News Corp digital shift drives earnings jump
News Corp has delivered better-than-expected third quarter earnings with the media major on track for its most profitable year in nearly a decade.
News Corp has delivered better-than-expected third quarter pre-tax earnings as the media major said it was on track for its most profitable year in nearly a decade, underscoring the digital transformation of the business.
The company, which owns The Australian and metropolitan titles including the Herald Sun, Daily Telegraph, The Courier-Mail and The Advertiser, and has a majority stake in Foxtel, posted total March quarter earnings before interest tax, depreciation and amortisation of $US298m ($382.9m), which was up 23 per cent from the same time last year.
“The financial year is on a trajectory to be the most profitable since our reincarnation in 2013. This highlights the transformed character of the company,” said News Corp chief executive Robert Thomson.
Total March quarter revenue was $US2.33bn, up 3 per cent on the same period a year earlier. News Corp’s Australian listed shares closed on Thursday up 0.7 per cent at $30.70.
Mr Thomson also cited a sharp rebound in earnings in the digital real estate sector, and subscription television broadcaster Foxtel.
“In Australia, the real estate market is thriving, particularly in Sydney and Melbourne. REA Group, the clear leader in that country’s digital real estate sector, saw revenues increase by 32 per cent,” Mr Thomson said.
“In subscription video services, our strategy to rapidly expand streaming has been
transformational for Foxtel.
“Kayo Sports has helped Foxtel, the pre-eminent home of sports in Australia with a
record 2.2 million sports subscribers. Of these, Kayo accounted for 851,000 paying
subscribers as at March 31, more than double the prior year, where it was 408,000.
“In recent days, Kayo exceeded one million total subscribers, with paying subscribers
expected to reach that milestone imminently.
Foxtel’s pre-tax earnings jumped 34 per cent to $US91m over the March quarter compared with the prior year. The boost was helped by lower sports programming rights and production costs, which also takes in savings from renegotiated sports broadcast deals.
At the end of March Foxtel’s total closing paid subscribers were 3.541 million, a 21 per cent lift compared to the prior year, mostly due to the launch of streaming services Binge and growth in Kayo sports subscribers. Last month Foxtel locked in a new funding deal that extended its $650m Australian dollar debt facilities until May 2024 with a lower interest rate.
The rebound in third-quarter profit also sees News Corp benefit from a rapidly strengthening Australian economy as it emerges from the COVID-19 downturn. At the same time the US economy is showing signs of recovery, helped by a massive stimulus program and ultra-low interest rates.
Mr Thomson said the latest results “vindicate the strategy” of simplifying News Corp’s asset mix, vigorously pursuing digitisation, slimming the cost base, and investing in growth areas — including digital real estate, Dow Jones and book publishing, which collectively delivered 55 per cent earnings growth for the quarter.
Total EBITDA for the nine months to end-March was $US1.06bn, up 30 per cent on the same period a year earlier.
While News Corp has reached a payment-for-content revenue deals with tech giant Google and Facebook over the quarter, Mr Thomson said he will continue the “international campaign to reset the terms of trade for premium journalism”.
Mr Thomson said co-operation in recent weeks with Google has certainly been “productive” and he said News Corp looks forward “to further engagement with Facebook”.
Elsewhere Dow Jones, which houses The Wall Street Journal, saw pre-tax earnings increase 61 per cent to $US82m, buoyed by fast-paced growth in subscription revenue. Earnings figures for Dow Jones were broken out for the first time in the June quarter last year.
Digital revenues at Dow Jones in the quarter now represents 61 per cent of total revenues compared to 48 per cent in the prior year. Total digital revenues across Dow Jones were 74 per cent compared to 68 per cent in the prior year.
Pre-tax earnings across the News Media business of $US8m were down 67 per cent during the March quarter compared to the same time a year earlier mostly due to the negative impact from the sale of News America Marketing operations a year earlier. New Media revenue for the quarter came in at $US550m.
Digital revenue for the unit, which includes News’ Australian and UK mastheads, represented 30 per cent of News Media segment revenue in the quarter, compared to 19 per cent in the prior year. Digital revenue represented 28 per cent of the combined revenue of the newspaper mastheads.
Closing digital subscribers at News Corp Australia’s mastheads have hit a record 760,000, compared to 613,300 in the prior year. In the UK the The Times and Sunday Times digital subscribers were 354,000, compared to 345,000 in the prior year.
The Harper Collins book publishing arm saw a 45 per cent jump in pre-tax earnings to $US80m during the quarter as revenue lifted on higher sales of back catalogue and the launch of several new titles.
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