News Good, But Not For News’ Papers

Don’t look at the 6.25% jump in the price of News Corp (NWS) shares in Australia yesterday to a closing price of $A18.08 – look at the performance in the US market where there are far more investors interested in the stock.

There the shares rose 4% to end at $US15.50 after a moderately encouraging first quarter profit report.

The Australian share price performance looks better in absolute terms because the recent fall in the value of the Aussie dollar against the greenback (which has helped returns from Australia). The stock has a 52 weak peak of $A20.29, so yesterday’s price was 10% under that.

The US peak for the past year is $US18.24, so yesterday’s close in New York is still 10% under that peak.

But that’s not to say there are promising signs from News Corp’s quarterly accounts – there are, but they relate to the better revenues and earnings from digital real estate (REA Group), Harper Collins book publishing and, to a lesser extent, the investments in Fox Sports and 50% stake in Foxtel, while the newspapers in Australia, the UK and US remain a fading deadweight.

Together they saw the group profit rise to $US88 million for the latest quarter, from $US38 million. Earnings before interest, tax, depreciation and amortisation rose to $US170 million from $US141 million.

But the weak newspaper publishing again saw falling revenues and earnings, despite signs of some improvement in Australia.

Thanks to favourable currency exchange rates with the US dollar and the Aussie currency, and what management called “tangible improvement in our newspaper business in Australia and circulation revenue gains at The Times and The Wall Street Journal” News Corp reported small improvements in revenues and earnings for the three month period.

Just how ’tangible’ that improvement in Australia is and how sustainable, News didn’t say yesterday, as its disclosure was again weaker than you would find in Australia.

But whatever the spin in the announcement, the company’s News and Information services arm remains a deadweight – its revenues still dominate the company, accounting for two thirds (or $US1.451 billion) of the total group revenue for the quarter of $2.15, up a whole $US78 million from the $2.07 billion in the same quarter of the previous year when revenues in the news and information business totalled $1.495 billion.

“Revenues for the first quarter of fiscal 2015 decreased $US44 million, or 3%, compared to the prior year. Australian newspaper revenues were relatively flat, reflecting modest advertising revenue declines and favorable foreign currency fluctuations. Total segment advertising revenues declined 7%, driven by weakness primarily in the print advertising market and the absence of results from LMG, (Dow Jones Local media Group) partially offset by the benefit from foreign currency fluctuations.

"Circulation and subscription revenues declined 1%, primarily due to the decline in professional information business revenues at Dow Jones, the absence of results from LMG and lower print circulation volume, partially offset by cover price increases in the U.K. and at several Australian newspapers as well as higher subscription pricing at The Wall Street Journal and WSJ.com. Adjusted revenues declined 3% compared to the prior year,” News told the market yesterday.

Earnings before interest, tax, depreciation and amortisation for the News and information segment fell $US28 million in the quarter, or 21%, to $US105 million, from $US133 million as compared to the prior year.

"Results were impacted by revenue weakness at Dow Jones coupled with the sale of LMG and incremental dual rent and other facility costs related to the relocation of the Company’s London operations of $14 million, partially offset by an increase at News Corp Australia. Adjusted Segment EBITDA decreased 19% compared to the prior year,“ News said.

The increase at News Corp Australia wasn’t quantified or explained in any way, but looks more to do with the positive currency movements in the quarter when the value of the Aussie dollar dropped against the US currency. That would have partially offset the adverse movement in the value of the Aussie currency in the 2013-14 financial year.

The cable TV business centred on Fox Sports (100% owned) saw a rise of $US7 million in revenues due to higher affiliate pricing and increased subscribers. Segment EBITDA in the quarter increased $3 million, or 10%, due to higher revenues, partially offset by higher programming rights and other production costs. Adjusted revenues increased 4% and Adjusted Segment EBITDA increased 10%, compared to the prior year.

Foxtel saw a small, $US10 million rise in revenues to $US728 million from $US718 million, primarily driven by the impact of foreign currency fluctuations and growth in subscriber revenues.

News said Foxtel’s EBITDA “increased $US4 million to $US225 million from $US221 million due to subscriber revenue growth, partially offset by increased operating expenses resulting from the impact of foreign currency fluctuations. Total closing subscribers were approximately 2.6 million as of September 30, 2014, a 5% increase compared to the prior year period. Cable and satellite churn improved to 10.9% from 12.1% in the prior year". That subscriber number though was unchanged from June 30.

And, Foxtel’s “operating income for the three months ended September 30, 2014 and 2013 after depreciation and amortization of $88 million and $86 million, respectively, was $US137 million and $US135 million, respectively,” News said. Foxtel this week kicked off a big marketing campaign designed to boost subscriber interest in retaining their deals with the Pay TV giant and not succumbing to the siren song of video on demand and streamers such as Netflix.

If this campaign is successful, it could see Foxtel suffer short term pain as revenue and income from new subscribers drop with the cheaper offers, and existing subscribers leave if they can’t get the same deal.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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