Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

News (NASDAQ:NWSA)

Q1 2013 Earnings Call

November 06, 2012 4:30 pm ET

Executives

Reed Nolte - Senior Vice President of Investor Relations

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

Chase Carey - Deputy Chairman, President, Chief Operating Officer, President of the Media & Entertainment Arm and Chief Operating Officer of the Media & Entertainment Arm

Analysts

Anthony J. DiClemente - Barclays Capital, Research Division

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Michael Nathanson - Nomura Securities Co. Ltd., Research Division

Richard Greenfield - BTIG, LLC, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Todd Juenger - Sanford C. Bernstein & Co., LLC., Research Division

Michael C. Morris - Davenport & Company, LLC, Research Division

Adam Alexander - Goldman Sachs & Partners Australia Pty Ltd, Research Division

Adam Alexander - Goldman Sachs Group Inc., Research Division

Tim Nollen - Macquarie Research

Vasily Karasyov - Susquehanna Financial Group, LLLP, Research Division

James G. Dix - Wedbush Securities Inc., Research Division

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the News Corporation's First Quarter 2013 Earnings Release. [Operator Instructions] I'd now like to turn the conference over to Reed Nolte, Senior Vice President Investor Relations, News Corporation.

Reed Nolte

Thank you very much, operator. Hello, everyone, and welcome to our First Quarter Fiscal 2013 Earnings Conference Call. On the call today are Chase Carey, President and Chief Operating Officer; and Dave DeVoe, our Chief Financial Officer.

First we'll give prepared remarks on the most recent quarter, and then we'll be happy to take questions from the investment community.

This call may include certain forward-looking information with respect to News Corporation's business and strategy. Actual results could differ materially from what is said. News Corporation's Form 10-Q for the 3 months ended September 30, 2012, identifies risks and uncertainties that could cause actual results to differ, and these statements are qualified by the cautionary statements contained in such filings.

Additionally, this call will include certain non-GAAP financial measurements. The definition of and a reconciliation of such measures can be found in our earnings release and our 10-Q filing. Finally, please note that certain financial measures used in this call such as segment operating income, adjusted segment operating income and adjusted earnings per share are expressed on a non-GAAP basis. The GAAP to non-GAAP reconciliation of these non-GAAP measures is included in our earnings release.

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

David F. DeVoe

Reed, thank you, and good afternoon, everyone. As you all seen in today's earnings release, we are quite pleased with the continued growth we are delivering at our Cable Networks, Filmed Entertainment and Television segments so far in fiscal 2013 with double-digit segment operating income increases at all 3 segments, although much of this growth is offset by anticipated declines in SKY Italia and our Publishing businesses. The current quarter operating income results also include a $67 million charge related to the ongoing investigations initiated upon closure of The News of the World in the United Kingdom as compared to $17 million in the first quarter a year ago. Excluding these charges from both years and a $5 million charge related to the post separation of the company's Entertainment and Publishing businesses, first quarter adjusted total segment operating income of $1.45 billion increased 3% from the year ago adjusted result of $1.4 billion.

First quarter reported revenues were up 2%, driven by strong Cable Network reported revenue increases of 16%. These increases were largely offset by currency-related decline at many of our divisions led by SKY Italia. It's important to note that a stronger U.S. dollar negatively impacted the company's financial performance this quarter. In constant currency terms, total company revenues and adjusted total segment operating income both grew 5% over last year.

Our share reported results from our equity earnings of affiliates were up $69 million in the quarter, with this increase primarily reflecting this quarter's gain for participation in BSkyB's share repurchase program. Also included in this quarter's result is $1.38 billion of income in Other, primarily related to a gain on the company's sale of NDS, partially offset by $152 million of pretax impairment and restructuring charges.

Reported net income in the quarter was $2.2 billion with reported earnings per share of $0.94 as compared to reported earnings per share a year ago of $0.28. Excluding the net income effects in both years of one-time items, principally consisting of the items I just highlighted, first quarter adjusted earnings per share this year are $0.43 compared with the year ago adjusted result of $0.32, a 34% earnings per share improvement. Our press release includes a reconciliation of our GAAP results to these amounts.

The reduction of shares outstanding versus last year from our buyback accounted for $0.04 per share to the adjusted EPS this quarter.

Now I'd like to provide some additional context on the performance of few of our businesses, and let's begin with the Cable Networks. This segment continues to drive overall company results, generating over 2/3 of News Corporation's total segment operating income. First quarter Cable segment operating income contributions increased 23% over year ago levels to $953 million with double-digit earnings growth at the RSNs, Fox News and in FX, partially due to the timing of original programming and marketing cost at FX. This strong domestic channel growth is partially offset by higher sports cost at STAR India, reflecting the inaugural broadcast of the new BCCI cricket matches and the strengthened U.S. dollar that more than offset local currency profit growth at the Fox International Channels.

Cable Network growth continues to be top line-driven, with segment revenues up 16%. Reported affiliate fees at the Cable Networks increased 18% over year-ago levels, with domestic channel affiliate fees up 16% and international fees up 25%. And about 2/3 of the international affiliate revenue increase reflects strong local currency organic growth at FX -- or excuse me, at the Fox International Channels and at STAR in India. The balance of our growth was from the inclusion of FOX Pan American sports business partially offset by the impacts of foreign currencies.

First quarter advertising revenues for this segment were up 5% over year-ago levels, led by a domestic ad growth of 8%. And at the international channel, local currency organic growth was in the high-single-digit range. However, after reflecting the negative impact of the stronger U.S. dollars, these revenues declined by 1%.

At our Television segment, operating income in the quarter of $156 million increased 17% versus the first quarter a year ago due to a more than doubling of retransmission revenues and higher political advertising, which more than offset a lower base market affected by Olympics and the economy. Political advertising is generally coming in as expected, with approximately $40 million of political ad revenue received in the quarter.

At our Film segment, first quarter operating income was $400 million, 15% higher than a year ago. This growth primarily reflects higher Television production contribution that include the increased digital distribution revenue. The quarter result also includes the successful theatrical release of Ice Age: Continental Drift, which grossed over $850 million in worldwide box office received to date.

Turning to SKY Italia, segment operating income in the quarter of $23 million declined $96 million from a year ago. This anticipated decline was driven by higher program expenses, including nearly $70 million of costs related to this year's broadcast of the Olympics. The timing of this additional premium programming was not ideal given the current challenge in economic environment in Italy, which is directly impacting gross subscriber additions and churn. SKY reported 4.86 million subs at quarter end and net loss of 40,000 in the quarter.

Local currency revenues increased 1% over year-ago levels on higher subscription revenues, although U.S. dollar reported results reflected more than 10% negative impact from the weakening of the euro.

In our Publishing segment, operating income of $57 million declined 48% compared to a year ago. This decrease largely reflects lower advertising revenues across all newspaper divisions led by declines of the Australian and U.S. Publishing businesses. These declines were partially offset by contributions from the launch of the Sunday edition of The Sun and higher revenues at HarperCollins principally from the acquisition of Thomas Nelson.

And at our Other segment, we reported a first quarter segment operating loss of $211 million versus $99 million in the same period a year ago. This quarter result included $67 million of costs related to the ongoing investigations initiated upon the closure of The News of the World and $5 million of costs related to the proposed separation. Additionally, this quarter reflects higher development cost at the company's education business. Joel Klein is scheduled to give you considerably -- considerable insight into our planned strategies for this business at the upcoming UBS Investor Conference in early December, which is held here in New York City.

Before I turn to guidance, I'd like to update you on our $10 billion buyback program. Through November 5, the company spent almost $5.8 billion repurchasing over 308 million shares and has reduced News Corporation's total average shares outstanding in the first quarter by over 9% compared to the first quarter a year ago. As indicated previously, we're fully committed to completing the full $10 billion of authorized buyback, and we're targeting to repurchase shares at a $3 billion to $4 billion annual pace as we work through the details of the separation process. Our objective is to buy back our shares in a disciplined manner without artificially pushing our share price up during periods of low trading volume.

And finally, let me address our guidance for fiscal 2013 total segment operating income. And as a reminder, we measure this guidance excluding from fiscal 2012 the $224 million of charges related to the ongoing investigations in the United Kingdom, resulting in a base of $5.6 billion in segment operating income for comparative purposes.

After excluding the full year effect of the U.K. investigation cost and separation cost, and based on all the assumptions inherent in our projection, we expect that our total segment operating income percentage growth rate for fiscal 2012 to continue to be in the high-single to low-double-digit range above the $5.6 billion fiscal 2012 segment operating income base level that we outlined for you 3 months ago. And while this guidance now includes the estimated consolidated contribution from the acquisitions of CMH in Australia and ESS in Asia, those contributions are essentially offset by the inclusion of the first year's timing effect of the marketing cost from the initial releases under our new DreamWorks Animation distribution deal.

And with that, I'd like to turn the call over to Chase.

Chase Carey

Thanks, Dave. Before I comment on our business, I want to recognize that many of you live in the New York New, Jersey area and hope you and your family and friends are managing the recovery from Hurricane Sandy.

At the company, we've done our best to help the relief efforts both through donations and also by working directly with the FEMA to raise awareness of federal disaster relief initiatives through various media across News Corporation. We know it's been a difficult time for many of you, so please note that we wish all of you the best as our entire community works to make a full recovery.

Now let's look at the quarter. Our first quarter has provided us with a solid start to fiscal year as we continue to meet our growth targets and drive our businesses forward. While we're facing some significant challenges due to economic headwinds, particularly in a couple of businesses, we're confident in our standing from both a financial and strategic perspective and continue to believe we're positioned for growth in both the short and long term.

As Dave noted, our results continue to be driven by our cable channels business, which delivered almost $1 billion in operating income in Q1. In the U.S., our strength in this segment was pretty much across the board. Fox News continued its strong performance, ranking #1 in total day in primetime viewers for the 43rd consecutive quarter. At FX, American Horror Story and Sons of Anarchy had spectacular season premieres, laying the groundwork for solid seasons ahead.

Our U.S. sports channel has also had a solid first quarter. More importantly, we've finalized key agreements with Major League Baseball and NASCAR that will collectively serve as the foundation for both our Cable and Broadcast businesses for years to come. In a world of increasing fragmentation and growing digital technologies, we believe key must-have content is more important than ever.

Equally, I want to emphasize that we only make financial commitments like this for we're confident we can create real, incremental value. We're very excited about the long-term growth potential of the broad and diverse mix of the must-have leading channels we're building.

Internationally, our channels are on target and continue to execute well in spite of the economic woes in Europe and the adverse consequences of the strong dollar on our results. At STAR in India, our results are in line with our expectations, although down from a year ago, as we ramp up the sports business discussed last quarter and as we feel the impact of a weak rupee. We continue to be very excited about the long-term growth potential for international businesses and believe they're stronger competitively than ever before.

Our creative businesses continue to develop award-winning films and television shows across every genre, posting exceptional box office and ratings numbers and building loyal fan bases around the world. In fact, our TV Studio recently won both the best drama and comedy Emmys for Homeland and Modern Family, respectively. With those series, as well as traditional stalwarts like Sons of Anarchy and Glee plus new franchises like New Girl and American Horror Story, we continue to have a great pipeline of product for traditional syndication and cable outlets, as well as the ever-growing collection of digital distribution outlets. The digital market, both in the U.S. and abroad, continues to be a real area of growth, particularly for unique hit content.

Our film studio is also well positioned. In the first quarter, Ice Age: Continental Drift was a worldwide box office hit and a testament to the growing strength of our Blue Sky Studio, which has become a clear leader of the growing animation segment. We're now gearing up for a great one with Taken 2, having grossed more than $300 million, and the critically acclaimed Lincoln and Life of Pi waiting in the wings.

We also continue to build into digital distribution opportunities for feature films. Our recent groundbreaking Digital HD initiative for advanced electronic sell-through of Prometheus was a success and bodes well for more innovative opportunities to re-energize the Home Entertainment segment over the next few years.

At our Broadcast business, our results have been mixed this fall. On the positive side, we continue to be on track with our goal of building a dual revenue stream business through both retransmission and reverse compensation with our affiliates. Our stations continue to do a great job maximizing margins and market share. However, our home entertainment launches have been below our expectations, and the 4 Game World Series was clearly not what we had hoped for. Nonetheless, we're focused on initiatives to build on some of our key franchises and look forward to the return of a refreshed American Idol in January and dynamic upcoming new series like The Following starring Kevin Bacon.

The advertising market have also been mixed. Political spending has exceeded expectations, while the base local ad markets were a bit softer in the first quarter with trends down in the mid single digits excluding political ads. Q1 was also adversely impacted by the Olympics. Second quarter looks a bit better, with postelection results tracking up in the mid single digits from a year ago.

Nationally, we're still seeing broadcast scatter at a modest premium to upfront pricing, and national cable is a bit stronger than national broadcast. It is still clearly, however, a mark with very limited visibility.

Two businesses where we're clearly feeling the impacts of economic woes are SKY Italia and Australian publishing. In Italy, a decline in subscribers coupled with weak euro and the one-time cost of the London Olympics made this a uniquely challenging quarter. And we assume the economic challenges are going to continue. Therefore, our plan is to stabilize profits in the short term by focusing on quality subscribers to limit churn and reduce programming and operating costs to the level appropriate for our current subscriber base. Our competitive position continues to strengthen as others struggle in the market, so we remain bullish in the long-term potential for this business. And when the market improves, we will be well positioned for growth from a streamlined base.

In Australian publishing, the decline in displaying classified advertising has clearly hit these businesses. As I discussed previously, we have major plans already being undertaken by our management team to address these shifts.

Most of our other businesses are pretty much on target. In the U.K., we're recognizing the benefits of the Sunday edition of The Sun, while at HarperCollins, we're realizing expected gains from the Thomas Nelson acquisition. That said, these businesses continue to face challenges stemming from lower advertising revenues as readers continue to migrate to digital platforms.

In closing, I'd like to emphasize that despite the challenges I outlined, News Corporation is in a unique position to face challenging macroeconomic issues head-on and to continue growing our core businesses while taking advantage of new opportunities wherever possible. We continue -- we will continue to address off balance sheet assets as illustrated by our recent CMH agreement, and we'll also continue to address our capital structures through initiatives like buybacks and strategic investments to strengthen our core businesses. If the company progresses towards its planned separation, we are convinced that our businesses are ideally positioned as leaders in providing the best in news and entertainment to our customers while delivering the greatest possible returns to our shareholders.

With that, I'll turn it back to Reed.

Reed Nolte

Thank you, Dave and Chase. Operator, now we'd like to take questions from the financial community, please.

Question-and-Answer Session

Operator

[Operator Instructions] Our next question -- our first question will come from the line of Anthony DiClemente with Barclays.

Anthony J. DiClemente - Barclays Capital, Research Division

Two questions, I guess one for Dave and one for Chase. If I look at your Other segment, even if I add back the one-time items that you talked about in the release, the $67 million, the $5 million and $15 million, there's still operating income loss of $120 million, and that did widen year-over-year. So I'm just wondering if we could just take a step back and maybe remind us what's in that Other segment? Is it same losses that continue? And what can you guys do to try to bring that segment to breakeven over time? And then second question is a bigger picture for Chase. I'm wondering if you could update us on sports globally. You guys have been successful on your strategy of acquiring sports rights in different countries and leveraging those rights for higher affiliate fees internationally. Just wondering if you could update us on your efforts in that way and what we should expect from that strategy moving forward.

David F. DeVoe

Yes, Anthony, I'll deal with the Other. What's in Other, Anthony, is principally, it's our head office, it's our education business, which I mentioned. And it includes our executive comp. And our executive comp is slightly different from some others is that any of the related compensation that's related to our stock is mark-to-market such to the extent that we have increase in our stock price, that compensation is mark-to-market. In this case, our stock has improved significantly. So we've got a bit of a hit in the current quarter for that.

Chase Carey

And I guess in terms of sports, I mean, obviously some of the recent deal they talked about, we've just signed really the like the -- in the U.S., the baseball and NASCAR deals are new and just implemented. But I think the U.S. really, for us, we're pretty much on track where we want to be. We think sports, as I said in the opening comments, are an increasingly important part of -- particularly building a real dual revenue business. And in a world that gets more and more choices and more and more technologies, we think sports become ever increasingly valuable. And so it gives us an opportunity really to build all our businesses across the channels and really to have a breadth of strength. Same theme is really true internationally. Most of the international initiatives, other than ones tied to the SKY platforms, are pretty new. We're probably less than a year into Latin America, that's ahead of plan. In Asia, we're really just -- we're just launching. It was just the first quarter in India. I think we're just closing now the ESPN STAR transaction, so I don't -- so we really haven't even -- I don't actually think we've closed it yet. So that is closing. I think the initial results of India, we feel good about. We're very much in line with our expectations. Sports in Europe and the SKY platforms continue to be a critical part of that business. In places like Germany, we launched the sports news channel a year ago. That's been a real success for us, the key rights we've acquired have certainly been an important part of building a platform like that. And I think as we look at the SKY businesses, we think those sports have been critical to their growth and continue to really deliver what we expect. And I think we look for new opportunities. I think we announced the deal to take the Dutch football rights, that deal is still awaiting approval. But again, I think it's a transaction that would give us an ability to take those sports rights, including a broad package of programming and really drive all our channels forward. Where we've had a chance to execute on that around the world, it's certainly, I think is very much delivering what we expected or more, again a place like Latin America is probably the one that at least has a year under its belt. The other -- the SKY platforms have actually been at it for a while, and certainly it's been critical to their success and growth in the U.K., in Germany, in Italy.

Operator

Next question comes from the line of Jessica Reif Cohen with Bank of America Merrill Lynch.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

I guess a couple of quick ones. When you think about the profits for FIC, given the increase in sports, which is a very clear strategy, and the FX headwinds, have you changed your outlook at all for your -- the goal that you've outlined, the $1 billion in profits?

David F. DeVoe

Yes. I mean I think if -- where the majority of that is, it's certainly in some of them like Latin America because we're a year into it. It will be increment -- that would probably be on top of the $1 billion. In some of the other places, you'll probably have a couple of years of building cost. Right now, India will be a process where we're investing in building that sports business for a couple of years and really the gains come a couple of years down the road. So, I think it's -- I mean we haven't take -- we haven't even started in Asia yet. We don't take possession of that probably until the end of the year. So in a couple of years, we'll still be in the early stages of it. So clearly a change in the perspective. I think if you look 2 years from now, you'll have some places that are mature enough to really be an incremental addition to it. You'll probably have others where we're still in the building process and building those sports franchises.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

And then, Chase, I'd love to get your point of view of like what do you think is happening with viewers overall? I mean, some of the -- some networks have very strong ratings, many, many are down. I mean it really does seem like the appointment viewing is a thing of the past. What are you -- how are you guys thinking about it in terms of how you capture these viewers? What are the discussion like with Nielsen?

Chase Carey

Yes. I mean, I think there is no question that you are seeing a sort of an ongoing change in how people view this content. I think it makes -- I think the content viewership is actually stronger than it's ever been. In some ways, it’s stronger than it's ever been. And I think the ability to access content when you want, where you want, multiple platforms, out of the home, in the home, makes this content more valuable. But the fact of the matter is people are watching in a lot of different places, not just linear networks. Linear networks, I still think, are going to be tremendously important launching pads for the product, but people are watching it on DVRs and digital platforms and on VOD on -- inside the home, as I said outside the home. And I think we need to continue to work with Nielsen and others to figure out how do we first measure that viewership. Clearly, parts of it like VOD after 3 days or mobile platforms aren't being measured. We need to get it measured. We need to make sure we continue to find ways to make sure we're getting I think the dual revenue stream obviously becomes increasingly important. TV Everywhere becomes a part of that to make sure you've got business, you've got abilities to get rewarded for that viewership wherever it is. Some of it's going be through subscription-based payments, some of it's going to be through [indiscernible] advertising. We need to do both. We need to make sure we find ways to continue to maximize the value of that through things like dynamic ad insertion, to make advertising more valuable. I think all of these are really opportunities for us to continue to make -- to continue to grow this business. Again, I think this actually is a real opportunity, if this content gets more valuable, more popular, more important. But we need to make sure we continue to grow the business model that enable us to get rewarded for creating and distributing great content.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

All right. And then just, Dave, one quick one. Just on the split, can you give us any color on what the balance sheets of the 2 companies will look like? Have you given it any more thought?

David F. DeVoe

No. We'll give you more information as we get closer to the end of the calendar year. My job is then to say that we're still on plan. We believe we're going to be finished by the end of June. That's what we're working for, working towards rather.

Operator

That comes from Michael Nathanson with Nomura.

Michael Nathanson - Nomura Securities Co. Ltd., Research Division

I have 2 for Dave on guidance. Can you talk a bit about what your expectations for Fox Networks through the rest of the year? Within your guidance, do you assume it gets better in terms of ratings or are we assuming this is the kind of rates that will play out the entire fiscal year?

David F. DeVoe

I think as we look at the ratings -- or look at the guidance, we're off to a really good start in both Cable and the Film business. We've got some ups and downs across all the businesses, but we feel pretty very good about where the guidance are -- is rather we have the -- obviously, we know where we are after where the ratings have been and we know where we are after the World Series. And I think that's pretty much all we're going to really say about that.

Chase Carey

No, I think we take a realistic view of what we think will happen. As I said, we recognize we're below our expectations certainly in the fall, both through entertainment and the World Series. I think we're realistic about that. We've got some things coming, but I think it's a realistic set of assumptions about where we'll be.

Michael Nathanson - Nomura Securities Co. Ltd., Research Division

Okay, then let me ask one more follow-up on the DreamWorks impact. Is there anything else besides just P&A expense that you're highlighting? Is there any other costs or is that where you're calling out the effects of P&A in the second half?

David F. DeVoe

That's the effects -- the timing effects of the P&A.

Chase Carey

Yes, it just happens the first -- not the first film, I think it's the second film, but it's like released early July so you got all the P&A in front and you got the release right behind it where we capture everything on a first dollar basis. So it's just the reality the way the accounting in our year end works.

Operator

It comes from the line of Richard Greenfield with BTIG.

Richard Greenfield - BTIG, LLC, Research Division

Was just hoping couple of questions, one on film to follow up. You made obviously some changes in the studio management team. I was wondering if you could talk to kind of strategically why and how to think about what that -- how directionally you may change with the changes? And related to that, kind of why DreamWorks Animation? What really drove that deal in your mind? What was so important about that deal for you? And then just there's been a -- Rupert has been tweeting about Penguin. The presses said you're a buyer of Tribune, the L.A. Times. I guess just anything you could comment on in terms of your ambitions to grow acquisition-wise on the Publishing side would be helpful.

Chase Carey

Okay. Long ago, I learned not to comment on Rupert's tweets but -- yes, on the Film business, there isn't a shift in -- there's not a shift in strategy and direction. You don’t say a lot about change, but I think these businesses at times, it's stuff -- for both sides, it's the right thing to sort give it some fresh perspectives and I think change. Stability's good and as times change, it's good for both. And -- but I think it's really continuing where we've been. For DreamWorks, we can see -- we think that product is great event product and great worldwide product. We clearly have -- we think a uniquely strong global distribution operation, it enables us to create incremental value out of that. And I think this is a business that really benefits from having a broad set of hit products, and we can make some money off it. So it's not -- I don't think it's not that -- it's not rocket science. I think why we -- what we look to get out of it is make some real profits and have some hit films that we think can really strengthen our business. And we value the relationship with DreamWorks and look forward to working with them. I'm not going to get too deep into all the rumors on what we're buying or what we're looking at. We always seem to be the topic of the day when it comes to rumor of some transaction. We were quite clear on a couple of them of where we are. I think that -- I think those comments on some of the label -- one of the ones you mentioned speaks for itself. The reality is, a lot of times what we're associated with just as true, they’re sometimes kicking the tires on things. Obviously, we should look at some things. But I am not going to get into commenting transaction by transaction, rumor by rumor.

Richard Greenfield - BTIG, LLC, Research Division

And in terms just from the Publishing business, is there -- looking at Rupert's comment that you would expect, I think you said on the call, maybe Dave said it that you thought you'd be relatively similar in profitability year-over-year in fiscal '13. Is that still accurate despite what happened in Q1?

David F. DeVoe

No, I would say that our overall Publishing segment would be down year-over-year.

Operator

That comes from the line of Doug Mitchelson with Deutsche Bank.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

The [indiscernible] -- it seems like we get a daily email speculating News Corp's going to buy something. Any update on the left [indiscernible] M&A upside that management has right now, especially given the ongoing split process? Then I have a follow-up for Chase.

Chase Carey

No. I mean, there's really not a lot to add to what I just said. We're not -- yes, I agree with you, we are -- there is a daily rumor. And I don't think we're really practically commenting on the daily rumors. So as I said, a lot of them are not true. They're a lot -- the places where we think we should kick the tires on things, and like our places where we think we can add something that makes sense for us. But our focus is really on building or growing our businesses.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Yes. Sorry if I missed that if you already answered to that. So, Chase, maybe this question is a bit unfair, but can you talk -- in answer to Jessica's question about how the TV business seems to change to capture monetization of usage of the most -- more from iBroadcast down demand streams. And we've been hearing this from sort of all media managements for a couple of years now. Why is it so hard to change TV business, and how big a priority is it for News Corp. right now? Is that this year's problem? Next year's problem? Any sort of context around the pace of change would be helpful.

Chase Carey

Well, I mean, I do think business has changed. I mean, I guess, look, one of the things I cited that is important to deal with the world we're in is making sure you're building dual revenue businesses that are not solely dependent on advertising. They have the other leg of subscription revenues. And certainly, our growth of retransmission speaks to it. So I think there are aspects to it. We actually today are monetizing our digital viewership in ways we weren't a year ago, so we're doing some of that. We are working with Nielsen, as you said, to continue to expand the measurement tools. Things like TV Everywhere, as our transactions come up, I think are ways for us to create, and we're putting that I've said before and we're probably still say -- we're somewhat frustrated by the speed or the lack thereof of growth and implementation and execution of TV Everywhere. But certainly it's moving forward, and I think that's important as a business model. Hulu, we're taking, we're taking Hulu Plus, which is a way to monetize and sort of create revenues for accessing content to mobile platforms. So I actually do think we're doing things. We're not -- we've got a lot more to do and clearly a lot of opportunities that we still have to develop. But -- and we're not where we should be on some things like TV Everywhere. So I'll acknowledge it's -- there's work to do. But I think we've got a lot going on, and I think we've made real headway on a number of fronts.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So dynamic ad insertions sort of have to follow TV Everywhere, right? You have to get those deals done and then maybe that starts to become the conversation?

Chase Carey

Yes. I mean obviously, dynamic ad insertions, we certainly see -- we can't do alone. You need -- I think everybody recognizes the opportunity inherent in it. There certainly are efforts trying -- in place to try to start to develop it, and I think everybody, again, would like to see it evolve. Yes, it's part of a broader set of discussions, but everything's sort of intertwined. And I think that one, that one I think is a win-win for all. And hopefully, we can help find ways to move it forward.

Operator

It comes from the line of Todd Juenger with Sanford Bernstein.

Todd Juenger - Sanford C. Bernstein & Co., LLC., Research Division

You -- I guess I got 1.5 questions. Until you close the quarter with about $12 billion of cash on the balance sheet, I think, [indiscernible]

[Audio Gap]

[Technical Difficulty]

Operator

It comes from the line of Michael Morris with Davenport & Company.

Michael C. Morris - Davenport & Company, LLC, Research Division

Two questions. First, on retransmission agreements and the length of the contracts there. Some of your peers that have entered into long-term sports rights agreements, they also have entered into long-term retransmission or cable affiliate agreements as long as 10 years. I guess my question is when you look at the deals that you've done on the sports side, would you also like to enter into those long-term type agreements or do you think that limits your flexibility too much going forward? And then second, just over on Latin American sports. There's a couple of big events coming up over the next 4 years between the World Cup and the Olympics. Will you participate in those events, and how will you -- how does that help your business?

Chase Carey

In terms of retransmission, our goal and our -- what we've done to date is to try to keep agreements shorter rather than longer, they're all about a year agreements, obviously. But we would prefer and we've strived to keep the agreements short. We believe content is increasingly important, and we'd rather be able to continue to have the flexibility to get rewarded for being successful in creating great content or franchises of brands. So that's -- directionally, that's where we've tried to go and that's where we look to go and that's where we've been successful to date going. Compared to the Latin America, I'm not going to probably -- or I don't think it's ever the right thing to say, speculate on individual franchises before they're there. I think we evaluate an array of them. Yes, I think the backbones to those -- the backbones to those channels have been probably more regular season sporting events. But I think if we can strike the right deals and right places, we'd certainly look at it. But we don't have a deal -- we don't have any arrangement with the Olympics today down there. And that's -- again, we'll see where the world takes us. But we like the properties we've got in Latin America. We're ahead of -- we're significantly ahead of our plans, and I think we'll continue to focus on the path we're on. But not how do I get down the road and speculate on individual rights we don't have today.

Michael C. Morris - Davenport & Company, LLC, Research Division

Just back on the first question, on retransmission. Is it safe to assume then that you feel that the increase that you should get overtime for retrans, the value of your network should increase at a greater rate than the increases that are in these long-term sports contracts that you're entering into?

Chase Carey

Yes, look, I think it's -- and I've said it before, so I mean again, I mean I -- we have -- we feel good about the retransmission revenue stream we've built. But the reality is I don't think on any competitive basis, if you look at all the other channels out there, there's no question we're not getting rewarded comparatively for the value of the FOX Network. And I think we've taken a real step forward. We said we're looking to get what we think is something the market could manage and moves us in the right direction. But it certainly is not competitively comparable to what other channels get given the breadth and importance of the programming that exists on the FOX Network.

Operator

Okay, and we do have Mr. Juenger back online.

Todd Juenger - Sanford C. Bernstein & Co., LLC., Research Division

So I had 1.5 questions, if I could. So about the cash. You ended the quarter with $12 billion of cash in the balance sheet, some of that's in NDS and I think a new note you issued. I know, Chase -- I believe you said before that you'd -- I think you need about $3 billion sort of liquidity at steady state. So I don't know if there's any of the blanks you can fill in between the $12 billion and the $3 billion that you might help us sort of round that out. And the half of question that I'd like to accompany those, just if you could be so kind as to talk about the rule of the dividend in that answer. I think if yielding less than 1% now and, I know you have a preference for buybacks at the share price. But there seems like you could argue you could have room for both and still love to hear your thoughts on that.

Chase Carey

Yes. I guess that, a couple of comments, one, we're in the process of completing just the acquisition in Australia, that alone is a $2 billion acquisition. So that is obviously on the short term.

David F. DeVoe

[indiscernible] close the deals.

Chase Carey

So we have some things we've...

David F. DeVoe

And we have a continuation of some of our buyback over the course of the year.

Chase Carey

Yes. And so we've got events in place. That being said, I think we said before, we recognize to get us to where I said, which was $2 billion to $3 billion of cash and up to 2.5x leverage. So I'm saying again clearly, there are events that are on the short term, very short-term horizon against that $12 million. I don't want to get to -- I mean, again, more recently, what we said with the split coming, we don't want to -- I don't want to get too far down the road ahead of having those 2 companies in place, the balance sheet establishes in place for each that enables each to come out with an appropriate picture. Obviously, we're splitting the businesses because they're going to be business with different profiles and different needs. And I think until we get there, I think it's probably better for us to describe where we go from there once those things are achieved. And I think that would include dividend statement. I mean I think the dividends should be a part of the mix of our discussions. They have been with buybacks. I think we've said with our stock and our value, I think had flipped at buybacks is a better path to returning cash to shareholders than dividends. But they should be a part of the conversation. But I think before we -- but I think that with the split becoming more and more imminent, I think it's more preferable for us to get the split and have the discipline to get the split on and then address where we go from there with the 2 separate balance sheets.

Todd Juenger - Sanford C. Bernstein & Co., LLC., Research Division

Okay. It sounds like basically the answer is, other than the identified items, yes, like we've got those, that more become clear after the split.

Operator

Next question comes from line of Adam Alexander, Goldman Sachs.

Adam Alexander - Goldman Sachs & Partners Australia Pty Ltd, Research Division

Just a quick question on FOX Business. It seems to be getting some traction during the September quarter. Wondering whether, Chase, you can give us an update there and whether you have any plans for more extensive use of the Wall Street Journal content in the cable space next year?

Chase Carey

Yes, actually, FOX Business Channel has made nice strides. I mean it'll -- we still have some distribution issues we have to deal with it. It's not distributed as widely as we'd like it, so we have to deal with that. It made some nice strides in ratings. I mean it's got -- just looking at it the other day, it's -- it was, yes, Lou Dobbs, I think beat his counterpart of CNBC in his time period. So I think it has some nice momentum to that business. Business Channel will be profitable this year, this fiscal year, so we're -- it's on a good track. We've got to continue to build -- fill out the distribution. We've got good distribution, but not the full distribution we need. But we think we have paths to addressing that in the reasonable short term, in the next year or 2. So it's on a good track, and we feel very good about it and feel very good about the progress we've made there and the opportunity to continue to build that business. And look, we've got a great team leading the Fox News group. The results they've got speak for themselves. And we have tremendous confidence in their ability that they -- as they did with building Fox News to really continue to distinguish the FOX business as a really exciting sister channel to the Fox News One. What's your second question?

Adam Alexander - Goldman Sachs Group Inc., Research Division

Just on the Wall Street Journal content, next year I think you're agreement ends up.

Chase Carey

No, I think our agreement -- I don't know the exact time. It's reasonably soon. It's not over yet, but it's reasonably soon, and I think we'd look for opportunities to do things that make sense. So we've had discussions, and I think we'd look to be opportunistic.

Operator

Next question comes from the line of Tim Nollen, Macquarie.

Tim Nollen - Macquarie Research

I just wanted to track back on the issue of advertising, please, in the most recent quarter and in the current quarter. Could you give us a view again please, stripping out all the political and Olympic impacts, why do you think advertising was soft in the quarter just completed? And why do you think it might get better now in calendar Q4 year fiscal Q2, please? And I'm talking both Broadcast and Cable, please.

Chase Carey

Well, strip out the Olympics, I mean, it's sort of I can strip out -- it's easier to identify political. So I do think for calendar Q3, clearly the Olympic, I mean stripping out politicals, the Olympics, a lot of the money in that period got stuffed into the Olympics. Again, that would be a more subjective valuation, and I probably not do it, but it's just a fact. I think in looking at calendar Q4, yes, I mean we're halfway through calendar. So as we start looking at what we're seeing today, it's not -- this is not a sort of, yes, some of it's assumptions on what will happen. As I said, you got a pretty short-term time horizons towards this. But we get reasonably -- certainly, we have a level of visibility to a quarter that we're close to the middle of where they are. And I'm not saying that this quarter is rocking and rolling. I mean I think the quarter's a bit better than it was last quarter. I mean I think but underlying it, I think you have an economy that clearly has limited visibility. I think a lot of -- I think there is some degree of people waiting for the election year-end sort of what happens as you go by, as you go through some of the events, the fiscal cliff and the like. And so, I think you've got a market that is pretty reserved at this point and pretty cautious and limited visibility. So yes, I think if you try to take the Olympics out of it, I wouldn't say it's a dramatic difference between Q3 and Q4, I'd say Q4 is a bit better. But I think the market’s overall are okay, not great and not bad. But are okay, but with -- I think a fairly cautious view of the world in a pretty short-term view of things.

Tim Nollen - Macquarie Research

Okay. And what was your comment on the scatter market? In the current quarter, you said something. I just missed it, please.

Chase Carey

No, as I said on the scatter market, we're still getting modest. And on the broadcast side, we're getting a modest premium to the upfront pricing. So -- and again, that continues to be okay. We felt good about the upfront, so we're getting a modest premium. And we're probably getting a better premium in the national cable side, that the mix of channels. But they're channels we're getting double-digit scatter premiums with channels there. So the national cable's a bit stronger than the broadcast -- I mean, national scatter is a bit stronger than the -- national cable scatter's a bit stronger than the broadcast -- national broadcast scatter.

Operator

Next question comes from the line of Vasily Karasyov with Susquehanna Financial.

Vasily Karasyov - Susquehanna Financial Group, LLLP, Research Division

My question is about your comments on SKY Italia in the prepared section. If I understood correctly, we're talking about rightsizing the cost structure and to reflect the revenue opportunity there now. And if I'm correct, what kind of margin do you have on mind? If my model is correct, I think the peak margin was around 11%, 12% for SKY Italia?

Chase Carey

Yes. I'm really not going to get into that type of precision on margin. I mean your general assumption is right. I mean look, we assumes -- we are on track to have a higher subscriber count than we do today, basically affected the top line. I think we assume the subscriber -- net subscriber -- subscriber growth will be reasonably -- our subscriber level will be reasonably flat for this year. I think with that in place, we need to -- we want to move to deal with both our operating costs and programming costs. Unfortunately there, most of them at programming side agreements are not very long-term and rarely get the cost reset to the revenue base, so we've got a lean business that as the market improves, we can take advantage of it. And I think in some ways, we can take advantage of the fact that while the market is impacting everybody, I think I do really believe our competitive position continues to improve and, in some ways, it's the strongest player in a market where a lot of people are struggling. There should be opportunities for us to take advantage of that intelligently while continuing to improve our financial position.

Vasily Karasyov - Susquehanna Financial Group, LLLP, Research Division

So would it be fair to say that your current contract, programming contract, and so on, they would allow you to see cost rationalization by next fiscal year already?

Chase Carey

No. I mean, obviously we have a lot of programming contracts. They're not -- it's not all one. They're certainly ones that go past next year. They're not -- we have multiyear contracts. We don't have -- we're on long-term contracts. The nature of the business is like the agreement that start earlier in the years. On the soccer rights is we're in the first of 3 years, so there's some that go for a couple of years. There's some that are shorter than that. There aren't a lot of long-term contracts there. But we can certainly make -- I think we can make strides this year, make strides next year.

Operator

And the last question will come from James Dix with Wedbush.

James G. Dix - Wedbush Securities Inc., Research Division

I guess, Chase, you've commented more than once about how your broadcast retransmission fees still to have a lot of upside compared to what the broadcast networks offer the consumer. I wanted to just look more broadly across all of your cable networks and see are there other networks where you see particularly large opportunity? And in particular, I'm interested in comments regarding the RSNs and the upside that they might have compared to comparable properties if there are any in their markets?

Chase Carey

Yes. I mean, we have a large group of channels, and I probably usually put them in a couple of -- in a couple of buckets. I think they're channels that are uniquely strong within -- uniquely strong or with a unique programming. And I think unique programming becomes more important than ever. Again, it's in a fragmented world. And certainly something like Fox News, as we've said before, we've made real headway but I think Fox News continues to be a channel that is as important as any to a segment out there in the marketplace. And we should get fair value for the importance that Fox News has. Sports, we think, becomes increasingly important, and it's important for us to get -- to continue to generate fair value for those sports rights. I think the channels like National Geographic where I think the opportunity for us is really to tap into some things that we've got new management in place. They actually had an event that did really well on Sunday night. But tap into an opportunity to really build that channel to what it can be. And I don't think we have done that. I think we've got some national sports channels that really have been sort below the radar screen, and I think we can -- I think we've got enough breadth and the right franchises to really build them into something that can be special for us. So I think we've got properties. I think we got -- identified strong franchises where we've got to continue to get value, we've got room to do that. We've got channels that aren't taking advantage of -- aren't really probably achieving what we think they can achieve. We've got some channels that we probably have strategically focused on, and we're going to do some things to get value there. And I think channels like FX just continue to get stronger with more distinct program than anybody else in that sector. So, yes, I think it's about a -- it's a matter of getting fair value for unique content. I think we've got great content, great unique content. And probably in many ways, equally citing a number of franchises that haven't really been developed to anything close to their full potential. So that's where the growth comes from.

Reed Nolte

Thank you. At this point, we're out of time. Thank you, everybody, for joining today's call. If you have any further questions, please call Joe Dorrego or myself here in New York.

Operator

And ladies and gentlemen, that does conclude today's conference. We did record today's conference, and it will be available for replay starting at 6:45 Eastern today through November 20, 2012 at midnight. You may access the AT&T replay system by dialing 1 (800) 475-6701 and entering the access code 268818. International participants may dial into the United States, (320) 365-3844.

That does conclude today's conference. I want to thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: News Management Discusses Q1 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts