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Bad news bared

The soft ad economy is suppressing earnings among the major media companies. Two of TV's power players-News Corp. and Disney-reported quarterly earnings (for the period ended Dec. 31) last week, and many of the key numbers were down from the previous year.

TV operating income at Fox was down 22%, to $189 million. TV-station earnings were down 3%, to $249 million. The first six months of Fox's fiscal year (ending June 30, 2001) saw TV-station revenues drop 8% to 9%, and company executives said the full-year decline may be as much as 12%, due largely to the soft advertising market.

The Fox Network posted a $60 million loss for the quarter, attributed largely to $70 million in losses related to the network's coverage of post-season baseball last year.

For its part, Disney reported a 10% drop in operating income for its broadcasting division (ABC-TV and its owned stations), to $309 million, and a 5% drop in operating income for its cable division (ESPN, Disney Channel, Toon Disney), to $281 million.

Revenues at the broadcasting division were essentially flat, at $1.72 billion, while cable revenues were up 14%. The company attributed declines at ABC-TV to the soft ad marketplace, "lower ratings and higher programming costs."

The news wasn't all bad. Fox's cable division nearly doubled its operating income, to $44 million. And Fox News reached break-even for the first time in its four-year history.

The all-news network's earnings gains came from higher ad sales that were boosted by bigger ratings and deeper penetration, 12 million TV homes having been added over the past year, the company said. Driven by election news, Fox News' ratings were up 211% in prime time during the quarter, according to the company.

And, while the Fox network took a loss because of baseball, revenues were up slightly in the quarter, thanks to across-the-board ratings gains in households, adults 18-49 and 18-34, and teens.

News Corp. Chairman Rupert Murdoch told analysts that, although the ad market is soft, "it's not the disaster it's been reported to be." He added that dotcoms and domestic autos are the two weakest advertising categories right now but the auto companies "have assured us it's only temporary." With ratings gains at the Fox network and the company's cable networks, he said, "we are well-positioned for terrific growth, particularly when the ad market recovers."

News Corp. President and COO Peter Chernin predicted that Fox will generate $1.2 billion to $1.8 billion in syndication profits over the next six years. He stressed that roughly one-third of that figure comes from projected barter advertising in the company's syndicated shows.

Disney CFO Thomas Staggs said that "there are some signs of underlying strength," including current pricing in the advertising scatter market that is slightly ahead of pricing in last spring's upfront. Disney believes that FY 2001 earnings growth will be in the single digits but should bounce back to 13% to 15% in 2002.

The results were largely in line with Wall Street's expectations. Merrill Lynch's Jessica Reif Cohen maintained her "neutral" rating (read: don't buy) on Disney, observing that "it will be difficult for the stock to outperform in the intermediate term."