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Executives

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

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

Peter Chernin - President, Chief Operating Officer and Director

Rupert Murdoch - Chairman of the Board and Chief Executive Officer

Analysts

Rich Greenfield - Pali Capital

Jessica Reif Cohen - Merrill Lynch

Doug Mitchelson - Deutsche Bank

Jolanta Masojada - Credit Suisse

Benjamin Swinburne - Morgan Stanley

Michael Morris - UBS

Anthony DiClemente - Lehman Brothers

Alan Gould - Natexis Bleichroeder

David Bank - RBC Capital Markets

Jason Bazinet - Citigroup

Media

Kenneth Lee - Reuters

Gillian Wee - Bloomberg News

Shira Ovide - The Wall Street Journal

George Silino - The Hollywood Reporter

News Corporation (NWS) F4Q08 Earnings Call August 5, 2008 5:30 PM ET

Operator

Ladies and gentlemen, thank you for standing by and welcome to the News Corp fourth quarter 2008 earnings release conference call. (Operator Instructions) I would now like to turn the conference over to our host, Mr. Gary Ginsberg, Executive Vice President of Global Marketing and Corporate Affairs for New Corporation. Please go ahead.

Gary Ginsberg

Thanks, Mary and welcome to our fourth quarter and fiscal 2008 year-end earnings conference call. I apologize to those of you in New York for our late start today. Joining me today are Rupert Murdoch, Chairman and CEO of News.; Peter Chernin, President and COO; 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 we assume you all now have. Rupert will then give some deeper commentary on a couple of our international initiatives, including Sky Italy and our international cable channels, and then offer some perspective on our printer operations, including our latest acquisition, The Dow Jones Company. Peter will then speak about what you can expect from our leading entertainment assets in fiscal 2009, including some forward commentary on our television and cable businesses, as well as an update on what’s ahead at the film company. We will then of course take your questions.

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

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

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

David F. DeVoe

Gary, thank you and good afternoon, everybody. As you have seen in today’s earnings release, News Corporation once again posted very solid results, with double-digit revenue, operating income, and net income growth for both the fourth quarter and the full fiscal year.

Let’s start with our full year first. We achieved 21% operating income growth on a total company basis and 17% growth when you factor out those items we were excluding from our guidance, namely the $126 million gain on the U.K. land sale and the Dow Jones operating income contribution. This 17% growth is consistent with the upper end of the expectations we provided to you six months ago and well above the low teens guidance we provided about a year ago.

This strong financial performance was driven by 15% overall revenue growth and double-digit earnings growth at our television, cable, DBS, and newspaper and information service segments.

Bottom line, the company reported net income of $5.4 billion versus $3.4 billion last year. The related earnings per share was $1.81, a 68% improvement over last year’s reported earnings per share of $1.08.

Included in net income in earnings per share are a couple of items I would like to highlight. We reported pretax other income of $2.3 billion, which includes a gain of approximately $1.7 billion related to the Liberty DIRECTV transaction. Gains from disposal of our interest in the Bay area RSN in Gemstar, as well as the positive mark-to-market adjustment on our [BUX] liability.

In addition, our equity earnings reflect a $485 million charge for our share of BSkyB’s write-down on its ITV investment. Excluding the net income effects of these items, adjusted earnings per share was $1.22 this fiscal year, an increase of 22% over similarly adjusted $1 in fiscal 2007.

Now let’s look at the fourth quarter. For the quarter, operating income of $1.48 billion was up 21% over the fourth quarter a year ago. This improvement reflects at least double-digit growth in all of our segments, with the exception of television, which was below last year. The quarter’s results also include the $126 million gain on the United Kingdom land sale and Dow Jones operating income contributions that if excluded would reduce the quarter’s operating income improvement to 9% over the fourth quarter a year ago.

Bottom line, the company reported net income for the quarter of $1.13 billion, a 27% improvement over last year’s fourth quarter results. The related earnings per share for the quarter was $0.43, and this is a 54% improvement over last year’s earnings per share of $0.28.

Similar to the full year result, the fourth quarter equity earnings included a write-down on BSkyB’s ITV investment, of which our share was $111 million. Additionally, our other income in the quarter was $433 million, reflecting gains on disposal of our interest in the Bay area RSN, in Gemstar, as well as mark-to-market adjustments on our [BUX] liability.

Excluding the net income effect of these items, adjusted earnings per share was $0.35 this quarter, an increase of 13% over a similarly adjusted $0.31 in the fourth quarter of fiscal 2007.

And given you all have the earnings release, I won’t talk about all the operations but let me just highlight a couple.

Our largest driver of earnings growth in the quarter was filmed entertainment which, with operating income of $220 million, this is more than double the $106 million reported in the fourth quarter a year ago. This strong performance includes continued worldwide DVD sales of Alvin and the Chipmunks and Juno, as well as the April DVD release of Aliens Vs. Predator in the United States.

Also in the quarter we had lower releasing costs related to theatrical releases in the quarter versus a year ago, and higher profit contributions at 20th Century Fox Television, reflecting lower development cost from the production of fewer pilots as a result of the writers’ strike.

Also in the quarter, we had a very strong result at Sky Italia. Sky Italia achieved its highest quarter profitability ever. With $212 million of operating income, this is a 37% increase from the fourth quarter a year ago. Sky added 147,000 gross and 55,000 net subscribers in the quarter. This is 72% more net additions compared to the fourth quarter a year ago. This higher level of net additions is partially related to the free trial promotion offered in the third fiscal quarter of this year. For the year, Sky added 366,000 net new subscribers, increasing our year-end subscriber count to just over 4.6 million subscribers.

In addition, the annual churn rate remained low at approximately 10% for the fourth consecutive year. Monthly ARPU averaged approximately EUR44 per subscriber this year and SAC on an annual basis approximated EUR260 per subscriber, and this is about even with last year’s levels.

At our television segment, operating income in the quarter of $279 million declined 28% as compared to the fourth quarter a year ago, with lower earnings reported by the stations, the Fox Network, and Star. Station operating income decreased 26% in the quarter, primarily resulting from market ad sales declines averaging about 10% in our markets. The weakest ad sales categories continue to be automotive, telecommunications, and movies.

Revenues and operating income were also down in the quarter at the Fox Broadcasting Network due to lower ratings that more than offset higher advertising pricing. And at Star, the cost of programming initiatives at Star Plus and at Star World more than offset higher advertising revenues.

At our cable networks, again we had very solid growth in this segment in the fourth quarter. Our operating income contribution of $313 million is up $29 million over the fourth quarter a year ago. This is an especially good result considering we incurred start-up losses of about $36 million for the Big 10 and the Fox Business Channel in the quarter. The largest year-over-year gains in the quarter were from the RSNs, which reflect higher affiliate rates, from the Fox News Channel due to higher affiliate rates, additional subscribers, and advertising revenue increases, and the international channels from advertising and affiliate increases, led by our Latin American and European channels.

Our newspaper and information segment also reported a good quarter, with operating income of $262 million, and this was up 29% over the fourth quarter a year ago. This increase largely reflects advertising and circulation revenue increases at our Australian papers, reduced cost from our U.K. print projects, favourable foreign exchange movements in both Australia and the United Kingdom, and the inclusion of Dow Jones.

And at our other segment, we reported fourth quarter operating income of $69 million as compared to an operating loss of $17 million a year ago. The current quarter includes the $126 million gain on the sale of land in the United Kingdom. After talking about this for two years, we finally completed it in the quarter.

At Fox Interactive Media, revenues in the quarter of $225 million were up 23% compared to a year ago, as a result of higher search and advertising revenues. The search component increase accounted for more than half of the overall revenue increase.

FIM’s earnings contributions in the quarter of $6 million was down $24 million from a year ago levels as revenue gains were more than offset by planned increases in development and technical costs associated with MySpace domestic and international expansion, and the addition of new features.

And finally, let me address our guidance for fiscal 2009, and as we measure this guidance, we are excluding from fiscal 2008 the $253 million in operating profit contributions from businesses or assets sold in fiscal 2008 which will no longer be included in our ongoing results, namely the eight TV stations, the three RSNs sold to Liberty and the U.K. land sale.

So as we look at measuring operating growth in fiscal 2009, we are comparing it to a base of $5.13 billion in operating profit for fiscal 2008. And as we look at fiscal 2009, we expect many of our businesses will generate very good year-over-year earnings growth, and these include continued growth at Sky Italia from new subscriber additions, further growth at our cable networks, led by new affiliation deals at Fox News, and further expansion of our international channel, improved monetization of Internet traffic at MySpace, and the full-year consolidation of Dow Jones.

But we are also facing some challenging comparisons from certain items that positively impacted fiscal 2008 that will not repeat in fiscal 2009, and these include the Fox Network and stations’ broadcast of the most watched Super Bowl this past February, reduced programming and production and pilot costs in fiscal 2008 at our TV production business and in the network related to the writers’ strike earlier this year, and at our film division, the timing of three of our most significant tent-pole theatrical releases for fiscal 2009 will be in late fourth quarter and the first days of fiscal 2010, resulting in substantially all of the marketing expenditures being absorbed in fiscal 2009.

At the same time, we also expect to be operating in a much more difficult economic environment than we did this past year, and in particular, a significantly more challenging local advertising environment for both broadcast television and newspapers.

Taking all of these items into account and based on all of the assumptions inherent in our projections, we anticipate our operating income growth rate for fiscal 2009 to be in the 4% to 6% range, above the $5.13 billion fiscal 2008 result I discussed earlier.

With all of that, I would like to turn the call over to Rupert for some further comments. Rupert?

Gary Ginsberg

He may be on mute.

Operator

It will be just one moment while we reconnect his line.

Gary Ginsberg

Thank you. If everyone can just hang on one minute, we have some technical difficulties. Rupert is in Beijing on a separate line. We’ll get him shortly. I apologize.

We’re going to change over. Peter’s going to go ahead and give his comments now.

Peter Chernin

Yeah, why don’t I go first and then we’ll turn it back over to Rupert once he’s reconnected. Before I go back to Rupert, I want to touch on a few of our core businesses that continue to perform well despite the increasing economic pressures that Dave just described, and give a little more color on why we think that they are positioned to weather the turbulence we are all currently feeling to some degree.

Let me start with Fox Broadcasting, which finished its fourth straight season as the number one network with the largest margin of victory --

And in a first for any network in the past decade, Fox ranked number one across all key demos.

We think this momentum will result in a ratings upswing as we enter the Fall season in just a few weeks with a stable schedule of hits. House returns as the number one scripted show on television for the second year in a row. Terminator: The Sarah Conner Chronicles, was last season’s top new scripted show on any network, and Moment of Truth was the number one new series on broadcast television. And finally, American Idol continues to dominate primetime with a 57% average advantage over its closest competitor last season.

Going forward, we believe we have the single most buzzed about new show --

Rupert Murdoch

I apologize for that glitch, everybody. Good afternoon and thank you very much, Dave.

Gary Ginsberg

Rupert, hang on. Peter is in the middle of his because we didn’t have you on the line. He’ll finish his and then we’ll go to you, if that’s okay.

Rupert Murdoch

Okay.

Peter Chernin

Going forward, we have the single most buzzed about new show on network television in Fringe from J.J. Abrams. There’s also tremendous excitement for the return of 24 in January, so much so that we are producing a two-hour prequel TV movie for November.

We had quite a strong up-front this year on our network in terms of volume, with solid pricing increases and a low level of cancellations. The scatter market also remains robust. Last month’s all-star game beat our goals even without the extra innings. We’re in the middle of the football up-front and pacing strongly ahead of last year, and our three big American Idol sponsors -- Coke, Ford, and AT&T -- have all already renewed for the upcoming season and in our top categories, spending is up across the board.

While the network outlook is bright, our local stations are feeling the effects of a worsening economy. The total local ad market was down 10% in the fourth quarter and pacings for Q109 continue to be weak. We are starting to see some presidential political spending in several markets but spending in key categories, like automotive and telecom and financial services, remains down.

While we continue to generate a growing market share of the ad markets, with actually a record market share in July, the overall local ad market is highly challenged at the moment.

Moving back to a bright front, moving back to cable, we’re seeing significant growth on a number of fronts, especially internationally. Last year Fox International channels launched 40 new channels and generated revenues close to $1 billion with margins of 25%, among the highest in the international cable industry.

Notably, almost all of the revenue comes from either emerging markets or mature markets with low but growing cable and satellite penetration, so our revenue potential still has great upside.

In the past quarter, ad sales for Fox International channels continued to show robust growth, up 30%, and pacings for Q109 also looked strong.

Domestically, we also had a very strong cable entertainment up-front this year with FX and Nat Geo both up over 20%. On the news side, Fox News had a solid up-front as well, with strong spending gains across a number of categories, like consumer products and pharmaceuticals.

Additionally, our new Fox News affiliate deal with Time Warner, which begins later this month, was done at a significantly higher subscriber rate over the previous agreement and we are in negotiations with EchoStar and ComCast, which we hope to complete by the end of the year for similar rates.

On the film side, we had record operating profit for the seventh consecutive year, which I think is quite a good feat in this industry. And the outlook over the next several years and beyond is very healthy. In fact, over the next year-and-a-half, I think we have the strongest tent-pole lineup we’ve had in many years, starting in November with Baz Luhrmann’s Australia, followed in December by The Day The Earth Stood Still and Marley & Me, based on the best-selling book. Then late next spring, we have two highly anticipated sequels I think will do strong business -- X-Men Origins: Wolverine and Night at the Museum 2. And then the summer will kick off with Ice Age: Dawn of the Dinosaurs, the third in the very successful Ice Age franchise. Beyond expected big box office grosses, all should do very strong DVD business.

And speaking of DVDs, I think it’s worth noting that despite the recent hand-wringing over the health of the DVD business, the retail space for the entire DVD market has actually widened by an estimated 5% over the last 12 months, and the Blu-Ray format is already ahead of DVD comparatively in terms of adoption at this point in its lifecycle, with sales of more than $200 million year-to-date through June, up about 300% for the same period in ’07.

Finally, turning to FIM, we are actually quite pleased with the momentum at MySpace. Revenues are up both quarter to quarter and year over year and in May, MySpace hit an all time high, with nearly 74 million in uniques in the U.S. for the month.

Today, just over a month into our new fiscal year, we are very encouraged with what we are seeing. We are pacing well against internal expectations, user engagement continues to grow, and our recent redesign effort is being positively received by both users and advertisers alike. Right now, we feel good about where things are headed.

We are seeing dramatic increases in branded display advertising across a number of categories for the first month of Q109, including financial services were up over 100% year over year, consumer packaged goods up over 150% year over year, and food and beverage actually up over 170% year over year. Overall pacings for all Q1 branded display are very strong and are exceeding those of a year ago by double-digits.

Our hyper-targeting initiative, which was written up in the papers this week, continues to gain traction with 50% of all orders now including some form of hyper-targeting. We’ve seen two straight quarters of hyper-targeted CPMs exceeding non-hyper-targeted CPMs more than two-fold. General Motors, Coke, Wells Fargo, Red Bull and New Balance were among the major advertisers which included hyper-targeting in their campaigns in Q4.

One thing in particular I would like to point out is that advertisers are increasingly turning to MySpace homepage takeovers as a way to reach a mass audience. Up to 40 million people visit the homepage every single day. That’s more people than watch the finale of American Idol, and the average user is spending more time on the homepage, up 54% during the week of July 22nd versus the same week last year. It’s a very powerful promotional tool and we are seeing more big brands incorporate it into their marketing campaigns.

And to give you just one specific of the massive scale of the MySpace homepage, Warner Brothers did a homepage takeover for Batman: Dark Knight and had over 70 million streams of the trailer, with a remarkable 27% of those users viewing the trailer in its entirety.

And finally, next month we’ll launch the highly anticipated MySpace music joint venture, offering users the ability to listen to free streaming music, purchase song downloads, ringtones, t-shirts, and concert tickets. And with 65% of our user base already embedding music on their profiles, we see great potential for this business.

So despite overall concerns about the economy and serious issues with our local television station business, we feel our core businesses are all well-positioned for expansion in fiscal ’09.

And with that, let me turn it back to Rupert.

Rupert Murdoch

Thank you very much, Peter and good afternoon, everyone. I’m sorry for that telephone glitch and I’m sorry for the lateness of the call, but I’m joining you, my New York colleagues, from Beijing. If I sound a little distant, you’ll new why.

News Corporation is a global company and I’ve spent the past few days with our team in India, which is building a remarkably successful and very profitable television and multimedia operation. For all the talk of international downturn, even the gloomier Indian economists are still forecasting GDP growth in the coming year of at least 7%.

As Dave just outlined, fiscal 2008 was a very good year operationally and financially. We finally completed our tax-fee asset swap with Liberty Media, recognizing a nearly $1.7 billion gain on our divestiture of DIRECTV, while at the same time reducing our outstanding share count by 16%.

We also completed our acquisition of Dow Jones, with its information services businesses and the Wall Street Journal, include arguably the most important and vibrant brands in business news worldwide.

We also raised over $1.5 billion in capital by selling a non-strategic ownership position in Gemstar TV Guide, a minority interest in other cable assets, as Dave has already mentioned.

And in July, since the end of the year, we’ve just received $1.1 billion in proceeds from the sale of eight smaller television stations.

The financial success we’ve enjoyed should come as no surprise. It’s a steady continuation of the growth we’ve sustained really since 2002. In fact, over the last five years, using almost any metric, few if any companies in our sector have matched our revenue, operating income, or earnings per share growth. Revenue growth of almost 14% a year on average, with average operating income growth of 18% and earnings per share from continuing operations up 30% per year on average.

As we look at the year ahead, we anticipate an increasingly difficult economic environment. The escalating price of energy, the contraction of real estate values, and liquidity and competence issues in the finance sector are creating economic shocks that will likely be felt by the vast majority of consumers in the U.S. as well as in Europe and maybe elsewhere.

However, even in this recessionary environment, we believe we have the unique growth in our drivers and balance sheet strength not only to weather this storm but to strength and grow our businesses.

As Dave indicated a few minutes ago, we have considerable financial challenges in our local television businesses but believe we can still maintain structural growth as several of our younger businesses that are coming to fruition, particularly at Sky Italia and several of our cable businesses and at Fox Interactive.

Our strategies of investing and developing businesses [albeit] at a cost to short-term earnings not only differentiates us from our peers but delivers more consistent long-term growth.

Over the last four years, Sky Italia has grown in annual operating profit by almost $700 million in aggregate, transitioning from a $277 million loss in fiscal 2004 to about $420 million profit this last year. This growth was generated by the audience of 1.9 million net new subscribers over the period, achieving total subscriptions of close to 4.6 million.

As we look ahead, we fully expect this growth should continue. The television market in Italy is one of Europe’s largest, with about 22 million television households. The pay TV penetration in that country is barely topping 20%. This compares to pay TV penetration of over 55% in Britain, 45% in Spain, 32% in France. Clearly there are at least several more years of robust growth to be captured in Italy.

Similarly, over the last four years our cable programming businesses have added over $780 million in additional annual operating profits, and that is inclusive of over $200 million spent on launching the Big 10 and Fox Business Network this last year. The popularity of the Fox News channel, the rapid expansion of our international Fox and National Geographic channels, and the [inaudible] of our regional sports networks with longer term affiliate carriage deals and long-term sports rights contracts have all contributed to cable’s success and strong competitive standings.

Our print operations are far more than just newspapers, and so they are experiencing rapid digital growth. In the six months to the end of June, the audience of wsj.com, the Wall Street Journal’s online operations, rose 87.9% compared to the same period last year and we are just getting started. In fact, in July it was over 100% increase. The Sun and the Times in London, for example, are large and fast-growing online brands and their revenues, along with those generated by subscriptions at Dow Jones, which we are finding -- where we are finding admirable elasticity, are an increasing share of our information services segment.

Our Australian titles are in extremely good shape and operating in an economic climate which seems to be quite different to that in the U.S. All of our newspapers have a complementary commercial strategy, exploiting the display space of print and repurposing content for the web, where the inventory can be resold.

That the newspaper sector is changing is clear. The companies willing to invest in new forms of delivery which have a commitment to quality will prosper.

Dow Jones is now developing a web-based delivery platform that will allow us to target customers far beyond the traditional institutional clients and will extend our reach around the world in partnership with Star, Sky, and MySpace. We are fortunate to have an internal network that allows us to launch products across borders and across platforms, and we have a thriving index business.

Earlier today in Bombay, I christened two new indexes -- the Global Dow, which includes established and emerging companies from around the world, and a new index tracking 30 prominent Indian companies, and reflecting the world’s changing corporate landscape.

I returned to Beijing from India even more convinced that our faith in Asia’s potential and that of its people will be rewarded many, many times over.

News Corp's varied sources of revenue and our global reach certainly give us a clear comparative advantage. We have a genuine momentum which will carry us through into the next year and well beyond.

Our time in India made me realize how much more potential there is for cooperation among our business units, which are as aggressive as they are innovative.

Other companies may indeed be struggling but our competence and our ambition have buttressed our very healthy balance sheet.

Thank you very much.

Gary Ginsberg

Thank you. Operator, can we get right to the questions?

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

Thanks. Can you give us a sense of how big enterprise media now is within your newspaper segment, and particularly within Dow Jones? And what the growth profile of that business looks like. I think very often, everyone just wants your entire newspaper business as a newspaper business and are missing the growth profile of that enterprise business. Just wondering how significant the earnings contribution now is within that overall newspaper segment and what it’s profile over the next few years could be.

And then second, Dave made some comments about the difficulties in the advertising environment for both newspapers and TV. You sold TV stations at 10 times EBITDA earlier this month. I’m wondering whether -- what your thought process is for shedding other assets, given the attractive valuation you were able to exit TV stations at recently. Thanks.

Rupert Murdoch

I could just pick that up, certainly on the Dow Jones side -- I would think that -- I know that more than half the profits already come from various digital efforts there, or digital delivered products, such as the newswires, Factiva, the indexes, and so on. All of these things are growing very fast. We see Dow Jones as being the whole, right at the forefront of the digital revolution.

For instance, just the very basic thing, wsj.com, is expanding extremely fast. It leads into the subscription service, of which we have now well over 1.1 million subscribers at a healthy price, which it will -- and one that can be increased and will be increased, and that of course also leads into very specialized wires for which we can charge very high premiums.

It is an information service, not a newspaper, an information service which will be neutral to all platforms, whether it comes on a Kindle or a mobile telephone or a PC or whatever.

That really goes for all our newspapers. Our newspapers should be seen as services to their public and their communities but will be available in every way.

Operator

Thank you. Our next question comes from the line of Jessica Reif Cohen with Merrill Lynch. Please go ahead.

Gary Ginsberg

Hang on one second, Jessica. Peter is going to answer --

Peter Chernin

I think the second part of your question, Rich, was about television stations and would we sell anymore of those businesses in this environment. First of all, I’m not sure. I think we sort of timed that sale pretty perfectly and felt good about the multiples we got for it. Secondly, I think it’s important to point out that we’ve got a pretty good group of television stations right now, including I believe nine duopolies in major markets, so a big chunk of our television station inventory is now tied up in duopolies which continue to outperform the market.

While I guess we’d probably be open to discussing anything, I’m not sure I’d be looking for us to see us selling some additional television stations in the short-term.

Rupert Murdoch

I would support that. We need those major stations and that number of stations really to be the backbone of our network.

Gary Ginsberg

Jessica.

Jessica Reif Cohen - Merrill Lynch

Thanks. Can you talk about the leverage at FIM? It sounds like you pretty much have guaranteed double-digit revenue growth between branded pacings and the step-up in search. So I was just wondering if you could talk about what your cost outlook is for fiscal ’09 and talk about your strategy there in terms of potentially getting bigger or gaining scale?

And secondly, local advertising is clearly weak for everyone but national still seems to be strong and Peter, you’ve been quoted all over as saying a tale of two worlds today. Are you not seeing any spillover in key categories like auto into national?

And Dave said 4% to 6% OI growth -- what is your revenue guidance for ’09?

Peter Chernin

First on the FIM side, I guess the key thing I’d say is certainly we believe that we are still in a scale gain business and it’s important -- a very, very competitive environment and it’s important that we keep growing and we keep investing to grow, investing to grow in terms of development, in terms of technology, in terms of international, in terms of new features, in terms of content and we will continue to do so.

That being said, our expectation is that we can grow our margins in the FIM business in fiscal ’09, so our costs will continue to grow and we are expecting right now I think our projections are we can have revenue growth of 30%. Our costs will continue to grow but we expect the margins to grow also, so that we will outpace our cost growth with the revenue. But we will certainly continue to focus on growing the overall category, into the making the right kind of investments and frankly, I’m pretty proud of what they’ve achieved over the last six months. I think the homepage redesign, their new app products, the work they’ve done on hyper-targeting, the work they’ve done on optimization -- all those have been investments that I think have been very worthwhile investments and have really grown the overall business.

In terms of the national versus the local advertising business, we are seeing real strength in national and particularly in some of the cable up-fronts, but also on our broadcast network business.

In terms of key categories, certainly the auto category is probably the one that is a little bit weaker but we have a couple of key advantages. One is that our single biggest advertiser is Ford and they chose to renew their advertising in American Idol, which is their biggest chunk, so that’s significant to us. We had also made multi-year sports deals with a number of the car advertisers, so we had locked in two years, sometimes even three-year deals, particularly with the big three, and so those deals had been locked in last year, so that I think gives us a little bit of extra strength.

One of the other things we are seeing is that the car companies, even as they are cutting back, at least for us, they continue to emphasize national advertising because what they find is that their -- you know, we’ve had some pretty interesting conversations with them and as their potential buyers go into a show room, they have done significant work on the Internet and they know what cars they want to buy but they need to do national television advertising in order to get them to look at that brand on the Internet. So they’ll go on the Internet and look at two or three key brands and choose between that, but they are doing that branding work on national advertising. So while it’s certainly not as robust as it was two or three years ago, we’ve been seeing the national auto advertising hold up much stronger than the local auto advertising category.

Jessica Reif Cohen - Merrill Lynch

And then the revenue guidance?

David F. DeVoe

Jessica, I can’t give you just one number but I would say broadly, with the exception of our TV stations, which you would say probably down mid-single-digits, the rest of the business is likely to grow, and not including obviously Fox Interactive, low- to mid-single-digits broadly is what we are planning for.

Jessica Reif Cohen - Merrill Lynch

Thank you.

David F. DeVoe

So obviously to the extent that the economy improves [inaudible] to do better.

Operator

Thank you. Our next question comes from the line of Doug Mitchelson with Deutsche Bank. Please go ahead. Doug, your line is open. Please go ahead.

Gary Ginsberg

Why don’t we go to the next one, Operator?

Doug Mitchelson - Deutsche Bank

Sorry about that. So you indicated that the cable start-up losses were $200 million in fiscal year ’08 I think, so just curious what the fiscal ’09 number. And if I -- I think I missed it, but you just said revenue guidance of low-single-digits for fiscal ’09, is that right, Dave?

David F. DeVoe

What I said was that it’s difficult to give a total number, to give a number but you really have to look at it business by business. I said broadly that we would expect our TV stations to be down mid-single-digits and the rest of the business to grow low- to mid-single-digits excluding the Fox Interactive business.

Doug Mitchelson - Deutsche Bank

I guess my question on that, Dave, is to the extent that you have an advertising assumption underlying your guidance, is that advertising assumption based on your current pacings or are you assuming a deterioration or an improvement in the ad market throughout the year?

David F. DeVoe

That’s based on the markets as we see them today.

Peter Chernin

And in terms of the cable channel, the cable channel investment number, the losses were probably a little bit closer to about 160 or so, and we would expect those to come down probably by about 40% in fiscal ’09, and continued investment in Fox Business and a real turnaround in Big 10.

Operator

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

Jolanta Masojada - Credit Suisse

Thanks very much. With the $1.1 billion of cash you received from the TV stations and the upcoming cash you’ll receive from the sale of NDS, can you talk about your plans for corporate strategy, whether those funds are largely to be diverted into investments such as premiere or into the share buy-back or other purposes?

Rupert Murdoch

We’re going to be opportunistic and we are going to be careful like everybody else. We think there’s enough uncertainty around for us to put the strength of our balance sheet as our absolutely number one priority.

As to premiere, we now -- we’re very happy with that. We have 25%. We have cartel office approval I think to go to perhaps 30%. We’re just really looking at that, to be perfectly honest. We think it may be a big opportunity. We have now two senior directors on the board plus an independent -- that’s out of six directors. We’re working very well with the management and it’s too early to indicate any intentions there because we really haven’t come to any conclusions.

Jolanta Masojada - Credit Suisse

And how about the buy-back -- can you make any comments on your intentions there?

Rupert Murdoch

We’ll look at that as the year develops. If you think that it’s such a good buy, you should be telling people to buy shares. We’re not here to liquidate the company.

Operator

Thank you. Our next question comes from the line of Benjamin Swinburne with Morgan Stanley. Please go ahead.

Benjamin Swinburne - Morgan Stanley

Thanks. I’ll just ask two -- first on Sky Italia, Rupert, if you could talk about the long-term expectations you have there for penetration growth. If you look at what Sky did in Britain, sort of changed the strategy a few years ago to become a little bit more aggressive at the lower end, get involved by Easynet and use broadband and phone to drive additional penetration. As you look at the Italian market, are there additional products that you’d like to sell alongside Sky to help reaccelerate or drive further penetration? Or do you feel like the business is set up to get where you’d like it to get under the existing structure?

And then, if I could just ask a question on MySpace -- the usage numbers obviously are impressive, the target-ability we all understand. Has the economic environment -- and this is for Peter or Rupert -- made it more difficult to get advertisers on board with the targeting technology, or is that sort of irrelevant given the early stage of this business?

Rupert Murdoch

We’re just taking the first half of your question about Sky Italia -- we see several more years of this level of growth. It’s very popular, it’s doing well, it’s got a great name there. There’s no reason why it shouldn’t -- now, we are cooperating with broadband suppliers and helping them and they help us, rather than buy into it in a big way ourselves as we did in Britain. We don’t think it will be necessary in Italy and we don’t intend to make that sort of commitment.

Peter Chernin

On the MySpace piece, what I would say is look, I think anecdotally probably that market is a little bit weaker but you know, we’re in a pretty nascent stage, so I think we are seeing actually pretty strong demand for the targeting technology, because it’s new enough. And to be honest, I think as we announced, we made a change in the ad sales management sort of five of six months ago and we think we’re reaping the benefits of a new, aggressive focus there. So while the market may be a little bit soft, I think our experience in that market certainly over the first month of this fiscal year, we’re encouraged by what we are seeing out there right now for ourselves.

Benjamin Swinburne - Morgan Stanley

Thank you.

Operator

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

Michael Morris - UBS

Thank you. On the international cable channels networks, it sounds like you did about $250 million in operating profit against I think it was about $180 million that you were targeting at the beginning of the year. Can you talk about -- I guess how much of that growth is organic versus consolidation, I think in part of National Geographic?

And then also, can you give some more specifics, I guess, about whether if it’s specific channels that are being taken up in different markets, specific programming? And I know you talked about Latin America, but I guess just more specifics on both the content and the markets to help us understand where the opportunity is and where the risk would be.

Peter Chernin

First of all, I don’t remember what we projected but I think your numbers are fairly accurate. Of that total number, probably about $80 million represents Nat Geo consolidation, so the rest of it is organic growth.

What I think we’ve done, and we talked about this a little bit maybe two calls ago, is that we’ve done a pretty good job of creating a sort of modular model where we have certain channel brands, whether it’s Nat Geo, whether it’s Fox Life, whether it’s Fox Crime, whether it’s Nat Geo Wild, et cetera, whether -- and we are able to sort of open up new channels in markets for relatively little money. We can -- a lot of these markets can launch a channel for $3 million, $4 million, reach break-even within eight or 10 quarters.

And so I think one of the things I said earlier was that we launched 40 new channels last year. That’s almost a new channel a week, and in all sorts of territories, ranging from -- I think just in the last week or so we just launched Fox in Germany, which is a big event for us. But we also launched small channels during the year in places like Serbia and small places in Eastern Europe.

We are seeing pretty good growth across lots of these developing markets, across Latin America, across Eastern Europe, and also the maturation of some of our channels in bigger markets. Italy continues to be very, very strong for us. We seem to be delivering the bulk of the ratings, or the single biggest content driver on Sky Italia. The U.K. continues to be strong for us. Our Asian markets continue to be strong.

So it really is a mix of all these things -- and I’m sorry, I just wanted to clarify, that $80 million Nat Geo number was actually the total global number. Of that, $50 million is international and $30 million with Nat Geo domestic, so of the number, $50 million was -- of the international number, $50 million was the Nat Geo consolidation, not 80. I apologize -- 80 is the total number.

Michael Morris - UBS

Thank you.

Operator

Thank you. Our next question comes from the line of Anthony DiClemente with Lehman Brothers. Please go ahead.

Anthony DiClemente - Lehman Brothers

Thanks for taking my question. Just one question for Peter -- it’s clear that the viewership of both professional and user generated video content is growing really quickly on the web. You see that with your own usage numbers on MySpace and we see that on YouTube. The question is, is that growth of mine share on sites like MySpace and YouTube, is that a fragmentation risk that could impact viewership at the TV network and stations in a secular way? And if not, I imagine your answer would be no but even if that’s true, even if the Internet is additive to the total, do you think that the web could add incrementally to overall media consumption but at the same time be cannibalistic to revenue at some of the more traditional forms of distribution, like the TV network, the TV stations, or even DVD sales? And given News Corp's content ownership on both sides of that equation, old media and new media, I hope you can comment. Thanks for taking the question.

Peter Chernin

Well first of all, I guess I would say on an absolute level, probably the use of user-generated content is competitive. It’s eyeballs going someplace but that’s the world in which we live in. We live in a world of infinite choice and people are going to have plenty of opportunities to watch whatever they want. And our job as programmers on our traditional business is to make sure that our programming is so compelling that people would rather watch it than all of than all of the -- you know, if they are not going to watch user-generated content, they are going to play videogames or they are going to surf the web for other things or they are going to look at their cell phones.

So I don’t want to pretend it doesn’t exist but it’s just one more competitive drop in the bucket.

I think -- a couple things I want to say; first of all, I believe that we need to look at user-generated content very differently than we are looking at sort of premium content on the web. And we have the number two user-generated content on the web on MySpace and one of the things, just as an aside that I would like to say, there is -- we are doing a -- we are working very aggressively to offer advertisers segregation opportunities so that advertisers, one of the things, they can be segregated from content they may not want to appear next to, while at the same time those advertisers who are interested in that traffic, we can guarantee them that maximum traffic.

On the premium site, one of the things we feel really good about is the growth of Hulu. We’re not a top 10 site. We’re seeing 3 million weekly uniques and some pretty large streaming numbers. I think the New York Times reported that we had 88 million streams in the month of June, and I think that that’s actually a good example of the way we are trying to effectively transition this business. So if you look at Hulu, I don’t necessarily look at Hulu as competitive with the broadcast network. What I look at is I look at it as an opportunity for us to replace something which had gone away, which is broadcast reruns.

We used to 10 years ago make a lot of money running reruns of our shows. Those reruns, we don’t run any reruns at all of our reality shows, of our serialized dramas. We run some reruns of our self-contained dramas. What Hulu has done is basically allowed us to replace that rerun revenue which had gone away, and so we see the growth of something like that, we’re being careful to make that additive.

The same thing as if you look at things like electronic sell-through on both the movie side and the TV side. We worked very carefully to make sure those electronic sell-through deals had margins that were equal to if not better than the DVD business, so we feel good about it. If the whole business migrated there, we’d feel fine about it because our margins are the same.

And if you look at video on demand, that’s actually a place where our margins are stronger. We would rather see people consume products on video-on-demand than we would on video rental because it’s a stronger margin for us.

So I think we will live in a world in which you will see these transitions from so-called traditional media to various digital iterations of those media, but we’ve worked very hard as a company and as an industry to make sure that we don’t sacrifice and cannibalize margin in that transition.

Operator

Our next question comes from the line of Alan Gould.

Alan Gould - Natexis Bleichroeder

-- the network DVR and Rupert, I was wondering, I see that you’ve put for review some TV stations in Eastern Europe. I know you’ve also got the outdoor business in Russia for sale. That may be for different reasons but I was wondering if you could give your view of what’s happening in Eastern Europe. I know you are very bullish in Asia. Are you becoming less bullish in Eastern Europe?

Gary Ginsberg

Alan, we missed the first part of your question.

Alan Gould - Natexis Bleichroeder

The first part is simply if Peter could comment on the court’s ruling on Cablevision’s network DVR.

Peter Chernin

Look, we are still reviewing the ruling. As you know, we were part of, through the MPAA, we were part of the consortium that appealed the original ruling, so we obviously had a strong position that we did not think was appropriate before this. But before -- we need to review the specifics before we decide what our next step is. But historically, you can assume we weren’t in favor of that ruling.

Rupert Murdoch

Right, and what was the second part?

Gary Ginsberg

Do you want to answer the question on Eastern Europe?

Rupert Murdoch

Eastern Europe, yes -- no, this is really a slight change of strategy. We believe that our position in Bulgaria, which is extremely strong, can’t get any stronger. We thought we’d try and monetize that while it was at its top. We don’t quite know yet whether we scale back a bit in Poland, which is proving more difficult than we expected or whether we can sell that but basically it could be for a diversion of those resources elsewhere.

The sale of Russia is a different matter all together. We have great growing business there but just -- this is purely me, I’m sorry, I’m -- the more I read about investments in Russia, the less I like the feel of it. The more successful we’d be, the more vulnerable we’d be to have it stolen from us, so there we sell now.

Alan Gould - Natexis Bleichroeder

Thank you very much.

Operator

Thank you. Our next question comes from David Bank with RBC Capital Markets.

David Bank - RBC Capital Markets

Thanks very much. Just to follow-up on a previous question, you guys have said that you would approach the buy-back issue opportunistically but you are levered right now at about one times debt to EBITDA. Your stock is trading somewhere in kind of the six times range and the growth at the company actually looks, especially in light of the challenging environment, pretty impressive.

So I guess the question is with that kind of dry powder, this low a stock price, and such a favorable outlook for the company, what kind of better opportunity could there be?

Rupert Murdoch

I don’t know. Why don’t you buy more stock? We’ve seen other companies go into heavy, heavy debt to buy back stock and it’s done nothing for them. All they’ve got themselves is several years ahead of them sweating to pay the debt off. So we want to just hang loose for a little while yet. We’re not saying we’re not going to buy back stock. We may well do so but right now, we are not in the business of liquidating the company by buying back stock. We want to -- although we’ve just had the biggest buy-back in history in selling DIRECT for stock, so let’s just take it step-by-step. There are too many uncertainties out there at this moment.

David Bank - RBC Capital Markets

Okay. Thanks for taking the follow-up.

Operator

Thank you. Our next question comes from Jason Bazinet with Citigroup.

Gary Ginsberg

This will be our last question, Operator, just because of the lateness of the hour.

Jason Bazinet - Citigroup

I’ll make it quick -- some of your competitors seem to be moving aggressively into day-and-date on the film side and I was just wondering if you could share your current thoughts on that potential transition. Thanks.

Peter Chernin

We continue to look at it on a case-by-case basis. We find that for certain kinds of movies, it seems fine. For other kinds of movies, we still have some concerns that it may cannibalize our DVD business. We are continuing to do more tests and we certainly don’t feel in any rush. Again, it sort of relates to my earlier answer, which is what is paramount in our mind is protecting our overall margins and we certainly don’t want to be overly aggressive until we are sure that any move like that is going to be margin accretive.

Jason Bazinet - Citigroup

Very good. Thank you.

Gary Ginsberg

Thank you, everyone. We’ll now go into our press call, Operator, and if there’s any further investor calls, feel free to call Reed, myself, [or Barbara in New York].

Operator

(Operator Instructions) Our first question comes from Kenneth Lee with Reuters.

Kenneth Lee - Reuters

Rupert, you talked about launching new channels in India, backed by $100 million in funding. How much of that is for launching new channels and how much of that has been earmarked for investments or partnerships with existing channels in the region?

Rupert Murdoch

That’s entirely new channels and it’s probably a slightly exaggerated figure. It would be closer to 60 than to 100. It’s really just extending our existing channels into different languages and in some cases, more localized programming as you go from area to area within India. The growth there is really extraordinary and we will be doing more and more there, and we would like to be doing more in China.

Kenneth Lee - Reuters

Any plans back to India to invest in existing properties?

Rupert Murdoch

No, in fact, we’re looking at a couple of small divestments at the moment, which would probably pay for anything like that. But we’ll be opportunistic if things turn up that can’t be resisted but we don’t see very much at the moment.

Kenneth Lee - Reuters

Thank you.

Operator

Thank you. Our next question comes from Gillian Wee with Bloomberg News.

Gillian Wee - Bloomberg News

I just wanted to ask about Cablevision -- would you have any interest in looking at any of their businesses or any other media assets in the U.S. right now?

Rupert Murdoch

Not at the price they’d be asking but yes, I think it’s possible that a couple of their big cable channels could be interesting at the right price.

Gillian Wee - Bloomberg News

What about the AMC or the whole Rainbow Media group?

Rupert Murdoch

Well, it’s pretty mixed -- it’s a pretty mixed group but we’re not looking at Rainbow per se. I don’t think we’ve been offered it.

Gillian Wee - Bloomberg News

So at what price would be suitable?

Rupert Murdoch

I don’t know. We’d need to look at what the current market multiples are for cable channels.

Gary Ginsberg

Next question, please.

Operator

Thank you. Our next question comes from Shira Ovide with The Wall Street Journal.

Shira Ovide - The Wall Street Journal

Thanks. I wanted to ask if you’d elaborate a little more on whether you are seeing signs that the local advertising weakness you’ve talked about in broadcast TV and in newspapers is affecting cable advertising?

Peter Chernin

I’ll answer that. You know, look, first of all, we honestly wouldn’t know, with one exception, which is we sell our cable advertising on a national basis and that’s quite strong. The one area where it does affect us, and it’s pretty significant, is through our regional sports channels. We’re a big seller of local advertising and that business, while it has some unevenness, is actually quite strong and has been holding up quite well. I think a lot of that is a function of the overall strength of sports. We’ve also worked hard to integrate a number of sponsorship deals as opposed to straight advertising deals. So our revenues in that business, which is a pretty sizable exposure to the local cable market, have been quite solid and are holding up quite well.

The other part of the local cable business, you’d have to ask the local cable MSOs and their inter-connects, and we don’t participate in that business so you’d have to ask them.

Shira Ovide - The Wall Street Journal

Okay, but in terms of the national cable ad market, you’re not seeing weakness there?

Peter Chernin

The national cable market, we’re seeing quite good strength.

Shira Ovide - The Wall Street Journal

Okay, thanks.

Operator

Thank you. Our next question comes from George [Silino] with The Hollywood Reporter.

George Silino - The Hollywood Reporter

Peter, I was wondering if you can talk a little bit about whether you are still thinking or talking to any partners in the Internet space for FIM -- Yahoo! or Microsoft, any of those guys?

Peter Chernin

No, we’re not talking to anyone right now. I think that we said fairly consistently that we were willing to look at those things opportunistically and if there was something that made sense to us we were willing to have a conversation but hopefully as you could tell from our previous answers, we certainly never felt like we had a defensive issue with FIM, that we were somehow handicapped. We actually feel quite good about our progress across multiple fronts in that business and feel strong about our position. So we were happy to have opportunistic conversations but they obviously led nowhere and we are not talking to anybody right now.

George Silino - The Hollywood Reporter

Thank you.

Rupert Murdoch

I’ll just add to that -- we’re already moved on from those conversations.

Operator

Speakers, I’ll turn it back to you for any closing comments.

Gary Ginsberg

We have on closing comments. Thank you very much for joining us. Thank you for waiting of the lateness of this call and if you have any further questions, call us in New York and thank you. Have a good evening.

Operator

Ladies and gentlemen, this conference will be made available for replay after 7:00 p.m. Eastern Time today until August 15th at midnight. You may access the AT&T executive playback service by dialing 1-800-475-6701 and entering the access code of 953360. International participants may dial 1-320-365-3844 and enter the access code 953360. Those numbers again are 1-800-475-6701; international, 1-320-365-3844 and enter the access code of 953360.

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

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Source: News Corporation F4Q08 (Qtr End 6/30/08) Earnings Call Transcript
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