Read it and weep - News Corp's results

Read it and weep – News Corp's results

Publishing drives down News Corp's profits

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 9, 2012 3:56 pm AEST

News Corporation (ASX: NWS) has reported a net loss of US$1.6 billion for the June quarter, including a US$2.8 billion writedown, primarily related to the company's publishing businesses. Full year net profit came in at US$1.2 billion on annual revenues of US$33.7m, a more than 50% fall compared to 2011's profit of US$2.7 billion. Excluding one-offs, operating income increased 13% to US$5.6 billion.

News Corp is a complex beast with multiple associates, joint venture and partly-owned operations. Following is a guide to the company's main divisions.

Cable Network Programming is the driver of News Corp's business, generating more than half the company's operating income. It includes multiple TV networks, such as Fox News, FX Network and National Geographic channels. In 2012, this division generated US$3.3 billion in operating income.

Filmed Entertainment includes investments in various TV and movie production studios such as 20^th Century Fox, Fox Searchlight Pictures and Fox Studios. Operating income jumped 22% to $1.1 billion in 2012, mainly thanks to the growth of digital distribution revenue from licencing content to Netflix and Amazon. Television is third largest division includes FOX Broadcasting Company, the number one network in the US responsible for production and broadcasting of various TV shows, such as American Idol. It also includes another 27 television stations, including the US Fox Sports network. The TV division produced operating income of $706m in 2012.

The deteriorating part of News Corp's business is Publishing, and the division planned to be hived off into another listed company in the near future. Declining advertising revenues at Australian newspapers, UK newspapers, and the closure of The News of the World in the UK, led this division to report operating income of $597m, compared to $864m in the previous year. As mentioned above, News Corp also recorded a non-cash impairment charge of US$2.8 billion, consisting of US$1.5 billion of goodwill and US$1.3 billion on the company's other intangibles, mostly related to the Australian publishing operations.

The Direct Broadcast Satellite Television contains Sky Italia, which generated operating income of $254m in 2012, a fall of 9% compared to the previous year.

The Foolish bottom line

As we have seen, Australian media companies, Fairfax Media Limited (ASX: FXJ), in particular face several structural changes in their businesses. Newspapers aren't selling, advertising revenues are falling and migrating to other media channels (sorry!) such as internet, radio and pay-TV. Even the free-to-air TV networks are suffering with both Ten Network Holdings Limited (ASX: TEN) and Seven West Media Limited (ASX: SWM) facing multiple headwinds. (Seven West also owns the West Australian newspaper, so is probably suffering twice as badly.

It comes as no surprise then that News Corp plans to restructure the Australian publishing operations and split the global publishing business out from the media and entertainment businesses. The process is expected to take around 12 months.

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Motley Fool writer/analyst Mike King doesn't own shares in any company mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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