Able cable keeps News flowing

Cable TV revenue provided the crux of News Corp's solid last quarter – further undermining the doubters – while publishing remained a finely balanced affair.

For all the talk of a slowdown in cable TV and the emergence of cable cutting, there is rarely any evidence it’s actually happening.

If anything, cable TV is continuing to demonstrate it is a solid category with strong future growth prospects. This was evidenced in stronger than expected earnings from News Corporation for the October-December 2012 quarter, driven by an 18 per cent increase in cable TV revenue and a 7 per cent increase in operating income.

News Corp’s cable results were undoubtedly the highlight of another solid quarter. Revenue and net income were up overall, US cable advertising revenue rose 8 per cent, with non-domestic advertising revenue rising 29 per cent – the majority of this increase a positive result of strong local currency growth within key Asian markets.

Expenses were up 29 per cent, due to content acquisition costs – News Corp making large investments in increasing programming and rights around the NBA and UFC.

Cable continues to be a larger contributor to News Corp operating income. For the six months ending December 31, cable accounted for 64 per cent. For the same period in 2011 it was 57 per cent.

The filmed entertainment area was relatively flat – revenue for the quarter was just north of $US2 billion, with Taken 2 and Life of Pi contributing over $800 million in global box office across this period. Margins and revenue are stable, suggesting costs are being closely monitored and the division is managing to avoid any theatrical stinkers. The new Die Hard instalment is due February, which combined with the DVD releases of Taken 2 and Life of Pi should ensure stable earnings for the first quarter of 2013.

The free-to-air US TV business is currently lethargic. Operating income was up 18 per cent from $189 million to $224 million, however a lot of this was driven by an increase in re-transmission costs as opposed to an increase in advertising revenue. Lower ratings for the Fox FTA channels is impacting ad revenue.

Publishing is in a similar situation – revenue at $2.14 billion for the quarter was flat, with operating income up 7 per cent to $234 million. The company reported Australian advertising revenue was down, but didn’t disclose how much. Standard Media Index data reported that in October, Australian newspaper ad revenue from media agencies was down 23 per cent year-on-year.

The big challenge for News in publishing is improving – or at worst, holding – margin. The publishing business has operating margins around 10 per cent, whereas cable has margins in excess of 35 per cent with Fox Filmed Entertainment at 18 per cent. This may prove to be difficult with unprecedented change in the Australian advertising market causing some pretty rapid investment moves in terms of allocation of ad spend by channel.

A glance at News’ confirmed investments over the December quarter demonstrates that it has an appetite to continue to build its position within cable TV. A spend of $350 million saw it acquire a controlling interest in European sports rights holder Eredivisie Media and Marketing, allowing it to obtain the media and broadcasting rights for the Dutch Premier League.

News also acquired 49 per cent of the YES Network in the United States – a pay TV channel which holds large sporting broadcast rights in the New York and New Jersey area, including the New York Yankees and the Brooklyn Nets. It made a similar purchase for Ohio based broadcaster Sports Time Ohio. In addition, there is the purchase of Consolidated Media Holdings which means News owns 100 per cent of the highly valued Fox Sports brand and 50 per cent of the Foxtel business here in Australia.

Given that in Australia, the publishing arm and broadcasting – Foxtel and Fox Sports – will be merged that may mean a joint sales structure may take a much more significant role in the sale and commercialisation of both Fox Sports and Foxtel, perhaps creating an advertising product that extends across newspaper, print, online and cable TV.

News Ltd chief executive Kim Williams has made some bold moves to date, so the concept, while ambitious, could happen.

Print and newspaper hitching a ride to the momentum of pay TV isn’t the worst idea in theory – however practice is a different matter.

Ben Shepherd is a media and technology consultant. He blogs at Talking Digital.

News Corp is the parent company of News Ltd, owner of Business Spectator.

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