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News Corporation (NWS)

F3Q08 Earnings Call

May 7, 2008 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

Rich Greenfield - Pali Capital

Jessica Reif Cohen - Merrill Lynch

Doug Mitchelson - Deutsche Bank

Jolanta Masojada - Credit Suisse

Anthony DiClemente - Lehman Brothers

Alan Gould - Natexis Bleichroeder

Benjamin Swinburne - Morgan Stanley

Michael Morris - UBS

Michael Nathanson - Sanford C. Bernstein

Adam Alexander - JB Were

David Bank - RBC Capital Markets

Jason Bazinet - Citigroup

Jason Helfstein - Oppenheimer

Tuna Amobi - Standard & Poor’s

Media

Kenneth Lee - Reuters

Seth Sutell - Associated Press

Shira Ovide - The Wall Street Journal

Gillian Wee - Bloomberg News

Thomas Meyer - Newsday

Dade Hayes - Variety

George Silino - The Hollywood Reporter

Andrew Clark - The Guardian

Stacey Kramer - paidContent

Ellen Yan - Newsday

Operator

Ladies and gentlemen, thank you for standing by and welcome to the News Corp third quarter 2008 earnings release. (Operator Instructions) I would now like to turn the conference over to our first speaker, Executive Vice President Mr. Gary Ginsberg. Please go ahead.

Gary Ginsberg

Thank you very much, Operator and welcome to our third 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 Chief Financial Officer.

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, that you should all now have. Rupert will then give some detailed commentary on our latest acquisition, The Dow Jones Company, followed by an update from Peter Chernin on the progress we are making at Fox Interactive Media, and as a sign of our own progress, we’ll be posting both Rupert’s and Peter’s comments in their entirety on our News Corp website. We’ll then take your questions.

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

And with all that, I’ll turn the call over to Dave.

David F. DeVoe

Gary, thank you and good afternoon, everybody. As you’ve seen in today’s earnings release, we are continuing the strong growth trends we reported in the first half of fiscal ’08. For the third quarter of this fiscal year, revenue and operating income are up both 16%, another strong result for News Corporation.

These improvements were led by strong performance at our television, cable, and newspaper businesses and it was achieved despite absorbing approximately $53 million in incremental losses related to start-up businesses such as the Fox Business Network, the Big 10 Network, and start-up television operations in Turkey, Poland, and Serbia.

In looking at net income this quarter, there are a few items to be highlighted. This quarter’s net income and earnings per share include a tax-free gain of approximately $1.7 billion related to the Liberty transaction. Additionally, we also had a reduction in this year’s equity earnings of $146 million, and this is primarily due to a write-down by BSkyB of its ITV investment, of which our share was $101 million. And our tax rate in the quarter of 10% was significantly affected by the impact of a tax-free treatment of the gain in the previously taxed equity earnings from DIRECTV.

Taking all of these items into account, reported net income increased $1.8 billion to $2.7 billion, and earnings per share increased to $0.91 versus $0.27 last year. Excluding the net income effect of the items included in other and the ITV write-down, earnings per share was $0.30 this quarter, an increase of 15% over a similarly adjusted $0.26 at the March quarter a year ago.

I think it’s also worth noting that as part of the Liberty transaction, we reduced News Corporation’s gross shares outstanding by approximately 513 million shares, a reduction of more than 16%.

Now given that you should now have the details presented in our earnings release, I’ll provide context on the recent performance of just a few of our businesses.

Our film segment’s operating income was $261 million in the quarter, and while down from a year ago, this is another solid result. I want to remind you that the year-ago results were very strong, reflecting the DVD and theatrical successes of such blockbuster releases as Borat and Night At The Museum, and carry-over DVD sales from Devil Wears Prada and Little Miss Sunshine.

The current quarter results reflect strong theatrical success of Alvin and the Chipmunks and Juno; also continued DVD sales of The Simpsons Movie and Live Free or Die Hard. Additionally, we are set up well for the rest of the year as we anticipate good results yet to come from films released in the quarter, most notably Horton Hears a Who, which was released mid-March and has generated over $275 million in worldwide box office to date.

At our television segment, third quarter operating profit increased more than 50% from year-ago levels, with every major business within the segment delivering double-digit earnings growth. As you know, Fox aired this year’s Super Bowl, which as the most watched-show in the last 25 years contributed to our continuing ratings gains. The Fox Broadcast Network nearly doubled its operating income, from higher advertising pricing for both our entertainment and our sports programming, strong post-season NFL ratings, which were up 7% excluding the Super Bowl and up 5% for NASCAR; and lower primetime cost as a result of airing less original scripted also contributed to the result.

Our station earnings increased 12%, largely reflecting Super Bowl revenues and political increases. And My Network TV greatly reduced its quarterly loss, primarily due to lower programming costs.

Moving on to the cable networks, we also had strong growth at this segment -- a 17% improvement in operating profit to $330 million. This again, this is an especially strong result considering we incurred start-up losses of about $40 million for The Big 10 and Fox Business Channel launches.

The largest year-over-year gains were from the RSNs, reflecting affiliate rate and subscriber increases, the international channels from advertising and affiliate increases, and they were led by our Latin American and European channels, and additionally the Fox News Channel, FX, and Speed all delivered double-digit profit growth, largely driven by higher affiliate and advertising revenue growth.

The results also include the consolidation of the National Geographic Channels, which were not consolidated a year ago.

Turning now to SKY Italia, SKY Italia reported operating income of $97 million, a 7% increase over the year-ago results. SKY added 77,000 net new subscribers in the quarter. This is down from 135,000 reported for the same quarter a year ago. Much of the decline compared to a year ago’s quarter is due to the timing impact of a new free trail promotion, under which we delayed recognition of subscriber additions until the expiration of the three two-month trial period. We completed this promotion as planned at the end of March.

Over the past 12 months, we have had net subscriber additions of 342,000 resulting in 4.5 million subscribers at quarter end. Our ARPU for the quarter was approximately EUR45 and this is similar to last year. SAC excluding the free trial cost was down slightly from the level we reported in the third quarter a year ago, and SKY’s churn in the quarter was up versus the same quarter a year ago but it still remains on track to achieve an annual churn rate of around 10%.

From an operating income or profit perspective, we had a planned increase in costs this quarter, driven by the free trial promotion, the mix of movie programming, and the addition of 11 new channels. Additionally, comparative results were impacted by the expiration of a minimum guaranteed payment we received on certain mobile phone programming contracts that did not carry over to this year.

These results were all in line with our expectations and as a result it does not reduce our anticipated growth for this business for this fiscal year or beyond. In fact, since quarter end, new subscriber activity is up nearly 30% versus the same period last year, and that excludes free trial subscribers.

At our newspaper and information service segment, they also reported a strong quarter with operating income of $216 million. This is up 38% over the third quarter a year ago. This increase primarily reflects double-digit earnings growth at both the Australian and the U.K. newspaper businesses, as well as the inclusion of the Dow Jones businesses, which were acquired in mid-December.

The Dow Jones businesses contributed operating profit of $21 million in the quarter and note that this operating profit for the quarter includes incremental acquisition amortization and related charges of $23 million, which Dow Jones did not have a year ago.

Excluding these non-cash reductions, this quarter’s results compares favourably to the $37.9 million of operating profit that Dow Jones itself reported for the quarter ending March 2007.

And at our other segment, we incurred an operating loss of $7 million as compared to a loss of $104 million reported a year ago. This $97 million improvement is primarily due to the absence of last year’s World Cricket Cup losses, as well as higher contributions from Fox Interactive Media and NDS, offset in part by start-up losses related to our Eastern European TV initiatives.

At FIM, revenues in the quarter of $210 million were up 55% from the same quarter a year ago, primarily due to search and advertising revenue growth at MySpace. Of the total FIM revenue, $66 million was from our search deal with Google. Ad revenues in FIM increased by 18% versus last year, and operating for FIM in the quarter was $27 million. This is up $24 million from the same quarter a year ago as the majority of the revenue growth was reinvested back into the business for new features, products and ventures, and Peter will comment more on this in a moment.

And finally, let me address our guidance for fiscal 2008 -- three months ago we raised our expectations of operating income growth for fiscal 2008 from the low teens levels to the mid teens level. This guidance excluded any result from the Dow Jones acquisition. Based on our actual results to date and on the assumptions inherent in our projections, we are maintaining our mid teens operating income growth guidance. Note that this guidance is like to like as it continues to exclude Dow Jones results.

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

Rupert Murdoch

Thank you, Dave. Good afternoon, everyone. Once again, another very solid quarter -- 16% growth in both revenue and operating income. For the nine months fiscal year-to-date, our revenues are up 15% and operating income is up 21%. And as Dave just said, we remain very comfortable with our full year forecast of mid-teens operating income growth.

The quarter was also quite strong from a strategic sense. We finally completed our deal with Liberty Media, effectively selling our interest in DIRECTV for a tax free gain $1.7 billion. At the same time we reduced our outstanding share count by more than 16%.

Now, after closing this deal we will have repurchased $14 billion worth of News Corp stock over the past three years, by far the largest concentrated period of buying in the company’s history.

Recently, we put in a very competitively priced bid for New York Newsday that, if accepted, would enable us to greatly improve our financial performance at the New York Post. Although subsequent to our offer, additional competitor bids have emerged. As financially desirable as this asset is, we will continue to be disciplined in our pursuit. And last week, we finally divested our Gemstar stake, netting approximately $950 million in value.

This quarter also marks our first full quarter of earning Dow Jones. The more time I spend working with the company, the more opportunities I see in improving and expanding their current businesses.

Although a small acquisition relative to our market capitalization, it is potentially transformative on many levels and we’re very focused on revitalizing this great company starting now. I know this is an area of focus for you as well and I want to divert a few minutes to giving you greater perspective on why we are so excited about its future prospects.

First, a clarification -- from day one, the financial press has been fixated on portraying this move as a change in strategic direction. The company is now focused on allocating more of its capital on print businesses. That is not our intent, nor is it factually correct. We have not changed our playbook. We continue to be about seizing opportunities -- opportunities that fit strategically, leverage our core competencies, and deliver a good return for shareholders.

That’s what we had with DIRECTV; we’ve got with Dow Jones; and that is what we would get with Newsday. In the case of Dow Jones, what’s being lost in all this chatter is one crucial fact; Dow Jones is not just a fantastic global newspaper. We bought the world’s largest provider of business content and information with a collection of exciting non-print growth businesses.

In fact many of you may be surprised to learn that the biggest growth area of Dow Jones is its Enterprise Media Group, or part of its biggest growth area, I should say, which generates the overwhelming majority of the company’s profits. These products, including the branded services Dow Jones Indexes, Newswires and Factiva, are primarily sold to businesses on a long-term subscription basis and represent terrific growth opportunities as we build them out.

Just starting with the Indexes businesses, they are Dow Jones’ fastest growing products with revenues up 37% and profits up nearly 50% in the quarter ended March 31st. And Factiva, with a database of 14,000 news sources in 22 languages, grew its revenues by 10% in the quarter.

The financial services industry is expanding at breakneck speed, not only here in the U.S. but especially in rapidly developing markets. Our products, especially those applications assisting trading, wealth management, investment banking, private equity and hedge funds, are positioned perfectly to grow with this demand. In fact, the Financial Information Services group posted a 13% jump in revenue with earnings up over 8% compared with year-ago results even after increasing spending to further develop this business.

Our outlook is equally optimistic with regard to Dow Jones’ array of digital online assets. The Wall Street Journal Online counts more than a million paying online subscribers. Only three traditional U.S. newspapers count that many paying readers and one of those is the print Journal. WSJ Online has also steadily grown its subscriber base, increasing paid subscribers 11% year-over-year in 2008. The Wall Street Journal Digital Network, which includes WSJ.com, MarketWatch.com and Barrons.com, also generated significant year-over-year growth in terms of both visitors and page views.

Lastly, I’d like to point out that we also anticipate considerable growth at The Wall Street Journal. There are significant opportunities to raise advertising revenues, increase circulation volume and revenues, and reduce subscription churn in several markets around the world.

The Wall Street Journal continues to defy industry trends, growing individually paid subscriptions by 1.6% to 1,456,000 and overall circulation by 0.3% to 2,069,000, continuing a trend over the last three reporting periods that has seen individually paid subscriptions grow 12%. The Journal was one of only two newspapers in the ten largest in the country to grow its circulation -- in fact, the only one to grow its paid circulation.

More important, the Journal’s circulation revenue grew by 6.8% in the three months. And that was on top of 7.3% growth in calendar 2007. In the vital individually paid circulation category, which represents the highest-quality circulation, the Journal is up 12% over the past four ABC reporting periods.

And we're beefing up the overall journal package to appeal to a wider range of both readers and advertisers. In March, The Journal began adding new features to its news and editorial pages with four additional pages, at an annual cost of about $6 million.

The new content includes a third editorial page, a weekly sports page, expanded U.S. News and World News section and the addition of a Currents page, highlighting trends in religion, education and science.

Importantly, the Journal is not moving away from its core areas of business, finance and economics coverage. In fact, as part of the reordering of content, we've added space for corporate and business news in the Marketplace section and for international finance news in the Money + Investing section.

Finally, let me just say that we’ve got to keep all this in perspective: we’re talking only about the first full quarter of numbers under News Corporation. This is destined to be an extra-inning game, to use an overly-used metaphor; we’re only in the first innings. Those of you expecting to see immediate, dramatic results in 12 weeks are kidding yourselves and setting an unrealistic bar.

Over time, as we’ve done dozens of times at News Corp -- most recently at Sky Italia and MySpace -- we’ve made our acquisitions work, generating great returns for our shareholders. We’ll do it again at Dow Jones; it may take time but I’m as confident of it as any acquisition I’ve done.

Now I’d like to turn it over to Peter to talk a little more about some of our digital and interactive efforts.

Peter Chernin

Thank you, Rupert and good afternoon, everyone. I’d like to spend the next few minutes talking about Fox Interactive Media. Since the press began reporting a couple of weeks ago that we will fall short of our initial revenue projections for the year, there’s been a lot of speculation on the strength of the business and I think it’s worth right now to give it some perspective.

This is a very healthy business with significant progress over multiple fronts. We continue to expand our leadership in the fastest growing consumer area of the web. But let me begin by saying yes, we will fall short of what were very aggressive initial projections of 80% growth for this fiscal year.

But it’s worth pointing out that in a tough economy our shortfall will be slight -- roughly only about 10% and to put it in some context, FIM is nearly a billion dollar revenue business; a business that is not even three years old. And to give you some comparisons, it took Google five years to hit a billion dollars; it took Yahoo eight years and we’ll get there in a little over three years.

It’s also worth pointing out that FIM’s revenue growth is tied to an entirely new category of advertising inventory. Social media has only been around for a few years and gaining market acceptance for any new category will always have its challenges. But as the creators of this new media, as the leaders, we will be in the forefront of developing the tools to make it work. We’re incredibly optimistic about the future of social media and our role in shaping it.

When it comes to specific challenges we’re facing, I think that there are three areas worth noting.

First of all, the explosive growth of social media has created an enormous amount of advertising inventory. As pages on MySpace and Facebook continue to grow, the lack of scarcity creates a liquidity challenge. We’ve spent a lot of time developing prime real estate opportunities to draw the big advertisers and big CPMs -- particularly with the MySpace Homepage and features like MySpace TV. We’re focused on migrating more of these big brands and their dollars to MySpace.

Second, people who visit sites like MySpace are there for an entirely new form of Internet activity. As a consequence, the on-line ad models that have driven the Internet economy in the past need to be refined for the social media universe. New methodologies are required, which we are actively developing including our HyperTargeting initiative and optimization efforts.

Third, it’s still difficult to quantify the economic value of a friend in the social media space, particularly with advertisers who have long histories with the metrics by which they value their brand spends on TV and on radio. We’re working with these major brands and their agencies to educate, innovate and experiment in the social media and to develop the right set of metrics. We’re making headway and it remains a work in progress.

But despite the obstacles we’re facing, what we’re accomplishing is extraordinary and we think the future looks very exciting. Overall, our revenues are up across the board year to year. Branded revenue is up 21% over last year and branded sell-through is trending up for the year with a 19% increase from quarter one to quarter three. Performance revenues were up 24% year over year. And importantly, or actually I think most importantly, even as our MySpace user base continues to grow, we’re actually earning more money per user, and I think this is in some ways our most important statistic. FY08 revenue per unique is up 49% over last year. And another important statistic is if you look at it today, 54% of all social network ad dollars are going to MySpace. So as the category of social networking continues it explosive growth, we will be the prime beneficiaries.

We’re also starting to see increased momentum with our hypertargeting initiative. Hundreds of HyperTargeting campaigns have been run in the last several months with 20% or more of all orders today including some HyperTargeting. And we are seeing double the CPMs for HyperTargeting campaigns versus non-HyperTargeted. Orders with HyperTargeting are about 60% larger.

And we are attracting new advertisers like retail store TJ Max, which used HyperTargeting to reach consumers who are fashion aficionados. Or the Target chain, which used HyperTargeting to identify consumers by genre of music, or Chevrolet, which traditionally focuses only on pure content sites, but which used HyperTargeting to reach snowboarders.

We are enjoying a considerable number of repeat orders with about 75% of advertisers ordering HyperTargeting again.

We are also seeing successes in sales of key pages with sought-after branded advertisers, and attracting many high-profile brands for the first time this quarter, including such brands as Novartis, Wrigley, Virgin Mobile, Unilever and Toyota. Several have stepped up to the popular branded skin of the MySpace home page which goes for a 70% premium on the standard homepage buy.

On the branded channel side, Colgate recently launched a video contest where users produce their own MySpace video on MySpace TV. And Activision just executed its biggest spend to date with a roadblock of the Music Channel to promote its best-selling game, Guitar Hero.

Luxury brands are beginning to work with MySpace as well. Nordstrom just began sponsoring the Fashion section of the Applications Gallery and Cartier is launching a global campaign.

And I think as importantly, in terms of category growth we are seeing major jumps in several big categories, including automotive, which is up 73%, consumer electronics, which is up more than 300%, beverage, which is up 600% and education, which is up 850% year over year -- all very important categories for us.

This past quarter we reorganized our sales operation to more tightly align the product and revenue teams for each FIM brand, allowing us to create deeply integrated advertising opportunities more efficiently. And we launched a stand-alone monetization technology unit, the Fox Audience Network, so we can leverage the tools we’ve created and built to scale on a broad level to build a new line of business.

And I think one of our great developments in the past several months is we recently opened up MySpace and Photobucket to outside developers earlier this year, and more than 7,000 outside developers are working with the MySpace API, creating more than a thousand new apps in just the first two months and driving more than 2.1 million applications of outside -- you know, with outside applications and installations across the site.

Just as importantly, we are seeing explosive growth in mobile. MySpace mobile is the fastest growing WAP mobile product in the United States and the number three mobile product overall. And just this past month, we passed more than a billion page views per month on our MySpace WAP product.

In terms of the competitive landscape, we also feel very good about where we are today. Perceptions of the MySpace brand continue to outpace that of Facebook in key demographics. And despite what was a big Facebook buzz last year, MySpace is gaining audience share and is at an all time high in terms of audience reach and engagement, according to both comScore and Neilsen, more than doubling Facebook’s U.S. audience with 73 million MySpace users compared to Facebook’s 36 million. And minutes spent on MySpace in the U.S. far surpass Facebook; 242 minutes per user per month versus 167 minutes per user per month for Facebook.

In fact, over the past year, virtually every FIM property showed impressive growth. IGN and Photobucket are up 40% year to year in unique visitors worldwide. IGN remains the number one games information property and in just the past quarter, its Direct2Drive service surpassed one million games sold digitally online. Photobucket’s worldwide page views for March 2008 were 2 billion, up 85% year on year.

And FoxSports.com is up over 20% in worldwide unique visitors year on year and recently launched its mobile WAP site, and it is the number one mobile WAP site for sports information in the U.S.

We’re also rolling out a number of very important new initiatives. I think the most important one of which is the music joint venture which we just signed this month or in April with Sony, UMG and the Warner Music Group, which will expand on MySpace’s already existing strength in music to build out the most popular destination music site on the web a catalog representing probably about 80% of the music catalog available. We also established Fox TV stations as leading online local news property in its first year of operation and I think are well over 12 million uniques on our Fox Television station web properties.

MySpace TV continues its rapid ascent and is now a strong number two to YouTube in online video, so in addition to everything else, we have the number two online video site. It’s also worth mentioning in the category of premium video that hulu, our on-line video joint venture with NBC, is off to a much stronger start than expected since coming out of beta and launching live in March.

In summary, let me be very clear -- we are very pleased with the performance of the FIM division and MySpace specifically, and confident in the continued growth in profits. Without a doubt we have challenges and in some cases things are going a little slower than we expected, but we know what those challenges are and we’re addressing them and developing the solutions to meeting them. We are committed to growing this business and we continue to believe that we are making significant progress in adding new features, in monetization, in technology, in audience growth, and in market share. We believe that FIM and MySpace specifically continue to grow as one of the handful of the most important destinations on the web.

And with that, I think we’re happy to answer any questions you may have. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Rich Greenfield with Pali Capital. Please go ahead.

Rich Greenfield - Pali Capital

A couple of questions; when you think about use of capital now, you’ve talked about acquisitions in the past. I’m wondering how you think about it with your stock now down at these levels. What is the right allocation of capital with Dow Jones now behind you. Has that changed your mind then?

Just two, to the extent that you are not successful in acquiring Newsday, what do you do with the New York Post? Losing tens of millions of dollars, at least according to press speculation -- just wondering kind of what the plan would be if you don’t get it and where you go from here. Thanks.

Rupert Murdoch

The price is going up next week or the week after to $0.50. We are making several moves there which will save over $20 million this year, regardless -- I think $26 million, regardless that’s net of paper increases and everything else.

We’re very happy with our capital allocation at the moment. Dave might wish to speak about it.

David F. DeVoe

I think what you were saying was given that Dow Jones is behind us, we have no major requirements for capital at the moment. And I think what you are I guess trying to get you is what we are we doing with the buy-back. And where we’ve been with that, we’ve been extremely concerned with respect to the capital markets and all the fluctuations there and the concern as to what could happen. So what we’ve been doing is being very conservative. As you know, we are a very conservative company with respect to capital. I think what we will do is we will look at the markets over the next month or so. To the extent they stay stable as they’ve been, we will go back and relook at and revisit whether or not we can continue on with our buy-back.

Rich Greenfield - Pali Capital

And when you think about the right leverage for the company, forget about meaning the current quarter but as you look out over the next call it two to three years, where does News Corp want to be from a leverage standpoint?

David F. DeVoe

I’ve always been pretty consistent that our leverage is somewhere between -- this is on a gross debt basis -- somewhere between two and three times would be maximum leverage for the company.

Rich Greenfield - Pali Capital

Thanks so much.

Operator

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

Jessica Reif Cohen - Merrill Lynch

Thanks. I have two questions as well -- given the inevitable consolidation in the Internet sector, how do you see MySpace evolving? Do you see it as a standalone entity or as part of a bigger and more diversified company? So you would own a smaller piece of a bigger company?

And separately, several networks in recent days have been very bullish on the up-front. Besides high scatter CPMs, which seem to be due to lack of GRPs, what signs would make you positive -- I mean, do you agree with what other companies have said? And if you could in your comments just separate broadcast television from cable networks. Thanks.

Peter Chernin

On the first side, Jessica, I think we feel great about MySpace as a standalone entity. I think if you look at almost any measurement, social networking has been growing faster than any other category on the web and we have, as I said, 52% market share of all money inside that category. So we feel great about our efforts, we’re continuing to expand our efforts. At the same time, we’re willing to have strategic conversations if we thought they made sense.

But I don’t think anyone should assume that we have any concerns about our positioning. I think any time you have the dominant market share in the fastest growing part of the web, you ought to feel pretty good about your position. So I think that’s our position there.

I think in terms of the up-front, I sort of -- probably every single earnings call I’ve ever been on in my life in May, the networks talk about how huge the up-front is going to be and the advertisers talk about that it’s going to be a very tough up-front and instinctively, I think it’s all positioning on both sides.

I do think we have had the strongest scatter market of any network, so whatever the up-front is going to be, and I’m obviously bullish about it, I think we are as well-positioned if not better positioned than anybody. And we continue to see strong scatter on both the network front and the cable front right now. You know, we’re coming off of strong ratings and a very strong competitive positioning in both.

Rupert Murdoch

I’ll just add to that, that we are coming off a year in which I think we’ve led the other networks in audience by a bigger margin than ever in history, or certainly for many, many years.

Operator

And our next question comes from the line of Doug Mitchelson with Deutsche Bank. Please go ahead.

Doug Mitchelson - Deutsche Bank

Thanks very much. I wanted to switch over to the film business for Peter, just how you feel about the progress for Blu-Ray and how much do you think it might contribute to the back half of the calendar year. And then just any comments that you might have on day-and-date. You’ve had some reservations in the past as you’ve gone through the test and others are moving forward, and what kind of financial contribution if any do you think day-and-date might bring to the film line? Thanks.

Peter Chernin

Well I think -- look, we are bullish on Blu-Ray. We are very pleased to see the industry has finally gotten to one format. I think the biggest issue with Blu-Ray right now is there is a tremendous capacity -- there is a tremendous constraint of players available at retail. I think they sold out virtually every player that was there over Christmas and in January and they are right now in a big, big manufacturing push. And so it’s pretty hard to find much more than one or two Blu-Ray players in a store right now. That should change dramatically in June, over the summer, and particularly going into the fourth quarter when I think you will see a lot more players available and you will see the price of those players begin to come down.

And as you see the players come out, I think you will begin to see much expanded orders of Blu-Ray. I think the two things that are important to us on the Blu-Ray side are both number of orders of discs, obviously, but also maintaining a higher price margin, which we’ve been able to do right now. We think these discs are more valuable. So far all of our competitors have held to a higher price, which -- and so I think if we can have a higher price margin and begin to see the players, we think this can be a big contributor.

I think we have said that we would hope that Blu-Ray represents about $1 billion at retail home video this year and I see no reason to change that right now.

In terms of day-and-date on video-on-demand, you know, we have participated in tests and we will going forward release some titles day-and-date, whereas others we will do a holdback. And I think what we particularly continue to monitor very, very closely is will day-and-date video-on-demand cannibalize our traditional video-on-demand -- or cannibalize our traditional DVD business. And we are going to keep monitoring that closely. We are going to keep experimenting. And at least from a Fox perspective, we think it’s too soon to declare overall that we are doing to move every single one of our releases to day-and-date, although we’ll continue to experiment.

And right now from a financial point of view, I would expect -- look, video-on-demand has been a rapidly growing category. I would expect it to continue to rapidly grow, as ultimately it makes the availability of our product more ubiquitous, but I wouldn’t expect it to be overwhelmingly additive.

Doug Mitchelson - Deutsche Bank

Got it. Thank you.

Operator

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

Jolanta Masojada - Credit Suisse

Thanks very much. I wondered if Rupert could give us a big picture view on how he is seeing the economy and advertising environments in all the different locations that you operate in, and what’s your feel for how those two factors, the economy and advertising, is going to progress over the course of the calendar year.

Rupert Murdoch

I think you’ve got to look at the U.S. economy first. There is no doubt that the consumer economy is stressed and you are seeing that reflected in advertising, more short-term planning, short-term bookings. As far as we’re concerned, we’re increasing our share of market in our stations and everywhere, even though there were some declines in total business.

In Australia, it’s just booming. I mean, it’s going up all the time and in Britain, I would say it’s steady, and in Europe. Whether that will follow the American pattern fairly soon or not, I don’t know. Certainly -- I’m told that business is slowing down on the Continent. Our business in certainly in the U.K. is in a very healthy condition.

I can only talk about what I see myself from week to week and month to month. I’m not an economist. I can’t predict what it will be like this time next year.

Jolanta Masojada - Credit Suisse

Thanks very much.

Operator

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

Anthony DiClemente - Lehman Brothers

Thanks. A couple of questions for Dave; with the favourable impact from foreign exchange on the business in the quarter, I was wondering if there was a way you could help us quantify the benefit of both the revenue and operating income in the quarter. And then at the cable networks, I mean, your results are so strong again at the cable networks. Just wondering if you look apples-to-apples at advertising growth, stripping out of course the new networks and then the benefit of consolidating Nat Geo, what was the year-over-year advertising growth in the quarter? And then, if you could give us any color around whether you are seeing any deceleration or any impact from the economy there at the cable networks advertising. Thanks.

David F. DeVoe

The ad growth in the quarter was approximately 26% at the cable networks. You asked so many questions. I hate to say this, but would you mind going back to the first one?

Anthony DiClemente - Lehman Brothers

I was just looking for the benefit from foreign exchange in the quarter?

David F. DeVoe

It’s around -- I think the benefit on the operating income line is around $35 million to earnings, and the revenue number I don’t have but I will get Reed to get it for you. Around $200 million? Approximately $200 million on the revenue side.

Anthony DiClemente - Lehman Brothers

Okay, thanks. And then on the cable network advertising, just trying to get a sense for the ongoing trends there. I mean, maybe your growth is -- your growth there is obscuring any of the underlying trends but maybe if you could just give us a little bit at the core, fully distributed networks, are you seeing any deceleration, acceleration? Thanks.

Peter Chernin

I don’t think we’re -- I think that we are seeing continued strength. You know, we’re seeing a few cancellations here and there but then they will come back a week later. And I think I would in some ways echo Rupert’s comments, which is what we are seeing more is a little bit more short-term volatility in a world in which overall there is still quite a bit of strength. So a little bit more volatile than it was three months ago but overall, we are seeing great strength and continued growth across our fully distributed networks.

Anthony DiClemente - Lehman Brothers

Okay, thanks.

Operator

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

Alan Gould - Natexis Bleichroeder

Thank you. I’ve got a question on a few of the transactions that you’ve discussed in the past. The U.K. land sale, is that going to occur this year? And if you can update us on the Russian outdoor and the U.S. TV stations -- is that on hold now that the private equity market is not there?

David F. DeVoe

I’m reluctant to give you this news on the land sale because we’ve been negotiating for two years, but I do think it is going to close before the end of June. That’s what I know today but I’m not going to give you any guarantees. I do think it is going to close before the end of June.

On the TV station sale, we are on -- we are going through the regulatory process. All I can say is we talked to the buyers and they are committed to the buyers. We’ve talked to the lenders, they’re committed. So I think it’s going along reasonably well and with the approval process taking place hopefully sometime in the first quarter of our next fiscal year, and with regard to the Russian outdoor business, really it’s a slow process and we are continuing to work on it.

Alan Gould - Natexis Bleichroeder

Thank you.

Operator

And our next question comes from the line of Benjamin Swinburne with Morgan Stanley. Please go ahead.

Benjamin Swinburne - Morgan Stanley

Thanks. Rupert, if I could ask two questions, one about Premiere and the German TV market and your thoughts on whether that market is becoming more attractive for News Corp. It’s been a challenging pay TV market in the past, and if there’s any sort of maybe synergies between Premiere and SKY Italia.

And then, over here in the U.S., are there -- if you look three to five years from now, do you think News Corp will still have a material local TV station business? I’m just curious how much value that still provides to the network. I realize it is a profitable business but just curious -- do you think that strategically still is a value asset for you guys?

Rupert Murdoch

On the latter part of that question, I think that the TV stations, it depends on how well they run. We are investing -- I’ll caution up a little bit but we are expanding enormously the amount of local news we do to distinguish our stations from the cable programming that’s their alternative. I think it is certainly essential or a huge help to our network.

As for Premiere, we are going up to -- well, we’re buying in the market but there’s a limit a very little bit above where we are now before we go through a new regulated -- but we would like to stop actually and be on that board and have a look at that business from inside. It’s been through a lot of ups and downs and it’s just a fantastic market.

Our people in Italy are extremely keen on our people in SKY, they think it’s a great business. All our experts -- and you know, think it’s a big opportunity but we’re just being a little cautious. We’d like to get inside that company for a few months before doing anything further.

Benjamin Swinburne - Morgan Stanley

Thank you.

Peter Chernin

Could I just add a comment on the station business, which is I think it’s important not to look at any one of those sectors in isolation, and I think we look at those stations, which I think are extremely well run and have gained significant market share in this quarter, which I think is a pretty good indication, but we look at them as part of an integrated television business and I think they have a positive impact on the network, they have a positive impact on our ability to grow 20th Century Fox Television, both as promotional platform for the shows and then ultimately as a buyer for some of those shows in syndication. They have a very positive impact on our interactions with the cable companies and our ability to get retransmission consent, either in the form of cash or in the form of additional cable carriage. They are meaningful for us in our local sports businesses.

So I think you have to be wary of pulling out any of these things in isolation and I think looked at in the context of our global television business, or certainly our U.S. macro television business, you can see the overall growth in that television sector. And I think the stations are a big contributing factor in that.

Benjamin Swinburne - Morgan Stanley

That’s helpful. Thank you.

Operator

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

Michael Morris - UBS

Thank you. Regarding SKY Italia, can you talk about the rationale for the promotion in the quarter, relative to your view of subscriber growth and opportunity in the Italian market? Should we view this as indicative of a more challenging environment despite the relatively low multi-channel penetration? And then also, assuming that you brought on more new customers than you actually booked during the promotion period, can you tell us how net new customers in the quarter compares to the roughly 136,000 net adds that you had in the quarter last year? Thank you.

Rupert Murdoch

It was just a new promotion and a new form of promotion which we are testing. We now have to -- it’s over now but we have to stay with it and see how the new people that we have, are they going to stay with us, are they going to churn, how will they compare with people we’ve -- you know, subscribers we’ve acquired in other ways. And if it’s as good as we hope, we will certainly be doing a lot more of it. If not, we’ll move on to other promotions.

Michael Morris - UBS

So it’s not -- I guess your outlook for growth in the Italian market, I mean that’s 20% to 25% penetrated -- you still see plenty of opportunity there, that’s not indicative of that? Maybe you can just give a little commentary about that opportunity?

Rupert Murdoch

Yeah, I think we are absolutely going to continue to grow. You know, you’ve got a strange market there where you’ve got three so-so government channels and three owned by the Prime Minister and I think offering these alternatives, particularly with our news channel and everything, very important and very popular. We hear nothing but good comment and see more growth ahead of us.

Michael Morris - UBS

Okay, and then --

Rupert Murdoch

I mean, there’s no reason why we can’t get to BSkyB levels.

David F. DeVoe

And if you look at the third quarter, there was one other factor affecting the net subscribers in the quarter. You may remember this law was passed in Italy about a year ago that allowed our subscribers to cancel their contract, which is -- there was about roughly 20,000 subscribers under that law. But if you look at where we are currently, as I said in my opening remarks, we are up 29% in new subscriber additions as we start the last quarter of the year. So the business is not slowing at all and we are on target for a long-term matrix and profit.

Rupert Murdoch

That is correct.

Michael Morris - UBS

Great. Thank you very much.

Operator

And our next question comes from the line of Michael Nathanson with Sanford Bernstein. Please go ahead.

Michael Nathanson - Sanford C. Bernstein

Thanks. I have a housekeeping one for Dave and then one for Peter. Dave, when you gave your adjusted EPS number of $0.30 for the quarter, what tax rate are you using and what should be the tax rate going forward for News, given all the moves?

Rupert Murdoch

Too high.

David F. DeVoe

Too high, yeah -- 37%.

Michael Nathanson - Sanford C. Bernstein

Thirty-seven percent? Okay and then for Peter, we’ve seen the deceleration in display at FIM this quarter and I wondered how much of the slowdown in display is maybe due to the broader market trends. Are you seeing anything on the market side, either on volume or pricing that could have driven possibly the slowdown?

Peter Chernin

Look, I think it’s hard to tell. I think that -- I think as I said in my comments, we look at this as a work in progress and we look at a lot of progress we are making across multiple fronts.

I think the single biggest challenge which we are constantly grappling with is just a huge amount of inventory. And as you see us growing our business, this category has grown so rapidly between our own growth, which is sort of accelerating in terms of minutes and page views and users, and Facebook’s growth, that it puts pressure on our ability to raise CPMs because of scarcity value.

But we continue to believe that we are making progress and we think the overall trends are quite positive. Maybe a little bit slower than we anticipated at the beginning of the year but overall, we see no reason to change our optimism about the business.

Operator

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

Adam Alexander - JB Were

Just one for Peter on FIM; given the costs of international expansion and your new applications and developing the new ad models. What do you see as a sustainable operating income margins for FIM over the next couple of years?

Peter Chernin

Well, I think it’s too early to say. I think one of the decisions we clearly made this year was not to take our foot off the accelerator in terms of growth. And so I think you’ve seen us continue to invest in international, where we’ve had remarkable growth across, I don’t know, I think we are in 20, 30 territories and all of them somewhere -- I think the oldest of them is only a year-and-a-half old and we are still growing our uniques and still growing our monetization. And you know, we’ve made a conscious decision not to slow that down in terms of short-term improving our margins.

The same thing is true here in the U.S. We are continuing to invest in technology. We are going to invest in that MySpace music joint venture, which we think has a lot of opportunity. We invested in apps. We’re investing in new development tools for users. We’re investing in new homepage, et cetera, et cetera.

So I think we could have clearly escalated our margin this year but we made a decision to continue to invest and we believe that’s the right strategy. We are seeing continued growth and it’s too soon to start milking this thing for margin right now. I think it’s much more important that we keep focused on growth, both internationally and in terms of tools and applications for users here in the U.S.

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, a couple of questions. The first is if we go back historically to previous quarters, in 2Q08 your Fox News OI grew about 47%; in 1Q08 it more than doubled; 4Q07, it was up 41%; 3Q07, up 49% -- basically have to go back to 1Q07 to find sort of flattish numbers or anything below double-digits. So can you put that in the context of this quarter where Fox News grew OI 11%? Is there something going on? Is it inherent lumpiness? And can you also comment, just to clarify in terms of your new FIM target, it sounds like you are around the $900 million mark, but on the EBITDA side, were you -- is it 10% of the original range of -- or EBIT, rather, 10% of that original EBIT range?

And I guess the last question is you guys have talked about pacings at the local stations over the past couple of months, I think publicly. Can you talk about have the pacings accelerated or decelerated since the last time you’ve talked about it publicly?

David F. DeVoe

On the Fox News, there’s no slowing, really. What we’ve got is increase in our cost in the current quarter for the election, for politicals. And you’ve got a little bit of -- when you look at the comparisons, we started a year ago the new affiliate rates and so you’ve got a little bit of that year over year, where the pace of our affiliate -- the growth rate on our affiliate revenue is slowing because we had some of it a year ago.

Peter Chernin

Let me state that slightly --

Rupert Murdoch

Well, the contracts are kicking in at different times.

Peter Chernin

That’s exactly right. The only lumpiness in growth in Fox News is that our first big affiliate contracts had kicked in this time last year and our next big new one is this summer when our Time Warner contract kicks in and then --

David Bank - RBC Capital Markets

I see, so that could kind of reignite the OI growth?

Peter Chernin

We have Comcast at the end of the year. I think we have Charter and Cox in ’09 and ‘010. So the only lumpiness you will see in Fox News growth from an affiliate point of view is when the old contracts expire and that’s the only thing going on there. Overall, there’s continued growth.

In terms of FIM, we’re not breaking out the specific numbers but as I said, our revenues were -- we will miss that original target by about 10%, and probably slow down a little bit on the EBITDA side but not because of lack of revenue; more just because we don’t want to take our foot off the growth accelerator, and so I think if we stopped investing in growth, we could move our margins back up to the previous levels. But right now, we are really focused on continuing to grow our revenues. We’d expect to be well over $1 billion next year and that’s our primary focus right now.

The third question, which was on station pacings, while we are -- while we have not been breaking out monthly pacings, we are seeing a little bit of a slowdown in station pacings in the fourth quarter. Again, we continue to grow market share so clearly we have no doubt our stations are outperforming the market. But I think if you look at the overall advertising economy, which we talked earlier, still remains pretty strong on a national broadcast and a national cable level. It is a little bit slower on the local station side, particularly [in certain] geographic areas.

David Bank - RBC Capital Markets

But as you look, as you sort of look week to week over the past couple of months, do you find that the pacings have been decelerating or about the same, down the same stable? Or have the pacing declines accelerated?

Peter Chernin

What I would say is they decelerated a little bit at the beginning of the fourth quarter and we are actually seeing them pick up a little bit at the end of the fourth quarter and into the first fiscal quarter next year. So there is a fair amount of volatility in there and I wouldn’t say there’s any overall trends other than fourth quarter a little bit slower than the third quarter and picking up a little bit towards the end of the fourth quarter and the beginning of the first fiscal quarter.

David Bank - RBC Capital Markets

Thanks so much for taking all the questions.

Operator

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

Jason Bazinet - Citigroup

Two quick questions; on SKY Italia, you hinted at the numbers but I was wondering if you could just give us hard numbers for the churn and the SAC in the quarter.

And then a slightly longer term question -- when you think about the Netflixes and Blockbusters of the world, it seems like their role in the theatrical business is getting smaller. I was wondering if you look out three to five years if you see a point where, with some combination of VOD or hulu or something else where the economics may be superior for you to pursue some other mode of distribution. Thanks.

David F. DeVoe

I think the SAC for SKY Italia was about EUR240, which is pretty much -- this is Euros now -- in line with where we were, and I think the actual churn in the quarter, we had 185,000 gross subscribers, so 108,000 churned out.

Jason Bazinet - Citigroup

Okay. Thank you.

Peter Chernin

In terms of movie distribution and changing vehicles, I guess the only general comment I would make relative to Blockbuster and Netflix is that we like the sell-through business much more than we like the rental business. We don’t have anything against it but in terms of margins for the studios, the sell-through business, whether that sell-through business is on electronic sell-through or DVD, is a higher margin business for us than the rental business, whether that rental business is on Blockbuster or on video-on-demand.

So I think what you will look for us to do is consistently try and open new avenues of sell-through. I think the deal that we recently signed with Apple to put our movie titles on electronic sell-through I think was a significant deal for us. We worked a long time to get those economics right and we felt that those economics are right. We have other electronic sell-through, things that we have with Amazon, with various other web players and we will continue to look at those.

We’ll certainly continue to play in the rental business, whether that’s physical goods rental or video-on-demand rental. But I think the big thing that studios should be focused on or that we are focused on is really margin -- much more margin than anything else and we have consistently over a 10-year period seen that there are much higher margins for us in the sell-through business than there have been in -- regardless of what delivery device you use, than there are in the rental business.

Jason Bazinet - Citigroup

Okay. Thank you very much.

Operator

And our next question comes from the line of Jason Helfstein from Oppenheimer. Please go ahead.

Jason Helfstein - Oppenheimer

Thanks. I’ll keep it to just one question, but it might be a little long-winded; so this has to do with the company newspaper strategy and in particular your interest in Newsday, given what you talked about in your prepared remarks, so I think we all obviously understand that the goal was to consolidate, or the goal is to consolidate the back office of the Post with the back office of Newsday to increase profitability of the Post. However, it would seem an expensive way to improve profitability of the Post and moreover, since neither appears to fit into your longer term content strategy, wouldn’t it be a more prudent move to divest the Post? And keep in mind this is coming from an avid Post read. Thanks.

Rupert Murdoch

No. If we succeed with this bid, which we are still very hopeful of doing, it will improve our cash flow by $100 million a year.

Jason Helfstein - Oppenheimer

But wouldn’t it be dilutive to like --

Rupert Murdoch

No, that’s not dilutive.

Jason Helfstein - Oppenheimer

No, to the long-term growth rate of the company. I mean, those assets do grow slower than your core growth rate.

Rupert Murdoch

We don’t think so. We think that this is a great market and this will give us a very powerful position in that from which to grow.

Jason Helfstein - Oppenheimer

Thank you.

Gary Ginsberg

Operator, before we take the last call, let me just say that this is the last earnings call that Craig [Fallantine] will be with News Corp as a VP and I know that many of you have worked with Craig very closely and will join me in wishing him the best as he goes on to his big new job at Discovery.

And with that, let’s take our last question.

Rupert Murdoch

He just can’t stand working for Gary any longer.

Peter Chernin

Maybe we should let Craig take the last question.

Operator

And that will come from the line of Tuna Amobi from Standard & Poor’s.

Tuna Amobi - Standard & Poor’s

I guess the first question is for Rupert -- where do you see the mix of Dow Jones online revenues growing? I think you are probably at a 40% range today, so how do you see that shaking out in the next couple of years?

And the other question perhaps for Peter -- I think given that Fox News has been traditionally benchmarked to CNN, which has significantly gained on ratings recently, do you think that is something that might affect your upside with the affiliate renewal conversations that you are having now?

Rupert Murdoch

I did say our online revenues at Dow Jones, I mean, this is what it’s about, is electronic delivery of information, I expect that we will at least double our revenues and do a lot more than that to our profit margins online.

I would just add one more thing to that, that the actually subscription rate for the print Journal is a lot less than half that of The New York Times, and we intend to put that right between that and online rates and online expansion, we can see improvements in revenues of hundreds of millions of dollars. This is a business which has been under managed or not managed for decades.

Tuna Amobi - Standard & Poor’s

So let me just make sure I get that correct; when you say double the revenues, you expect that as a proportion of Dow Jones’ total revenues, that online revenues would approach what percent?

Rupert Murdoch

Online revenues will be a lot more than 50% -- probably 60%, 70% of total revenues.

Tuna Amobi - Standard & Poor’s

Normalized, right? Okay, great.

Peter Chernin

As for Fox News, despite some very clever advertising by CNN, Fox News continues its dominance. We have had our ratings increase over the prior year. I think we are up 9% in total day, up 10% in Primetime. I believe we are still probably double their ratings. That’s not an exact -- we can get you the exact number but I think it’s --

Rupert Murdoch

Monday to Friday, we are at least double. Weekend, they get closer to us.

Peter Chernin

And I think if you look at, probably most importantly, if you look at all cable networks overall, we are the number four rated cable network in primetime, CNN is number 13, MSN is number 27. So despite some clever advertising, we remain still the dominant news source. We would expect that to grow as we go into the general election and we don’t see any impact whatsoever. I think if anything, it’s pretty hard for me to imagine any affiliate, any cable operator saying we don’t want the number four cable network, and we have certainly seen any indications.

Rupert Murdoch

It couldn’t be doing better, even Mr. Wolfson, Mrs. Clinton’s manager, has said that our fair and balanced position has made it definitely number one. And they only watch Fox News.

Tuna Amobi - Standard & Poor’s

Okay. I’m not going to argue that. Thank you.

Gary Ginsberg

And on that note, why don’t we go to the press part of the call, please?

Operator

The first question from the press will come from Kenneth Lee from Reuters. Please go ahead.

Kenneth Lee - Reuters

There’s been reports that talks with Yahoo! have cooled and Peter, you mentioned that News Corp is quite comfortable with MySpace as a standalone entity. So can we read that there are no more discussions with Yahoo!?

Peter Chernin

I think saying talks have cooled probably overstates them. We have regular conversations with everyone in the space. I’m not sure I would ever characterize them as talks and the important thing is to reiterate what I said, which is we will always look at strategic options but we feel very comfortable with our current positioning in [one area] of the web.

Kenneth Lee - Reuters

Have there been any discussions with Microsoft at this point, since they’ve disengaged from the Yahoo! talks?

Peter Chernin

No, I guess I’d say the same thing -- we’re not in discussions with Microsoft. We talk with everybody in the space but there are no discussions with Microsoft.

Kenneth Lee - Reuters

Okay. Thank you.

Operator

We’ll go to the line of Seth Sutell from Associated Press. Please go ahead.

Seth Sutell - Associated Press

Just a follow-up or two on The New York Post; could you confirm what’s the current loss rate at the paper, and is there any anti-trust issue pending in terms of owning the post as well as Newsday and the Journal, or is the main regulatory issue on the FCC side with TV station renewals?

Rupert Murdoch

There is no issue anywhere. We don’t have any overlap, or at least it’s less than 7% with Newsday and we are certainly not going to disclose our loss -- current financial performance on -- and haven’t done in the past and won’t in the future. What was the other part of that?

Seth Sutell - Associated Press

It was the anti-trust question, if there was any --

Rupert Murdoch

The anti-trust question -- no, there’s no possibility of anti-trust with Newsday. As far as the FCC, that’s something which will be handled when our licenses come up for renewal on TV and we are very confident that we will get through that, even if we have to go to court.

Seth Sutell - Associated Press

One more follow-up, if you don’t mind; some consumer groups have come out with concerns about consolidation of media ownership in the New York market, and I saw that there was a -- and congress has also, some members that have been vocal about media consolidation. Is there any response you have to those sentiments?

Rupert Murdoch

Yes, I’d like them to take a little look around the Internet.

Seth Sutell - Associated Press

Okay. Thanks.

Operator

We’ll go to the line of Shira Ovide with The Wall Street Journal.

Shira Ovide - The Wall Street Journal

Thanks. Let me just ask the question in a little bit of a different way -- what is your level of interest in deals with Microsoft or Yahoo! or with AOL, for that matter?

Peter Chernin

I don’t think we have any level of interest. I think that we would respond accordingly to any propositions that we though did or didn’t make sense to us. But we are not sitting around saying this is of interest to us or not of interest to us. We are prepared to have any strategic conversation that we think does or doesn’t make sense.

Shira Ovide - The Wall Street Journal

And does that mean that as with Microsoft, there’s no discussions ongoing with Yahoo! or AOL?

Peter Chernin

I have not had a conversation with Yahoo! or AOL in a couple of weeks.

Rupert Murdoch

Nor have I.

Peter Chernin

So no, I would say there are no ongoing discussions.

Operator

We’ll go to the line of Gillian Wee from Bloomberg. Please go ahead.

Gillian Wee - Bloomberg News

I just want to pick on that a little more -- what are your thoughts on the consolidation of the Internet companies? Do you think Microsoft will need to buy Yahoo! to compete with Google? And also on the SAG front, the American Federation of Radio and Television Artists rejected a SAG request to postpone talks a third time. Are you going to seek a quick agreement with AFTRA to pressure SAG into compromising on the DVD residuals and pay-per Internet work?

Peter Chernin

I have no comment on whether Microsoft needs Yahoo!. I think you should [ask Microsoft]. You know, it’s interesting and fun as a bystander, but whether it’s necessary for them, I think that’s their question, not mine.

As for SAG or AFTRA, we’re not going to seek a quick deal with anyone. We are always -- we have been very consistent in our positioning, which is that we are anxious and eager to find fair deals that serve the industry as a whole well, that appropriately and [inaudible] reward talent for the work they do and yet at the same time allow companies to stay economically viable in the current environment and more importantly to participate in new media and to participate in potential growth areas without constraints that would otherwise restrict us. And that was certainly our strategy with the writers and our strategy with the directors. It is our strategy with the one deal we made with AFTRA. It was certainly the strategy we had when we went into negotiations with SAG and unfortunately, we weren’t able to successfully complete those negotiations this week, and it’s the same strategy we will go into the after negotiations with today and tomorrow.

But we are not seeking anything quick. What we are seeking is fair deals for everybody, ones that treat talent fairly but also allow there to be a healthy industry in which everyone, both talent and companies, can continue to prosper.

Gillian Wee - Bloomberg News

Okay. Could you talk about the future for the Internet consolidations? What are you looking at?

Peter Chernin

I don’t -- you know --

Gary Ginsberg

I think you already answered that question, Peter.

Peter Chernin

I don’t know what I’m looking -- I think we’ll see what happens.

Gary Ginsberg

Next question, Operator.

Operator

We’ll go to the line of Thomas Meyer from Newsday. Please go ahead.

Thomas Meyer - Newsday

Yes, regarding Newsday, why did you decline to increase your bid for Newsday after Cablevision put up a higher cash offer? Do you consider your current $580 million offer to be part of a binding agreement with Tribune’s Sam Zell? And do you see any possibility of raising your bid if Cablevision looks like it will prevail?

Rupert Murdoch

No, I don’t think Cablevision will prevail. Just be patient for a couple of days, will you? We are certainly not in the business of getting into an auction here.

Operator

We’ll go to the line of Dade Hayes from Variety. Please go ahead.

Dade Hayes - Variety

Since we’ve talked a lot about newspapers on this call, I thought it was worth just getting your latest sentiment about reports linking the company to The New York Times potentially. I know you are obviously focused on other things right now but any thought on that?

Rupert Murdoch

Yeah, I’ve never read such nonsense in my life. I mean, it’s obviously illegal and we don’t have any ambitions there.

Dade Hayes - Variety

And actually can I follow-up real quick on the SAG front? Just operationally, I was wondering about operating in this potential strike environment, because you spoke more about the negotiations as opposed to the financial impacts.

Peter Chernin

Well look, I think it’s a shame that we weren’t able to come to an earlier agreement with SAG and I think the unfortunate ramifications are that it’s difficult for anybody to start a movie at this point. You won’t see any movies start now because they might be potentially interrupted by a strike. And I think in an industry that has already weathered an extremely devastating striker earlier this year, you know, the onset of what is essentially a de factor actors’ strike is I think a really bad thing for an industry. And certainly we have endeavored to try and get and keep the talent back to work and we would love to make fair deals for everybody concerned as soon as possible, so that we don’t have this de facto slowdown which we are already in the midst of on the movie side.

Dade Hayes - Variety

Great. Thank you.

Operator

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

George Silino - The Hollywood Reporter

Peter, I was wondering if you can explain a little bit more what kind of films, what types of movies we could see out on day-and-date from you guys, day-and-date VOD. You said you would be very selective there. Any kind of color on what kind of movies could work for you guys on that front?

Peter Chernin

No, not really. I think we are going to experiment and we will try different genres and different categories and see the results and see what impact it has on DVD sales. But I don’t have any sort of specific template on what will or won’t be day-and-date.

George Silino - The Hollywood Reporter

Thank you.

Operator

We’ll go to the line of Andrew Clark from The Guardian. Please go ahead.

Andrew Clark - The Guardian

Rupert, I just wondered if you could give us your reaction to the independent committee at Dow Jones or at the Wall Street Journal which claimed that the letter and spirit of the independent’s deal had been breached over the resignation of Marcus Brauchli.

Rupert Murdoch

Well, naturally we don’t agree with them at all. We stuck absolutely to that and it was up to Marcus to go to the committee and he chose not to, if he wanted object in any way. And he is staying with the company. He’ll have an office in here. We’re looking forward to making great use of his counsel.

Andrew Clark - The Guardian

Thanks.

Rupert Murdoch

I’ll just say this -- we are very actively engaged in a search both inside the company and outside the company for a successor and to be able to move forward as quickly as we can. And we are naturally keeping this committee fully informed as we go along.

Andrew Clark - The Guardian

Okay. Thank you very much.

Operator

We’ll go to the line of Stacey Kramer from paidContent. Please go ahead.

Stacey Kramer - paidContent

Just wondering at this point, what’s the value of keeping Fox Interactive Media and MySpace together? Why not just have MySpace and do something else with Fox Interactive Media or dissolve it? Why does MySpace need to be part of it, other than to make all of its money? I mean, I didn’t mean that to sound flip, but --

Peter Chernin

I don’t think it’s -- I’m not quite sure the nature of the question but ultimately, if you look at certainly what we just did in the advertising side, we keep trying to have these things run as efficiently as possible. Fox Interactive Media is largely just a corporate construct o organize some of our holdings and to help us manage them, but MySpace is run independently. It now sells its ads independently, builds its features independently. And you know, we organize our businesses in what we hope and trust is the most efficient way possible.

Stacey Kramer - paidContent

So Fox Interactive -- I mean, having MySpace’s numbers really -- looking at Fox Interactive Media’s numbers, we’re really looking primarily at MySpace’s revenue, correct?

Peter Chernin

Well, I think MySpace we’ve said repeatedly is clearly the dominant revenue generator but there are important other businesses inside of there, whether it’s IGN, which is growing nicely, Fox Sports, which is a leader I sports, Photobucket, et cetera.

I think that -- look, we’re trying to organize and run our business efficiently and we certainly don’t think that there are any negatives to MySpace to be organized inside of this larger thing and some benefits in terms of joint buying of technology, joint buying of spectrum investments, et cetera, you know, utilizing of some corporate staff and function. So we think it’s organized well and we will consistently keep an eye on it.

Stacey Kramer - paidContent

And the last thing on that, the decentralization of the ad sales, is that going to put you further behind for a little bit in achieving your goals, does it hold things back?

Peter Chernin

We think actually it will accelerate us because I think one of the things it allows us to do is to more closely align the building of features with monetization of those features, and I think particularly as we learn more about how social networking works and we learn more about building new applications, building new features, building things like MySpace TV or the music joint venture or new iterations of the home page, it allows those people who are in product development to be essentially next door to the people who are responsible for monetizing those developments. And essentially what we were looking to do was cut out a layer in between.

And so not only do we think it will slow us down, we think it will actually accelerate our ability to do that.

Stacey Kramer - paidContent

Thanks.

Operator

We have one further question. That is from Ellen Yan from Newsday. Please go ahead.

Ellen Yan - Newsday

I’m going to tell Sam Zell that you answered reporter questions and he didn’t, so thank you.

Peter Chernin

I’m sure he’ll be pleased to hear that.

Ellen Yan - Newsday

What’s your strategic vision for a combined New York Post/Newsday operation, and also for future ventures with Tribune?

Rupert Murdoch

We, on both scores, we see the Newsday continuing to be a very important local newspaper covering two of the greatest counties in America, and wealthiest counties in America. And the Post covering basically the City of New York and being a paper with a very different character. We are not putting them into the one newspaper, but there are great savings in printing and distribution and of course, normal back office functions. There’s a lot we can do together and we will pursue that and see. We’re very optimistic for both papers.

Ellen Yan - Newsday

When do you think that this deal might be wrapped up? Because you told Steve Levy a couple of weeks ago that it would be two weeks.

Rupert Murdoch

No, that was only one-and-a-half weeks ago. We’re hoping to wrap it up within the next week, and I don’t mean the end of next week. I mean within the next seven days, but it takes two to agree but we are at a pretty advanced stage. I’ll just leave it at that at the moment.

Ellen Yan - Newsday

Well, I was also curious about -- I guess part of that led to your decision to stand firm on the Newsday bid then? Because you know, maybe Zell is close to making a decision and it might be you, Rupert?

Rupert Murdoch

I trust Mr. Zell absolutely. He’s famous as being a man of his word and we think everything is in hand.

Ellen Yan - Newsday

Thank you.

Gary Ginsberg

Thank you. Operator, I think that concludes the call for today. Thank you very much for joining us everybody.

Operator

Ladies and gentlemen, today’s conference will be available for replay beginning at 7:30 p.m. Eastern Time today and running through Saturday the 17th at midnight. You can access the AT&T replay service by dialing 1-800-475-6701, international participants can dial 320-365-3844, entering the access code of 918409. Again, those numbers are 1-800-475-6701, international 320-365-3844, and the access code of 918409. That does conclude our conference for today. Thank you for your participation and for using AT&T’s executive teleconference service. You may now disconnect.

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