August 8, 2016 Last Updated 8:11 am

News Corp. reports higher revenue, income, and return to profitability in 4th quarter report

All three areas of the company – newspapers, books and digital real estate – had a good Q4, but the future will be a battle to see which will be greater, continued print losses or digital media gains

If the rest of the newspaper industry were listening they may actually have something still to learn from the old media mogul Rupert Murdoch: being diversified still helps.

Like other print publishing companies, News Corp is the result of a spin-off – with News Corp retaining newspaper and book publishing, and the television and film side becoming 21st Century Fox.

But there was always something different about the News Corp spin off. First, Murdoch did not saddle the print side with deb. Unlike Tribune Publishing and Time Inc., News Corp started its new life with some cash in the bank. Second, it was somewhat diversified in that it had the book business along with the newspaper business – and it became more diversified when it acquired Move, owner of Realtor.com. That new division, Digital Real Estate Services, not only saw 21 percent growth, but is hugely profitable.

NewsCorp-paprs

Overall, News Corp finished its fiscal 2016 year with 5 percent revenue growth – not great for a tech company, but fantastic for a media company with print properties. In fact, even the newspaper side of the business was not a disaster, growing 1 percent this quarter, but ending the year with revenue down 7 percent.

Thanks to a series of bestsellers, the book publishing business (HarperCollins) also had a great quarter, with sales up 11 percent, though it ended the year down 1 percent.

For the full year, at the company overall, revenue was down 3 percent, and EBITDA fell 28 percent. Note: final year numbers are a bit skewed thanks to the huge write off the company took last year for discontinued business.

If you look at the company minus its new Digital Real Estate Services division, you could easy forecast doom and gloom. But adding in that division, one can see where the company can grow and survive. Things still look bad for the newspaper side of the business, and book publishing is hardly booming, but diversification (and more digital media acquisitions) is the way News Corp can continue to be in the red.

Newspaper publishing, the US, UK and Australia, along with News America Marketing, makes up the News and Information Services side of the business, and that side is still over 50 percent of the company. So, it is a race to see whether the new elements of News Corp can grow fast enough to make up for the losses in the print side. Right now the answer is ‘No’ – but in Q4 the answer was ‘Yes’.

What this report tells me is that growing digital subscribers at places like The Wall Street Journal will grab the attention of many media observers, but it is the native digital services that will improve the bottom line.

Here is the earnings statement from News Corp for the final quarter of their 2016 year:


NEW YORK, NY – August 8, 2016 — News Corporation today reported financial results for the three months and fiscal year ended June 30, 2016 (includes 14 and 53 weeks, respectively, compared to 13 and 52 weeks in the three months and fiscal year ended June 30, 2015, respectively).

“We ended Fiscal Year 2016 with strong results in the fourth quarter, highlighted by robust year-over-year growth in revenues and EBITDA at Digital Real Estate Services and an upturn at HarperCollins.

Over the past year, we made clear progress on our primary goals – to become more digital and more global. Since the advent of the new News three years ago, revenue at Digital Real Estate Services has more than doubled, and it is expected to become the biggest contributor to EBITDA in the future thanks to the ongoing success of REA and the rapid growth at Realtor.com® in the U.S. Our reach in digital real estate is unparalleled and highlights the potential of the News Corp network, which is monetizing shared data and maximizing the value of content and traffic.

Book Publishing ended the year strongly, highlighting our ability to leverage quality content across both print and digital platforms.

While global print ad trends remain challenging at our News and Information Services segment, we are continuing our aggressive growth in digital, which now accounts for 23% of segment revenues, up from 19% last year.

The success of the Wall Street Journal is a testament to the importance of high quality content with global appeal. This past quarter the WSJ reached 948,000 digital-only subscribers, posting healthy year-over-year gains with improved pricing to better reflect its unique value. At News UK, The Times and The Sunday Times continue to impress with nearly 182,500 digital-only subscribers. Digital subscriptions continue to grow and now account for approximately 45% of the subscriber base, while print sales have also risen tangibly in recent months. This quarter we relaunched the Sun’s website, which had over 42 million global unique users in June, a distinctive increase since the lifting of the paywall last year. The U.K. team is focused on leveraging our immensely valuable U.K. brands, which is part of the logic behind our offer for Wireless Group. Finally, at News Australia, The Australian continues to post higher paid volume, thanks to digital.

With the advertising marketplace in upheaval and, rightly under increased scrutiny, we believe the need for trusted content and premium audiences will only increase. We are confident that News Corp’s unique portfolio and global distribution, combined with our focus on cost efficiencies, mean we are uniquely positioned to capitalize on broader social and commercial trends, and drive long-term value for investors.”

FOURTH QUARTER RESULTS FROM CONTINUING OPERATIONS

The Company reported fiscal 2016 fourth quarter total revenues of $2.2 billion, a 5% increase as compared to the prior year fourth quarter revenues of $2.1 billion. Reported revenues reflect a negative impact from foreign currency fluctuations of $54 million. Adjusted Revenues (which exclude the foreign currency impact and acquisitions as defined in Note 1) increased 6% compared to the prior year, as growth in the Digital Real Estate Services and Book Publishing segments and the impact from the additional week in the quarter of $112 million were partially offset by lower advertising revenues at the News and Information Services segment.

Income from continuing operations for the quarter was $114 million as compared to $20 million in the prior year. The increase was primarily due to a one-time gain of $122 million ($75 million, net of tax) related to the settlement of litigation between Move and Zillow Group, lower restructuring charges and higher Total Segment EBITDA, as discussed below, offset in part by lower Other, net.

The Company reported fourth quarter Total Segment EBITDA of $361 million, a 68% increase as compared to $215 million in the prior year. Fourth quarter Total Segment EBITDA includes the gain at Move from the settlement as mentioned above. Excluding this settlement, Total Segment EBITDA in the quarter would have been $239 million.

Adjusted Total Segment EBITDA (as defined in Note 1), which excludes the impact of the settlement noted above as well as the other items described in Note 1, increased 23% compared to the prior year, primarily due to strength at the Book Publishing and Digital Real Estate Services segments and the impact from the additional week in the quarter.

Earnings per share from continuing operations available to News Corporation stockholders were $0.16 as compared to $0.01 in the prior year.

Adjusted EPS (as defined in Note 3) were $0.10 compared to $0.08 in the prior year.

FULL YEAR RESULTS FROM CONTINUING OPERATIONS

The Company reported fiscal 2016 full year total revenues of $8.3 billion, a 3% decrease as compared to the prior year revenues of $8.5 billion. The decline in total reported revenues includes a negative impact from foreign currency fluctuations of $455 million. Adjusted Revenues were flat compared to the prior year, as growth in the Digital Real Estate Services segment was offset by lower advertising revenues at the News and Information Services segment.

Income from continuing operations was $235 million for fiscal 2016 as compared to $367 million in the prior year. The decline was primarily due to lower Total Segment EBITDA, as discussed below, and lower Other, net, partially offset by a tax benefit of $106 million from the release of valuation allowances resulting from the disposal of the digital education business. As a result of the release of the valuation allowances, the Company recorded an income tax benefit of $54 million for the fiscal year.

The Company reported full year Total Segment EBITDA of $684 million, a 28% decline as compared to $945 million in the prior year. Fiscal 2016 Total Segment EBITDA includes a one-time charge of $280 million for the settlement of litigation and related claims at News America Marketing and a one-time gain of $122 million for the settlement of the Zillow litigation. Excluding those settlements, Total Segment EBITDA would have been $842 million. Negative foreign currency fluctuations also reduced Total Segment EBITDA by $70 million as compared to the prior year.

Adjusted Total Segment EBITDA, which excludes the impact of the litigation settlements noted above, as well as the other items described in Note 1, declined 4% compared to the prior year as strength at the Digital Real Estate Services segment and modest improvement in the Cable Network Programming segment were more than offset by the declines at the News and Information Services and Book Publishing segments and higher legal expenses at Move related to the Zillow litigation.

Earnings per share from continuing operations available to News Corporation stockholders were $0.28 for the full year as compared to $0.51 in the prior year.

Adjusted EPS were $0.40 compared to $0.59 in the prior year.

NewsCorp-Q2-segments

News and Information Services

Fourth Quarter Segment Results

Revenues for the fourth quarter of fiscal 2016 increased $13 million, or 1%, compared to the prior year. Adjusted Revenues increased 2% compared to the prior year, primarily due to an additional $77 million from the extra week in the quarter.

Advertising revenues, which include $17 million of negative impact from foreign currency fluctuations, declined 5%, primarily due to the weakness in the print advertising market coupled with lower free standing insert product revenues at News America Marketing. The decline was partially offset by an additional $33 million from the extra week in the quarter, growth in digital advertising revenues and higher in-store product revenues at News America Marketing. Circulation and subscription revenues, which include $16 million of negative impact from foreign currency fluctuations, increased 5% due to an additional $39 million from the extra week in the quarter, growth in paid digital subscribers across the mastheads, higher subscription pricing, and selected cover price increases in the U.K. and Australia. The improvement was offset by print volume declines and a modest impact from the change in the digital strategy at The Sun. Excluding the impact of negative foreign currency fluctuations and the additional week, advertising revenues declined 7% and circulation and subscription revenues increased 1%.

Segment EBITDA decreased $9 million in the quarter, or 5%, as compared to the prior year. The decline was driven by lower advertising revenues as well as investment spending and acquisition-related costs in connection with Checkout 51 and Unruly. The decline was partially offset by the impact from the additional week in the quarter and lower operating expenses. Adjusted Segment EBITDA increased 10% compared to the prior year.

Digital revenues represented 23% of segment revenues in the quarter, compared to 19% in the prior year. At Dow Jones, digital revenues represented 53% of total revenues in the quarter. Below summarizes the digital subscriber trends across properties within the News and Information Services segment in the quarter:

  • The Wall Street Journal digital subscribers were 948,000, compared to 753,000 in the prior year (Source: Internal data)
  • Digital subscribers at News Corp Australia’s mastheads were 272,700, compared to 225,600 in the prior year (Source: Internal data)
  • The Times and Sunday Times digital subscribers were 182,500, compared to 172,000 in the prior year (Source: Internal data)
  • The Sun’s digital offering reached 42 million global average monthly unique users, based on ABCe (Source: Omniture)

Full Year Segment Results

Fiscal 2016 full year revenues decreased $393 million, or 7%, compared to the prior year. Adjusted Revenues declined 3% compared to the prior year.

Advertising revenues, which include $152 million of negative impact from foreign currency fluctuations, declined 11%. Circulation and subscription revenues, which include $109 million of negative impact from foreign currency fluctuations, declined 2%. Excluding the impact of negative foreign currency fluctuations and the additional week, advertising revenues declined 7% and circulation and subscription revenues increased 1%.

Full year Segment EBITDA decreased $389 million, or 65%, as compared to the prior year. Results include a one-time charge of $280 million for the settlement of litigation and related claims at News America Marketing. Adjusted Segment EBITDA decreased 10% compared to the prior year. The decline was driven by lower revenues and higher promotion and marketing costs in the U.K., partially offset by lower costs due to ongoing cost initiatives, combined with savings from lower print volume.

Book Publishing

Fourth Quarter Segment Results

Revenues in the quarter increased $43 million, or 11%, compared to the prior year, driven by the popularity of front-list titles such as The Nest by Cynthia D’Aprix Sweeney, The Rainbow Comes and Goes by Anderson Cooper, The World’s Worst Children by David Walliams and carry-over sales from Jesus Calling by Sarah Young, as well as a $19 million impact from the additional week in the quarter and the continued expansion of HarperCollins’ global footprint. Digital sales represented 19% of Consumer revenues for the quarter. Adjusted Revenues increased 9% compared to the prior year. Segment EBITDA increased $17 million, or 52%, from the prior year due to higher revenues as noted above.

Full Year Segment Results

Full year revenues decreased $21 million, or 1%, compared to the prior year, driven by lower revenues from the Divergent series by Veronica Roth and American Sniper by Chris Kyle, lower e-book sales and negative foreign currency fluctuations, partially offset by the release of Go Set a Watchman by Harper Lee, the inclusion of the results of Harlequin, which was acquired in August 2014, continued expansion of HarperCollins’ global footprint and the $19 million impact from the additional week. Digital sales represented 19% of Consumer revenues for fiscal 2016. Full year Segment EBITDA decreased $36 million, or 16%, from the prior year primarily due to the factors noted above, partially offset by cost savings initiatives. Adjusted Revenues and Adjusted Segment EBITDA declined 2% and 19%, respectively, compared to the prior year.

Digital Real Estate Services

Fourth Quarter Segment Results

Revenues in the quarter increased $40 million, or 21%, compared to the prior year, primarily due to the continued growth at REA Group and Move, as well as the acquisitions of iProperty and Diakrit. Segment EBITDA in the quarter was $175 million, compared to $45 million in the prior year. The increase in Segment EBITDA was primarily due to a one-time gain of $122 million related to the settlement of the Zillow litigation at Move and continued strength at REA Group, partially offset by $10 million of higher legal expenses at Move associated with the litigation and higher marketing expenses at REA Group.

Adjusted Revenues increased 17% and Adjusted Segment EBITDA, which includes $15 million of legal expenses at Move for the quarter related to the Zillow litigation, increased 24% compared to the prior year.

In the quarter, revenues at REA Group increased 17%, or 21% excluding a $5 million impact from negative foreign currency fluctuations, due to greater listing depth product penetration and higher developer and media revenues.

Move’s revenues in the quarter increased 21% to $98 million from $81 million in the prior year, primarily due to the continued strength in its Connection for Co-Brokerage product, as well as growth in non-listing Media and professional software revenues. Based on Move’s internal data, average monthly unique users of realtor.com®’s web and mobile sites for the fiscal fourth quarter grew 17% year-over-year to approximately 53 million. Mobile continues to drive audience growth and now makes up over half of all unique users.

Full Year Segment Results

Fiscal 2016 revenues increased $197 million, or 32%, compared to the prior year, primarily due to the $169 million from the inclusion of the results of Move, which was acquired in November 2014, coupled with higher revenues at REA Group and the acquisitions of iProperty and Diakrit. Segment EBITDA increased $143 million, or 71%, compared to the prior year, primarily due to a one-time gain of $122 million related to the settlement of the Zillow litigation at Move. The improvement was partially offset by a $28 million increase in legal expenses related to the litigation, which totaled $38 million for fiscal 2016, as well as negative foreign currency fluctuations and transaction costs of $7 million related to the acquisition of iProperty.

Adjusted Revenues increased 19% compared to the prior year. Adjusted Segment EBITDA, which excludes the settlement gain but includes the higher legal expenses, increased 24% compared to the prior year.

In the fiscal year, revenues at REA Group increased 5%, or 20% excluding $66 million of impact from negative foreign currency fluctuations, due to greater listing depth product penetration and higher developer and media revenues. Move’s revenues in the fiscal year increased 27% to $357 million from $282 million on a stand-alone basis in the prior year, primarily due to the continued strength in its Connection for Co-Brokerage product, as well as growth in non-listing Media and professional software revenues.

Cable Network Programming

Fourth Quarter Segment Results

In the fourth quarter of fiscal 2016, revenues increased $14 million, or 11%, compared to the prior year. Adjusted Revenues increased 14%, primarily due to the $10 million impact from the additional week in the quarter and higher affiliate revenues, as well as increased advertising revenues resulting from higher ratings. Segment EBITDA increased $1 million, or 5%, from the prior year. Adjusted Segment EBITDA increased 14%, primarily due to higher revenues, partially offset by higher programming rights costs primarily related to the NRL simulcast. Negative foreign currency fluctuations reduced reported revenues and Segment EBITDA for the quarter by $5 million and $2 million, respectively, as compared to the prior year.

Full Year Segment Results

Fiscal 2016 full year revenues decreased $16 million, or 3%, compared to the prior year. Adjusted Revenues increased 9%, primarily due to higher affiliate and advertising revenues, as well as the $10 million impact from the additional week in the year. Segment EBITDA decreased $11 million, or 8%, from the prior year. Adjusted Segment EBITDA increased 2%, primarily due to higher revenues, partially offset by higher programming rights and production costs. Negative foreign currency fluctuations reduced reported revenues and Segment EBITDA by $60 million and $14 million, respectively, as compared to the prior year.

Other

Fourth Quarter Segment Results

Segment EBITDA in the quarter improved by $7 million, primarily due to decreased fees and costs, net of indemnification, related to the claims and investigations arising out of certain conduct at The News of the World (the “U.K. Newspaper Matters”).

The net expense related to the U.K. Newspaper Matters was $4 million for the three months ended June 30, 2016, as compared to $8 million in the prior year.

Full Year Segment Results

Full year Segment EBITDA improved by $32 million. The net expense related to the U.K. Newspaper Matters was $19 million for the full year, as compared to $50 million in the prior year.

NewsCorp-Q4-16

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