News Corp profit beats expectations

9 Feb 2012, 7:24 pm   -   Source: AAP
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News Corp spent $A81million in last three months of 2011 to cover the costs associated with the News of the World hacking scandal. (AAP)

News Corp spent $A81million in last three months of 2011 to cover the costs associated with the News of the World hacking scandal. (AAP)

News Corp has spent tens of millions on costs associated with the UK phone hacking scandal, but still managed to lift its second quarter profit.

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Rupert Murdoch's News Corporation has unveiled a leap in second quarter earnings despite having to pay out tens of millions of dollars related to the UK phone hacking scandal.

The global media organisation's cable TV business, led by Fox FX and Fox News, generated nearly 60 per cent of its operating income and more than four times that of its struggling newspaper publishing division.

Second quarter net income (net profit) leapt 65 per cent to $US1.06 billion ($A984.49 million) in the three months to December 31, from $US642 million ($A596.27 million) a year earlier.

However the spectre of the now defunct British tabloid News of the World remains, with costs related to the hacking scandal soaring so much that News Corp said it could no longer reliably forecast what they would be.

The company revealed on Thursday that it forked out $US87 million ($A80.92 million) in the final three months of 2011 to cover costs associated with the scandal, including legal fees and payouts to people who had their phones hacked by reporters.

The total cost now stands at $US104 million ($A96.73 million), but is expected to continue rising.

Meanwhile, News Corp's cable network programming division lifted operating income by 20 per cent to $US882 million ($A819.17 million) in the second quarter after charging higher subscription and advertising rates.

The film business, which includes 20th Century Fox, nearly doubled its second quarter operating income to $US393 million ($A365.00 million).

The George Clooney drama The Descendents and children's comedy Alvin and the Chipmunks were among the most successful releases.

But the group's newspaper publishing business, which dominates the Australian newspaper space, reported a 43 per cent slump in operating income to $US218 million ($A202.47 million).

US-based Morningstar media analyst Michael Corty said the strong earnings generated by the cable TV, film and TV divisions more than offset the embarrassment of the hacking scandal.

"The cable network business they have is just a great franchise," he told AAP.

"They just have a lot of pricing power in terms of the fees they can charge distributors of Fox News, the regional sports networks they own and general entertainment on FX.

"For the stock, the newspapers are just a small part of the business. (The hacking scandal is) going to get resolved and is an embarrassment for Rupert Murdoch that gets headlines, but in earnings-cash generated, it's small."

Deputy chairman and chief operating officer Chase Carey said he was confident the company could make a profitable transition to digital with its newspapers.

Traditional newspapers around the world have struggled to monetise web traffic, although News' the Wall Street Journal and Dow Jones newswire have had some success, improving earnings in the past year.

"The digital world is going to make quality information more valuable than ever," Mr Carey told analysts.

"To date (the industry) have really not taken advantage of opportunities to develop broader digital franchises."

Guidance for full year growth in earnings before interest and tax was kept in the low to mid teens range from $US4.975 billion last year - but that comes before hacking-related costs.

Net income for the first half of its financial year was $US1.795 billion ($A1.67 billion), from $US1.417 billion ($A1.32 billion) in the same period a year earlier.

The company declared a dividend of 8.5 US cents (7.89 Aust cents).

News Corp shares rose 17 cents to $18.91 on Thursday.

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