The aftershocks of the phone-hacking scandal that erupted at News International in the UK over the summer are still being felt by its parent News Corp.: the media giant posted a decline in net income for Q1 as it weathered charges related to its UK businesses — primarily in its newspaper division, but also because of fees from its abandoned bid to take full ownership of the BSkyB (NYSE: BSY) pay TV service. The media giant gave no news on what might happen with executive succession at News Corp. (NSDQ: NWS) — itself also a consequence of the hacking affair — as it reported seven percent growth in revenue for Q1 to nearly $8 billion.
Total revenues at the company were $7.96 billion for the quarter, which News Corp. said was driven by strong growth in the company’s cable and TV business — bringing in a mixture of subscription as well as advertising reveue — as well as its film division. The revenue figure exceeded the high end of analysts’ estimates, as polled by Yahoo.
Net income was down by nearly five percent to $738 million, with the most notable charges coming from News Corp.’s European business. Pre-tax charges at SKY Deutschland were $130 million; the company had to pay a fee because of the withdrawal of its bid for BSkyB in the UK; and it also took a restructuring charge related to News International, specifically around the closure of the News of the World, which had been one of the biggest and oldest newspapers in the country, in the wake of the phone-hacking scandal.
Among the items included in the charge were severance payments to employees, Chase Carey, president, COO and deputy chairman of News Corp. said in answer to a question during the earnings call (more on the call below).
And we may not have seen the last of the after-effects from the scandal. The company declined to comment on whether there has been money set aside (and if yes, how much) for legal actions related to the phone-hacking scandal: several high-profile celebrities, politicians and other public figures were impacted, and those cases will be making their way through the courts now.
Additionally, James Murdoch, chairman and chief executive of News Corp.’s Asian and European business division, is due to return next week to the House of Commons select committee to give further evidence in the ongoing inquiry.
The impact of the scandal came through in the balance sheet in other ways, too: In contrast to the strength of the company’s TV and film assets, the segment that performed the worst was the company’s publishing division, which had operating income of $110 million compared to $178 million in the same quarter a year ago.
The sale of most of MySpace (News Corp. remains a shareholder), the company noted, has proven to be a boost to the “Other” segment in its balance sheet. The division is still loss-making, reporting a loss of $99 million in the quarter, but News Corp noted that the MySpace offload contributed to a $57 million lift in the category.
From the call:
Rupert Murdoch was not on the call, which was led instead by Chase Carey and David DeVoe, its CFO. Carey kicked off his comments with an acknowledgment of the ongoing situation in the UK and its impact on the business, but immediately set the pace to look elsewhere:
“With so much focused on News of the World, now is a good time to refocus on operational issues,” he said. “We are cooperating fully with the [UK] authorities and do what is necessary to make things right.” Focusing on those operations, a lot of the positive activity and growth at News Corp. in the last quarter seemed to have been focused on the U.S., where the film and TV businesses are based.
Digital deals: Digital continues to figure strongly in the company’s strategy, largely as an integrated part of the company’s overall content business rather than as a standalone piece: the company is increasingly getting digital and mobile rights as a standard part of their content deals. Some notable audiences for some of the company’s VOD services: VOD viewership for the Fox series Terra Nova has exceeded five million, he said.
On Hulu: Carey’s description of why Hulu was taken off the table was simple. He says News Corp. decided, “It is better to own [Hulu] than to sell.
“Partnerships can be complicated,” he continued, but it seems that its a fair enough price to pay to be a part of a leading premium video operation. He didn’t refer to it, Google’s ambition to offer more premium TV could well have compelled them to hold on to the asset, too.
“Hulu is working for us,” he said.
On the board and votes from shareholders to change management including the removal of some of the Murdochs from the board: “We are taking votes seriously and value feedback,” Carey said. But despite that, he also reiterated support for James Murdoch — saying the board had “great confidence” in James with no plans for changes. How that sits with shareholders’ votes longer term was not addressed.