News Corp, hit by an 11% drop in print ad revenue, records a loss in its Q1 2017 earnings report
Digital Real Estate Services remains a bright spot for the more diversified company, as revenue grew 18%, but could not make up for declines in newspaper and book publishing
The publisher of The Wall Street Journal and other newspapers, News Corp today reported earnings for what is the company’s first quarter of fiscal 2017. Like other newspaper publishers, it reported weak ad revenue.
But unlike many other newspaper companies, News Corp is more diversified. Along with its News and Information Services division, it has a book publishing and digital real estate division. With that mix, the company reported overall revenue down 2 percent, a net loss in the quarter.
At its newspapers, advertising revenues decreased 11 percent, though its News America Marketing division reporter higher in-store revenue.
In its book division, revenues in the quarter decreased $20 million, or 5 percent, due at least in part to having to go up against revenues from Go Set a Watchman by Harper Lee that hit a year ago.
On the plus side, News Corp’s acquisition of Move is panning out. Revenues in the quarter for the Digital Real Estate Services segment increased $35 million, or 18 percent.
Last week, The Wall Street Journal announced that it would combine sections on Tuesday, Wednesday and Thursday, and institute layoffs in its newsroom.
“All newspapers face structural challenges and we must move to create a print edition that can stand on a sound financial footing for the foreseeable future while our digital horizons continue to expand. As I previously mentioned, there will unfortunately need to be an elimination of some positions as part of this process,” editor in chief Gerard Baker said in a staff memo.
The moves at the Dow Jones division were mentioned in the earnings statement below, described as a “planned strategic reduction in spending.”
Here is News Corp’s Q1 statement:
NEW YORK, NY – November 7, 2016 — News Corporation today reported financial results for the three months ended September 30, 2016.
“News Corp made real progress as it continued to drive higher digital revenues and position the Company for long-term growth. While the quarter presented some obvious challenges, particularly in print advertising and the weakness of the Pound Sterling, our revenues were relatively stable, underscoring the strength and scale of our portfolio and shift to digital.
Our Digital Real Estate Services segment posted another strong quarter with an 18% year-over-year revenue increase and is on a clear path to reshape the character of News Corp. At Realtor.com®, we generated solid revenue growth even as we retooled our product offerings. We expect that momentum to accelerate this year and to contribute meaningfully to EBITDA.
Book Publishing extended its gains from last quarter with healthy EBITDA growth despite the prior year comparison with Go Set a Watchman. A strong roster of titles and improvement in religious publishing should augur well for the coming quarters.
At our News and Information Services segment, the print advertising challenges were partially offset by higher digital revenues and disciplined cost initiatives. We continue to push digital, which accounted for 24% of segment revenues this quarter, up from 20% in the prior year. While we invest in high quality, premium content, this will be balanced with ongoing cost initiatives, as is evident from Dow Jones’ planned strategic reduction in spending and its focus on growing digital subscribers.
Despite ongoing political and economic uncertainty, particularly in U.S. and U.K. markets, we remain focused on expanding revenues and driving higher long-term value for investors.”
FIRST QUARTER RESULTS
The Company reported fiscal 2017 first quarter total revenues of $1.97 billion, compared to $2.01 billion in the prior year period. Reported revenues reflect a negative impact from foreign currency fluctuations of $36 million. Adjusted Revenues for both periods (which exclude the foreign currency impact and acquisitions as defined in Note 1) were equivalent to reported revenues, as growth in the Digital Real Estate Services segment was more than offset by lower advertising revenues at the News and Information Services segment.
Income from continuing operations for the quarter was nil as compared to $143 million in the prior year. The decrease was primarily due to the absence of a $106 million tax benefit related to the release of valuation allowances resulting from the disposal of Amplify in fiscal 2016, lower Total Segment EBITDA, as discussed below, and lower equity earnings of affiliates, primarily driven by the announced closure of Foxtel’s Presto service in January 2017.
The Company reported first quarter Total Segment EBITDA of $130 million compared to $165 million in the prior year. Adjusted Total Segment EBITDA (as defined in Note 1) was 11% lower compared to the prior year, primarily due to the weak print advertising market and increased programming rights costs at the Cable Network Programming segment, partially offset by continued growth in the Digital Real Estate Services and Book Publishing segments.
(Loss) income per share from continuing operations available to News Corporation stockholders was ($0.03) as compared to $0.22 in the prior year.
Adjusted EPS (as defined in Note 3) were ($0.01) compared to $0.05 in the prior year.
News and Information Services
Revenues in the quarter were lower by $68 million, or 5%, compared to the prior year. Adjusted Revenues were 4% lower compared to the prior year.
Advertising revenues decreased 11%, or 10% excluding a $6 million impact from negative foreign currency fluctuations, primarily due to the weakness in the print advertising market. The decrease was partially offset by higher in-store product revenues at News America Marketing and growth in digital advertising revenues.
Circulation and subscription revenues decreased 4%, but increased 1% excluding a $24 million impact from negative foreign currency fluctuations, due to higher subscription pricing, selected cover price increases in the U.K. and Australia and higher paid digital subscribers, partially offset by lower print volume.
Segment EBITDA decreased $37 million in the quarter, or 45%, as compared to the prior year, and Adjusted Segment EBITDA decreased 27%. The reported decrease was driven by the lower advertising revenues noted above, $12 million of investment spending in connection with Checkout 51, as well as transaction related costs of $5 million associated with the acquisition of Wireless Group.
Digital revenues represented 24% of segment revenues in the quarter, compared to 20% in the prior year. At Dow Jones, digital revenues represented 55% of total revenues in the quarter. Digital subscribers and users across key properties within the News and Information Services segment are summarized below:
- The Wall Street Journal average daily digital subscribers in the three months ended September 30, 2016 were 967,000, compared to 819,000 in the prior year (Source: Internal data)
- Closing digital subscribers at News Corp Australia’s mastheads as of September 30, 2016 were 283,800, compared to 246,400 in the prior year (Source: Internal data)
- The Times and Sunday Times closing digital subscribers as of September 30, 2016 were 181,000, compared to 169,000 in the prior year (Source: Internal data)
- The Sun’s digital offering reached 46 million global monthly unique users in September 2016, based on ABCe (Source: Omniture)
Revenues in the quarter decreased $20 million, or 5%, compared to the prior year, primarily due to the absence of revenues from Go Set a Watchman by Harper Lee, partially offset by the continued expansion of HarperCollins’ global footprint and the popularity of front-list titles such as The Black Widow by Daniel Silva, Hillbilly Elegy by J.D. Vance and Jesus Always by Sarah Young. Digital sales represented 20% of Consumer revenues for the quarter. Segment EBITDA for the quarter increased $6 million, or 14%, from the prior year due to the mix of titles.
Digital Real Estate Services
Revenues in the quarter increased $35 million, or 18%, compared to the prior year, primarily due to the continued growth at REA Group and Move, as well as $10 million from the acquisitions of iProperty and Diakrit. Segment EBITDA in the quarter increased $10 million, or 18%, compared to the prior year. The increase in Segment EBITDA was primarily due to higher revenues, partially offset by higher marketing expenses at both REA Group and Move.
In the quarter, revenues at REA Group increased 22%, or 16% excluding a $5 million impact from favorable foreign currency fluctuations, due to an increase in Australian residential depth revenue, as favorable product mix offset lower listing volumes, and the acquisition of iProperty.
Move’s revenues in the quarter increased 9% to $93 million from $85 million in the prior year, primarily due to the continued growth in its Connection for Co-BrokerageSM product and non-listing Media revenues. Based on Move’s internal data, average monthly unique users of realtor.com®’s web and mobile sites for the fiscal first quarter grew 15% year-over-year to approximately 53 million. Mobile continues to drive audience growth and represents more than half of all unique users.
Cable Network Programming
Revenues in the quarter increased $4 million, or 3%, compared to the prior year due to higher advertising revenues. Adjusted Revenues increased 1%. Segment EBITDA in the quarter decreased $14 million, or 50%, compared with the prior year. Adjusted Segment EBITDA decreased 29% due to higher programming rights costs primarily related to the NRL simulcast and certain one-time cricket rights.