The strong result we reported this week from REA Group, 62% owned by News Corp, plus a full three months contribution from Fox Sports Australia, helped turn the December quarter results for Rupert Murdoch’s other company from a nasty slide, into a merely hiccup caused mostly by another poor quarter for the group’s struggling Australian newspapers.
REA Group boosted its profit contribution by $US9 million in the quarter, while Fox Sports added $US34 million. With an extra $US17 million from the groups book publisher, Harper Collins, News Corp was able to withstand a $US37 million slump in earnings before interest, tax, depreciation and amortisation (EBITDA) from the group’s newspapers and information services in Australia, the US and UK.
News said its earnings before interest, tax, depreciation and amortisation (EBITDA) fell 13%, and much of that can be blamed on Australia, and to a lesser extent, the Dow Jones operations in New York. But without the contributions from REA, Fox Sports and Harper Collins, it would have been a much larger, and more worrying loss for News.
Weakness in the Australian newspaper ad market was blamed for the revenue fall for the three months to the end of December. Australian newspaper revenues declined 17% and circulation and subscription revenues fell 7%, News Corp said.
The company said the news and information EBITDA fell $US37 million in the quarter, or 13%, as compared to the prior year. "Results were impacted by continued revenue weakness in the Australian market and Dow Jones’ Institutional business coupled with the sale of Local Media Group, partially offset by the absence of losses from The Daily and a favorable arbitration ruling at News UK."
It was another poor performance by the likes of The Australian, The Daily Telegraph and The Herald Sun as every paper in the empire saw heavy losses in circulations in the six months.
"Impairment and restructuring charges were $36 million and $62 million in the three months ended December 31, 2013 and 2012, respectively," News said.
"Total costs declined 8% driven by the impact of cost savings initiatives and lower production costs, as well as the sale of LMG, partially offset by increased promotional costs and sports rights acquisition costs. Excluding the impact of divestitures and foreign exchange fluctuations, Segment EBITDA decreased 8%. Impairment and restructuring charges were $36 million and $62 million in the three months ended December 31, 2013 and 2012, respectively," News said.
"Adjusted net income available to News Corporation stockholders, which excludes costs related to the U.K. Newspaper Matters, impairment and restructuring charges and Other, net, was $US179 million compared to $US178 million in the prior year."
Sales at the company’s largest division, News and Information Services, fell 9% year over year.
"The majority of the revenue decline reflects lower advertising revenues at the News and Information Services segment, foreign exchange fluctuations and the sale of the Dow Jones Local Media Group (“LMG”), partially offset by the inclusion of FOX SPORTS Australia, which News Corp began consolidating following the Consolidated Media Holdings (“CMH”) acquisition in November 2012, and strength in the Digital Real Estate Services and Book Publishing segments. Excluding the impact of acquisitions, divestitures and foreign exchange fluctuations, revenues were relatively flat with the prior year," the company said in its release.
The Australian newspapers, which saw revenues drop 17% (10% related to foreign currency), were the weakest performers. Circulation and subscription sales were down too, with Dow Jones (owners of the Wall Street Journal, and Dow Jones financial news and services) the primary cause of that. Gains in book publishing and digital real estate (the great result this week from REA Group) couldn’t make up those losses.
News said that second quarter Total Segment EBITDA of $US 327 million, rose 9% compared to $300 million in the prior year. "This improvement was mainly due to the consolidation of FOX SPORTS Australia, stronger performances in the Digital Real Estate and Book Publishing segments, and lower costs for the claims and investigations arising out of certain conduct at The News of the World (the “U.K. Newspaper Matters”), partially offset by higher losses at Amplify, declines at the News and Information Services segment and foreign exchange fluctuations."
"Excluding all costs related to the U.K. Newspaper Matters in both years and the impact of acquisitions, divestitures and foreign exchange fluctuations, Total Segment EBITDA declined 1% compared to the prior year," News said.
The weak performance at Dow Jones tells us why Lex Fenwick was forced out as CEO last month after just two years in the business. While that was related to a financial terminal business whose sales had slowed sharply, its felt that the entire approach to the digital world at the Dow Jones Co will need shaking up. That could very well extend to Australia and the UK.
Looking at its cable TV business News said second quarter revenues were $US110 million and Segment EBITDA was $US53 million. The increases relative to the prior year primarily reflect the consolidation of FOX SPORTS Australia beginning in November 2012.
"On a stand-alone basis, revenues declined 3% versus the prior year revenues of $113 million, as advertising market share gains, an increase in digital platform subscribers and higher affiliate pricing were more than offset by adverse foreign exchange fluctuations. Segment EBITDA increased 20% on a stand-alone basis, compared to the prior year Segment EBITDA of $44 million, primarily driven by lower programming costs, which were impacted by the absence of domestic cricket rights compared to the prior year.
"Excluding the impact of foreign exchange fluctuations of $13 million and $6 million on revenues and Segment EBITDA, respectively, revenues increased 9% from the prior year and Segment EBITDA increased 34%.
"For the three months ended December 31, 2012, on a stand-alone basis, FOX SPORTS Australia had operating income of $42 million and depreciation of $2 million," News directors said.
