Listen to Rupert Murdoch’s conference call to media and analysts to brief on News Corp’s annual earnings forecasts.

Part one: Murdoch’s address
Part two: analysts’ questions
Part three: media questions

What was the most newsworthy aspect of this morning’s briefing from News Corp chief Rupert Murdoch? The huge asset impairment write-downs, the job cuts, Rupert’s comments on the economy, or a nasty 42% slump in operating earnings?

The last one, because it shows that News Corp managers, from the chairman down, are no cleverer than any other managers in this sort of crunch, and that the jibes and other cheap shots being directed at Fairfax, the Ten Network and other media groups, should be re-directed closer to home.

News Corp’s financial position isn’t parlous, but there are some gaping holes emerging; probably the worst being the long praised Fox TV business in the US where second quarter earnings crashed $US227 million in the second quarter of the previous year, to just $US12 million.

Seeing the rival ABC Network, part of Disney, reported a surprise 60% fall, the fall in earnings at Fox TV is a significant collapse.

Cable TV systems lifted earnings $US91 million, but lower returns came from books, films, Sky Italia, Magazines were steady.

Murdoch warned us back in November on the first quarter’s conference call that earnings would be down in the “mid-teens”. They were originally forecast to be up 4% to 6% for the year back in September.

Now he believes they will be off 30%, after the 42% fall in the second quarter.

After a 9% drop in the first quarter, the pace of decline accelerated to a 42% fall. That left first-half earnings down a quarter, or $604 million. Now he’s looking for further falls this quarter and half as he and his managers become more realistic.

Murdoch said on this morning’s conference call that the result was a ”direct reflection of a recession that’s deeper than anyone predicted. While we anticipated a weakening, the downturn is more severe and likely longer lasting than previously thought.”

The virtual disappearance of profits from the US TV business is a big warning to the company. Car companies, consumer products groups, retailers and more are slashing spending. The supposedly “old” analogue businesses of newspapers did well in comparison.

News said in its profit statement that:

The Magazines and Inserts segment reported second quarter operating income of $US86 million, in line with the prior year.

The Newspapers and Information Services segment reported second quarter adjusted operating income of $179 million, down $17 million from the $196 million reported in the same period a year ago, as lower depreciation expense and the inclusion of Dow Jones & Company adjusted operating income contributions of $59 million in the quarter were more than offset by lower advertising revenues in the U.K. and Australia.

The U.K. newspaper group reported operating income in local currency terms in line with that from a year ago, as the absence of accelerated depreciation on the decommissioned printing presses was offset by 10% lower advertising revenues. Circulation revenues increased slightly during the quarter mainly from price increases.

The Australian newspaper group reported 18% lower second quarter operating income in local currency terms versus the second quarter of fiscal 2008 primarily due to lower classified advertising revenues resulting from declines in the employment and auto sectors and higher costs associated with pension expenses and headcount reductions. Overall advertising revenues were down 4% as compared to a year ago. Circulation revenues were in line with the second quarter of the prior year.

They are solid efforts compared to the hole in the US free-to-air TV business. American Idol will have to really rate well this quarter to lift the TV business result.

Murdoch is hacking and chopping into staff: the Wall Street Journal reported today that “two dozen” staff positions in the newsroom would go. We know job cuts are happening in Australia, but so far not a word from any of the papers and from local boss John Hartigan. The independence of the Wall Street Journal is still there to see from how they report small facts about their owner like today’s cuts. In Australia they’re still well on the leash.

The headline this morning was the long awaited $US7.6 billion ($A11.7 billion) operating loss for the second quarter after what news said was the accelerating downturn in advertising sales and an $US8.4 billion write-down of the value of its television stations, newspapers and other businesses.

Well, the write down, an asset impairment charge, was actually more than the $US8.4 billion given in the profit statement. Some reports claimed that was a “pre-tax” charge. It wasn’t. The real write down was much larger, $US10.775 billion, or around 30% of the total balance sheet value for intangibles and goodwill at December 31, 2007 and June 30, 2008 of $US33.080 billion. After the cut in values, they are now in the books at $23.29 billion. A bigger drop than reported.

News joins the likes of Time Warner with $US25 billion, CBS with $US14.12 billion and Gannett, a minimum of $US5.1 billion in slashing the intangible and goodwill elements of their balance sheets. With news’s $US10.7 billion, the total of cuts from those media giants is $US54 billion.

And to think that those accounts were supposedly true and fair at September 30 last and June 30. It’s amazing how a dose of realism in the profit and loss accounts forces directors and the companies auditors to look more closely at their balance sheets.

News Corp shares fell 64 cents by 11.30am to be around $10.48 on the ASX, a fall of 5.7%. They were as low as $10.30, still well above the 52 week low of $9.51. Fairfax shares were a touch higher.

Peter Fray

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