishing to give you any kind of forward-looking guidance like that.

Gillian Wee - Bloomberg News

Okay, I was just wondering. Thanks.

Operator

Next we’ll move to the line of [inaudible] with Associated Press. Please go ahead.

Unidentified Participant

Good afternoon. A question for Rupert; on the latter end of the analyst call, you mentioned your top priority, Dow Jones being getting the Journal the way that you like it. Could you elaborate on that, please? What kind of changes do you have in mind there?

Rupert Murdoch

No, I think I ought to let my feelings be known to the staff before I make them public. I think they’re getting the message already.

Unidentified Participant

And just on the housekeeping thing, I see the vote is scheduled for the 13th. How soon after that might the deal formally close?

Rupert Murdoch

Either on the 13th or the 14th.

Unidentified Participant

Thank you.

Operator

Our next question is from the line of Stacey Kramer with Gate Continent. Please go ahead.

Stacey Kramer - Gate Continent

During the shareholders meeting, Mr. Murdoch, you mentioned the possibility of other premium online offerings, and also increasing the number of verticals that Dow Jones already offers. Could you go into that a little bit more and how that plays into your plans for the Internet outside of the U.S.?

Rupert Murdoch

We will certainly -- we’re examining those possibilities right now at Dow Jones, [whether our want] for new verticals, which would be very deep and for which we could charge, and that will be an extension partly, I guess, of the newswires operation.

But elsewhere in the world, no, we haven’t looked at it.

Stacey Kramer - Gate Continent

Thank you.

Rupert Murdoch

I mean, we have important sites in Australia, such as realestate.com, which is very profitable. We have our newspaper sites in Britain and of course also here and with all our television stations.

Stacey Kramer - Gate Continent

Thanks. They tend to get lost sometimes I think in all the attention that Fox Interactive gets, so I was wondering about that. And the idea of a hybrid model --

Rupert Murdoch

Although none of them are as big as MySpace, but they could all grow into nice, profitable entities. Foxnews.com is already making a handy, small profit.

Stacey Kramer - Gate Continent

Thanks.

Operator

Next we will go to the line of Aline van Duyn with The Financial Times. Please go ahead.

Aline van Duyn - The Financial Times

I wanted to ask whether the uncertain economic outlook in the U.S., whether that -- how important that is in your considerations and plans that you are making for the expansion of the Journal in the U.S. markets?

And the other thing I wanted to ask about is whether you have considered or under what circumstances you might consider spinning off or selling or having a publicly traded pass of MySpace or FIM?

Rupert Murdoch

We haven’t considered the latter and [inaudible], it’s still a temptation but one we want to resist, I think.

Aline van Duyn - The Financial Times

Why would you want to resist it?

Rupert Murdoch

As for -- what was the first part of the question? The economic climate, no, we’ll go full bore.

Aline van Duyn - The Financial Times

We’ll go full --?

Rupert Murdoch

We’ll go full bore ahead.

Aline van Duyn - The Financial Times

Okay. Thanks.

Operator

We’ll go to the line of George [Sivali] with The Hollywood Reporter. Please go ahead.

George Sivali - The Hollywood Reporter

Peter, did I understand you correctly that you would consider retransmission payments from your cable partners? I was trying to figure out if you can give a little more color -- how that could happen, when it could happen.

Peter Chernin

Our position hasn’t changed at all. We don’t consider; we in some ways demand to get paid fairly for the value of the retransmission consent of the number one network, and we’ve felt that way consistently for well over a decade.

And what I’ve said consistently is that we don’t care whether we get paid in the form of creating additional carriage or additional value or new cable networks, or we get paid in cash. And there’s really nothing to do -- I don’t think our next significant retrans deal comes up for the next two or three years, and we’ll figure out the best way to maximize the value of our property.

Rupert Murdoch

Doing that is very largely responsible for the huge growth in our cable networks.

Operator

There are no other questions at this time.

Rupert Murdoch

Thank you very much. Thank you.

Operator

Ladies and gentlemen, if you would like, this conference will be available for repay after 8:00 p.m. this evening until November 14th at midnight. You may access the AT&T executive playback service at any time by dialing 1-800-475-6701 and entering the access code of 889105. International participants may dial 1-320-365-3844. Those numbers once again are 1-800-475-6701, international participants dial 1-320-365-3844, and please enter the access code of 889105.

That does conclude our conference for today. Thank you for your participation and for using the AT&T executive teleconference service. You may now disconnect.

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