News Corp Q3 results: “Disappointing, but will improve”

News Corporation has reported financial results for the three months ended 31 March 2016

• Revenues of $1.9 billion compared to $2.0 billion in the prior year
• Increase in paid digital subscribers, digital advertising growth
• Foxtel’s total subscribers approximately 2.9 million as of March 31

News Corporation has reported financial results for the three months ended 31 March 2016.

Commenting on the results, chief executive Robert Thomson spoke on an earnings call this morning:

“Revenues and EBITDA declined 5% and 8%, respectively, which was still disappointing. We believe, however, that the company is on track to see improvements in the fourth quarter, with the expansion of our digital real estate business, foreign currency comparisons hopefully beginning to ease, and cost saving initiatives taking firmer root.

“Our pursuit of digital growth continues apace and we enhanced our status as the world’s largest digital property company with REA’s completion of the iProperty acquisition in Southeast Asia. Meanwhile, traffic and revenue growth remained robust at REA and

“We are particularly focused on driving mobile revenue growth, and are pleased with the results at, where the mobile audience grew close to 50% this quarter, and now represents 60% of page views and the majority of leads.

“Despite the difficult conditions for advertising, we saw both Dow Jones and News Corp Australia contributing to segment EBITDA growth, thanks to an increase in paid digital subscribers, digital advertising growth and ongoing cost reduction to improve efficiency. While we believe in the strength of our print properties, we are also investing energetically in the rapid pursuit of digital which is clearly evident in the transition at Dow Jones. At Dow Jones this quarter, digital accounted for more than 50% of total revenues for the first time, and digital-only subscribers at the Wall Street Journal grew to 893,000, representing nearly 45% of the base. We are building a strong digital platform on top of the WSJ print circulation which today is double the size of its nearest competitor.

“With the advertising market in the midst of upheaval, advertisers and agencies are experimenting with their spend. We believe that premium mastheads and audiences are currently undervalued by agencies, some of which are more focused on fashion than function. With Silicon Valley’s demand for quality content more voracious than ever and advertisers seeking greater digital accountability, we believe News Corp is ideally positioned to capitalise on these macro-trends through the power of its global mastheads and large and growing premium audiences.”

Thomson noted a drop in ad revenues in Australia, but reported continued growth of digital ad revenues.

Circulation revenues were stable and this was aided by a 10c cover price rise across the metro stable.


When asked about speculation that News Corp could increase its Foxtel shareholding, Thomson wouldn’t comment. He did say they were determined to improve the investment under new CEO Peter Tonagh. As to their loss of Premier League rights, Thomson said they were getting too expensive. “We didn’t want to acquire EPL to hurt EPS.” He also pointed to today’s announcement confirming Foxtel’s deal with six Premier League clubs.

Foxtel revenues increased 2% due to higher subscribers. Foxtel EBITDA decreased $19 million to $144 million from $163 million in the prior year. Foxtel EBITDA declined 4% due to increased subscriber acquisition costs related to higher gross adds in the quarter, increases in programming costs, as well as continued investment in Presto.

Foxtel’s total closing subscribers were approximately 2.9 million as of 31 March 2016, with year-over-year growth driven by cable and satellite subscribers, which increased approximately 6% compared to the prior year period, and higher Presto subscribers.

In the quarter, cable and satellite churn increased to 14.3% from 10.9% in the prior year due to some customer departures following the introduction of no-contract offers in the first half of fiscal 2016. Fiscal 2016 year-to-date churn was relatively flat compared to the prior year.

Foxtel operating income for the three months ended March 31, 2016 and 2015 was $85 million and $88 million, respectively, after depreciation and amortisation of $59 million and $75 million, respectively. Operating income decreased as a result of the factors noted above and negative foreign currency fluctuations, partially offset by lower depreciation expense resulting from the increase in the useful lives of cable and satellite installations.

Foxtel’s net income of $32 million decreased from $44 million in the prior year period as a result of lower operating income as noted above.

(All $ amounts US$)

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