THE News of the World scandal has not hurt the financial results of Rupert Murdoch's News Corporation, and given its booming television business, it is unlikely to do much monetary damage despite it raising questions about corporate governance.
During its annual results announcement from New York yesterday, the company was not prepared to say how much it thought it may have to pay out in litigation and settlement costs as it expected the consequent uncertainty to continue "for some time".
The scandal in Britain has led to the arrests of at least 12 people, the resignations of two senior News Corp executives and close Murdoch allies, Rebekah Brooks and Les Hinton, the shutdown of the 168-year-old tabloid and the termination of the group's #7.8 billion ($12.3 billion) bid to buy the 61 per cent of British Sky Broadcasting it doesn't own.
But its full-year and fourth-quarter results were a stark reminder of the minor contribution of its heritage newspapers to the bottom line - four-fifths of its earnings come from television and film, and its cable TV channels are booming.
It reported annual net profit of $2.74 billion, up from $2.54 billion last year, while fourth-quarter profit fell 22 per cent to $683 million, compared with the same quarter last year. That was due to the $254 million loss booked as a result of selling MySpace for $35 million in June, which it bought in 2005 for $580 million; it had previously written down some of its value.
The company has now rid itself of that digital drain, but it predicted the benefit in this financial year would be largely offset by lower returns from its publishing division - which includes newspapers in Britain, the US and Australia - given the close of News of the World and lower revenue from its Australian newspapers hit by weak consumer sentiment.
"The retailers are doing very badly," the chairman, Rupert Murdoch, said. "We just have to come through this."
Asked if the scandal had changed his "tolerance" of newspapers, he said: "No, I'm feeling confident." He did not expect much savings in printing, despite ongoing talks between News Limited and Fairfax Media, publisher of the Herald, to share some printing in Australia.
News Corp expects earnings growth in the "low-to-mid teens range" for this financial year across the group, thanks to its cable and television divisions.
Given the $12.3 billion in cash sitting on its balance sheet after the failed offer for the rest of BSkyB, the chief operating officer, Chase Carey, flagged future share buybacks on top of the $5 billion plan already announced and declared the share price to be "woefully undervalued". News Corp paid a $63 million break-up fee to BSkyB after being forced to call off the bid.
Since July 5, a combination of the phone hacking scandal and sharemarket jitters have hurt the company's two classes of shares, with its total market capitalisation on the Nasdaq market falling from $47.8 billion to $36.4 billion.
Mr Carey anticipated some acquisitions, but no large-scale ones, and was concentrating on growing its television divisions, particularly in India, Latin America and south-east Asia, and working on its publishing strategy.
The close of News of the World would have a "significant negative variance" on its British business, but the rest was undergoing a long-term transition.
Frequently Asked Questions about this Article…
Has the phone hacking scandal hurt News Corp's financial results?
Despite the phone hacking scandal, News Corp reported strong full-year results — annual net profit rose to $2.74 billion from $2.54 billion the prior year — and the company says its booming television and cable businesses, which generate about four-fifths of earnings, have so far limited the monetary impact.
Why did News Corp's fourth-quarter profit fall even though annual profit rose?
Quarterly profit fell 22% to $683 million largely because the company booked a $254 million loss after selling MySpace for $35 million (it had bought MySpace in 2005 for $580 million and previously written down part of its value).
What is the expected earnings growth for News Corp and what drives it?
News Corp expects earnings growth in the 'low-to-mid teens range' for the financial year, driven mainly by its cable and television divisions rather than its traditional publishing operations.
How have the News of the World closure and other publishing issues affected News Corp's outlook?
The shutdown of News of the World and weaker Australian newspaper revenue (affected by weak consumer sentiment) are expected to reduce returns from the publishing division; the company said the closure will have a 'significant negative variance' on its British business, though the group overall remains powered by TV and film.
What is News Corp's cash position and are share buybacks likely?
After the failed bid for the rest of BSkyB, News Corp had about $12.3 billion in cash on its balance sheet. The chief operating officer indicated future share buybacks are possible on top of a $5 billion plan already announced, and described the share price as 'woefully undervalued.'
How has the scandal and market reaction affected News Corp's market capitalisation and investor sentiment?
Since early July, the combination of the hacking scandal and market jitters reduced News Corp's market capitalisation on Nasdaq from $47.8 billion to $36.4 billion, reflecting increased investor concern even though core earnings remain strong.
Did News Corp face any direct costs from the failed BSkyB takeover bid?
Yes. After being forced to call off the £7.8 billion (about $12.3 billion) bid for the rest of BSkyB, News Corp paid a $63 million break-up fee to BSkyB.
What strategic priorities did News Corp highlight for future growth?
News Corp signaled it will focus on growing its television divisions—particularly in India, Latin America and southeast Asia—and refine its publishing strategy, while remaining open to some acquisitions (but not large-scale ones).
Call 1300 880 160
Start a chat
Schedule a call
