Newscorp Q2 very strong despite myspace woes


Newscorp reported their Q2 numbers earlier this week, and the numbers are solid.

Net income was at $642m (up from $254m the previous year) and Operating income was at $1.29b (up from $712m the previous year). Revenues remained steady at $8.7b

It looks super impressive but it’s important to note that in Q2 2009 News incurred a $500m litigation settlement charge which impacted earnings. If you adjust the figures and compare the YOY increase it represents a 6% increase in operating profit.

Still – these are good numbers. Especially good when you take into consideration where the gains are coming from. News is seeing the majority of its growth from its television and cable television businesses – cable network programming operating income was up over 131m YOY, TV up $120m YOY. Filmed entertainment was significantly down (down due to lack of big blockbusters in Q2) and Publishing was flat after taking into consideration the 2009 Litigation settlement and costs incurred in the development of the tablet newspaper, The Daily.

News is seeing very robust growth from a media channel many are claiming is on its way to becoming redundant or at the very least disrupted. TV revenue is up just short of 10% YOY and Cable Network programming up 20%.

Here’s the thing – these revenue increases are by no means insignificant. Internet advertising (in the US) was up 11.3% for the first half of 2010. News is seeing similar growth from Network TV and higher revenue growth for Cable in these most recent numbers. This shows the death of TV as a relevant consumer medium AND robust business is greatly exaggerated.

Newscorp reports digital efforts under ‘Other’ and it’s basically the only stain on what are pretty solid results. Another quarter another loss – operating loss of $156m for Q2 “stemming largely from lower search and advertising revenues at Myspace.” ‘Other’ also includes the Fox Mobile (now offloaded) and Outdoor Advertising businesses which reportedly have improved revenue wise.

‘Other’ revenues when you take into consideration the above are dire. ‘Other’ for Q2 2010 sat at $319m total revenue, for the same period in Q2 2009 it sat at $447m. That’s a $128m drop across 3 divisions.  Now, also remember that reports are the Mobile and Outdoor businesses have improved revenue wise.

Adding insult to injury, significant costs were incurred in Q2 around redundancy costs (around $107m) and a writedown of the remaining myspace value ($168m).

With such large losses and a worrying advertising revenue trend, it is difficult to fathom how myspace can get out of the funk it finds itself in. It requires a significant turnaround with a radical and quick uplift in ad revenues combined with an equally radical and quick decrease in operating costs.

Chase Carey outlined that News may now be officially open to entertaining approaches around a myspace sale.

“The new MySpace has been very well received by the market and we have some very encouraging metrics. But the plan to allow MySpace to reach it’s full potential may be best achieved under a new owner.”

Carey told PaidContent, “It could be a sale, it could be an investor coming in to it, it could be us staying in with a restructured ownership structure with management. We think a fresh perspective would give them flexibility and an opportunity to get a new life consistent with the right-sizing of the product and the costs.”

Carey sounds bullish around the myspace redesign and product enhancements, that could be a pre-emptive sales pitch to warm the market or a legitimate change of heart from a few months ago when he called the site “a problem”. Regardless, he needs to stop the bleed and do it quickly. Without the ‘Other’ losses in Q2 Carey would have been bringing the market an operating income of over $1.4b. I know which number I’d prefer to present.

If it is on the market, what’s myspace worth now? Well – it’s a tough one to work out. You can’t apply an EBIT multiple as an EBIT multiple requires positive EBIT. This piece puts it’s value at $50m, a long way from the $10b+ some felt it was worth around 2008.

Want to know something crazy? $50m was reportedly what Tom Anderson and Chris De Wolfe demanded from News in salaries back in 2007 to stay at the company for another 2 years. Each wanted $25m for 2 years tenure.

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One response to “Newscorp Q2 very strong despite myspace woes

  1. Kate Richardson

    More evidence. EVIDENCE. That TV ain’t dying.

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