Unshackled Fox shows bullish signs

Rupert Murdoch's new streamlined entertainment company 21st Century Fox has provided the market with a glimpse of its growth trajectory, absent the anchor of the international print operations.

Having posted an earnings improvement of 9 per cent for the year to June 30, the cable and entertainment company is now expecting high single-digit or low double-digit improvement for the 2014 year - leaving many of its competitors in its wake.

But the release of 21st Century Fox's earnings for the year places the spotlight on the lopsided nature of Rupert Murdoch's two media corporations. For Murdoch it reaffirmed his decision to separate the media and entertainment operations.

But it left analysts to speculate about what the smaller company, News Corp, might deliver. All will be revealed by the end of the week when the print and Australian operation, housed now in News Corp, delivers its result and an outlook statement.

Meanwhile Murdoch waded around in the Twitter mud with Kevin Rudd arguing about the damage the national broadband network will do to Foxtel - the most profitable asset in News Corp. Rudd versus Murdoch - entertaining as it is - is a sideshow.

Murdoch's newspapers have ramped up their anti-government campaign this week but it's hard to see how this is directly related to the NBN given the Coalition has a broadband network plan not that radically different.

The competitive impact for Foxtel is real but years away.

The Australian pay TV group will post a 12.5 per cent boost in advertising revenue for the six months to June but the all-important subscription numbers are likely to remain flat.

The media mogul's future is all about the performance from 21st Century Fox and it didn't disappoint.

The rationale for the split was about allowing the growth assets, housed in 21st Century Fox, some clean air without the weight of the print divisions to divert management attention.

21st Century Fox has not operated as a stand-alone business long enough to see the fruits of its freedom but analysts are pleased with what they see so far. Murdoch did not front the media and analysts as he typically does - his son James deputised for him. Perhaps he was keeping a slightly lower profile as new sensational speculation about his personal life in USA Today spread virally.

One would have expected Murdoch to be crowing about these results.

The star performer was the cable network programming division whose earnings grew 25 per cent in the fourth quarter on the back of a 16 per cent rise in revenues. On the US front it was Fox and National Geographic channels along with Regional Sports Networks that outperformed, while offshore Fox Sports in Latin America and Asia also punched out better returns.

But investment comes with some cost.

"In 2014, our growth will be impacted by several strategic initiatives, most notably the launch of sport networks here in the US and Asia as well as the launch of [cable TV network] FXX," 21st Century Fox chief financial officer John Nallen said.

"Additionally, we are expecting adverse currency effects to impact 2014 growth, principally from Latin American currencies and the Indian rupee."

Of more concern were a couple of soft spots in the fourth quarter including television advertising. The division managed to reduce its costs and receive a big boost in re-transmission consent revenues but this could not offset a 7 per cent decline in national and local advertising revenues thanks to a fall in the number of viewers.

It certainly places a bit of a cloud over the television earnings potential. It was explained as an American Idol and X-Factor ratings glitch.

The usually stellar film division experienced a dip in earnings in the fourth quarter mostly due to lower revenues from television studios. The full-year earnings from film entertainment were roughly the same as 2012.

While the cable assets will again provide the company with the growth bullet, the 2014 result should see strong improvement from the television division even after factoring in increased programming and marketing investments. The company is not factoring in much help from filmed entertainment or direct satellite broadcast operations.

If either of these divisions starts to fire over the next year the upside potential is significant. 21st Century Fox is in programming investment phase but it's also having to wear losses from its European satellite operations, so it has headwinds that should lessen over time.

The new News Corp has more cyclonic forces affecting its future earnings. But both groups have the capacity to act on capital management or acquisitions.

News Corp has a pile of cash on its balance sheet that is likely to be used for buybacks, which in turn could support the stock price. The cash could also be used to acquire some growth businesses - an outcome that would be supported by other investors.