News Corporation has delivered an impressive September quarter profit
and its share price has risen this morning after a comprehensive
75-minute conference call with analysts and journalists which directly
tackled many of the issues that have been depressing market sentiment for media stocks.

Operating income was up 19% to a record $US909 million, although a few
one-off items, such as a $US1 billion write-down of US television
licences due to accounting changes and a $US200 million increase in the
tax bill, dragged the bottom line down to a loss of $US433 million.

Investors were not at all concerned with this as News Corp voting
were up 33c to $21.13 in morning trade, partly because of the optimism
expressed and results delivered for DVD sales and advertising volumes
amid all the market hysteria about the
internet threat.

News Corp stressed that this was the 15th straight quarterly rise
operating income and better than any other US media company. The best
divisional performance was from filmed entertainment (up from $US291m
to $US368m), followed by cable network programming (up from $US166m to
$US197m), television (down from $US197m to $US166m, largely due to
$US50m in marketing expenses from an early programming launch) and then
(up from $US118m to $US125m).

After about 45 minutes of detailed presentation from CFO David Devoe,
Rupert Murdoch in Australia and COO Peter Chernin, the trio answered
questions from 13 analysts and then only three journalists before the
call was terminated to coincide with the commencement of trading in

Rupert went straight to the heart of some of the issues causing
price weakness that is “frustrating” everyone, including the
much-vaunted digital threat to traditional advertising models and the
home entertainment market. Fox has pioneered DVD sales of television
series and this is what the company believes will underpin ongoing
annual growth of about 1.25 million units a year in the
25-million-a-year US DVD market.

Rupert said the poison pill and John Malone situation is generating
“far too much press and investor speculation and we want to put it
behind us.” However, “cordial” negotiations with Liberty Media are
dragging on because of some uncertainly out of Washington over the tax
treatment of various options and Malone’s obsession with not paying too
much tax. The poison pill was never mentioned.

There was a lot of focus on the $US60 million operating loss by Sky
Italia when it is forecast to be “substantially profitable” this year
and Rupert admitted some concerns about subsidised government
competition, although the churn rate is still expected to remain below 10%
for the year.

Rupert stressed that $US1.4 billion in internet acquisitions this year
was “both offensive and defensive” and he hinted that the $US2 billion
spending limit could be cast aside because with takeover opportunities
“you never know in a fast moving industry like ours.”

Fox Interactive Media will start reporting as a separate segment from
2006-07 and Rupert stressed his internet strategy is for the next 3-5
years. What we’ve seen so far is only “a major project at its
beginning.” is now signing up 135,000 new members every day and Rupert
is very bullish about this because they volunteer loads of information
about themselves which allows for target advertising. The social
exchange site now attracts 70 million monthly visits and 35 million of
these are from signed up members.

With $US6.5 billion in cash and less than $US1 billion in
debt, many investors were hoping the $US3 billion buyback program could
be expanded, as Time Warner did last week, but empire building Rupert
is keeping all the fire power. “We always want room to continue to
expand and develop and new businesses,” he said.

Having overpaid for many acquisitions over the past 15 years, this
is what scares so many investors. Rupert is very excited about the
internet and loves to dominate any market segment he tackles. It
doesn’t look like News Corp will bid for AOL, which Rupert explained
was becoming a major struggle between Google and Microsoft.

“Google pays hundreds of millions of dollars a year to AOL for search
and Microsoft is very keen to damage Google and get into search
seriously,” The Sun King explained, suggesting even he was nervous
about getting into a major fight with the two biggest gorillas of the
digital age.