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News Corp. Girds For Retrans Talks

Wall Street is keeping a close watch on News Corp. discussions on retransmission fees, for a sign that broadcast networks might finally be on the same path to a dual revenue stream as their much vaunted cable brethren. The company’s first quarter 2010 earnings call was peppered with analysts’ questions on the issue.

Deutsche Bank analyst Doug Mitchelson suggested News Corp. might ask for 75 cents a subscriber. CEO Rupert Murdoch retorted, “Don’t be so modest.” An October 28 article in News Corp’s Wall Street Journal said the company was asking Time Warner Cable for a dollar per household for Fox network. On the earnings call from Australia, Murdoch added, “When you look at what [Disney’s] ESPN gets and what its audience is and how many hours of viewing it gets at the average cable company and compare that with Fox; I’m not suggesting we get $4 but we have to have some sense of relativity in values.”

In response to another question about when News Corp.’s carriage deals expire, COO Chase Carey said that the retransmission issue would come up with distributors over the next two to three years. But he added that retransmission money was only one of many ways of overhauling the broadcast network business. “It’s not a one note song, we need to attack the cost of content, change the value of reruns, look at digital distribution of content… Though you have to invest in content, you can’t survive in the middle. Retrans is a building block to address those things.”

While praising the growth opportunities for cable businesses such as National Geographic internationally, Carey also gave a booster to the broadcast business describing it as, “The pinnacle of the content world, whether it is sport or American Idol it is a great launching platform for the best content.” He added the video on demand would emerge as a growth opportunity in a few years. The tone was in stark contrast to the Time Warner earnings call earlier in the day, where CEO Jeff Bewkes mentioned the inability of broadcast networks to sustain that top notch programming that Warner Bros. produces.

Carey also said that while he didn’t see News Corp. expanding its station business outside of the big markets, there is, “still an opportunity to build this model. It’s why we’re investing more in news and sharing retransmission; the stations have an important role to play.”

Looking forward, Murdoch said U.S. TV ad revenue was seeing marked improvement and that the December quarter looked promising. Fox is seeing its best results in seven quarters, said management adding that Fox was the only broadcast network to see audience gains over last season and that Fox had never been number one in the key 18-49 year old advertiser demographic so early in the season before.

Chief Finance Officer David DeVoe characterized cable ad sales as down “a bit,” for the quarter but said they were up mid-to-high single digits for the year. However, it was a tough quarter for ad sales on sports properties given weakness in autos. Nationally, Murdoch added, Ford, General Motors and Toyota, “seemed to be coming back, it’s clearly better.” In November, Fox also saw a number of categories improving including movies, fast food, financials and autos which all improved sequentially, meaning they were better than in previous periods. Murdoch added that comparisons should be made to two years ago rather than to last year when the company was in the grip of a financial crisis.

On the subject of M&A, News Corp. management declined to comment on continuing negotiations with Cox Communications on the Travel Channel, though Murdoch added: “I think if you look historically, most of our best profit makers are things that we started from scratch or bought for peanuts.” He went on to name The Sun newspaper in London and Fox Film acquired for $300 million and now making close to a billion dollars a year.

Murdoch said Comcast’s pending acquisition of NBC Universal wouldn’t change how News Corp. deals with the company. “We’ll treat them as competitors, where as a cable company in a sense they’re our distribution partners. We have good relations with them and with NBC, but we compete very vigorously in the marketplace.”

Touching on the spat between Fox News and the White House, Murdoch said, “When they tried to bar us from a pool press conference, all our competitors immediately complained that is not the way to treat anybody in the media, I suppose they thought they might be next.” Murdoch said that the White House has no beef with the Fox News reporters and that the spat arose from the fact that, “They just don’t like one or two of our commentators, I understand.”

News Corp. reported an 11% increase in net income to $571 million, for the fiscal first quarter 2010, or the period ended September 30, 2009. Revenue was $7.2 billion. The increase was attributed to higher operating profit and the absence of a $422 million write-down of the company’s German pay-TV company. First quarter operating income was $1.04 billion, up 9%.

Cable Network Programming saw a 41% jump in operating income to $495 million, up $145 million on the prior period. FNC turned in its highest ever quarterly profit, largely due to higher affiliate revenue and lower political coverage costs. Operating profit at the other cable networks grew 28%.

At the television segment, first quarter operating income was down to $38 million, a decline of $45 million on the prior period because of lower contributions from Fox TV Stations and the Fox Broadcasting Company. The unit saw decreased ad revenue but increased primetime programming costs.