Company view
A statement by Rupert Murdoch, Chairman and Chief Executive Officer of News Corporation is given below. The statement has been taken from the company’s 2007 annual report.
Amidst a string of successful years for News Corporation, 2007 stands out. Once again, we achieved double digit growth company-wide, and in nearly every segment. Established businesses and developing assets alike turned in strong performances, generating momentum across the Company. Operating income rose to yet another record – $4.45 billion, up 15 percent – on revenues of $28.7 billion, a 13% gain. Income from continuing operations grew by 22 percent to $3.4 billion, or $1.08 per share.
This was our Company’s fourth consecutive year of record results: revenues up 13 percent a year on average; operating income growth averaging 17 percent; and average earnings per share up 37 percent. This is a performance that few – if any – of our competitors can match over the same period.
Yet impressive as the numbers are, what set this year apart were the strategic moves we made to better position our Company for the future. We amicably reached an agreement with Liberty Media that, when completed, will result in the largest-ever single buyback of News Corp. shares; we announced a review of strategic options for several non-core assets; and after the fiscal year-end announced one of our most important strategic acquisitions of the past twenty years – the agreement to purchase Dow Jones & Company. When completed, these moves will give us the financial and operational flexibility to seize opportunities as they arise.
Our Company follows a clear strategy. We provide a compelling combination of information and entertainment for the largest audience around the globe. Few media companies can claim to match our breadth of offerings, or our global reach. And when we add Dow Jones to our stable of other news and information businesses, our leadership will be even more pronounced.
In providing this content, we maintain what we believe is the ideal mixture of established, developing, and new businesses with significant potential. This balance serves an important purpose: it guarantees that we always have at least one generation of assets that can be considered our growth assets.
Our established properties – assets like our newspapers, film studios and broadcast television properties – maintain valuable brands and loyal audiences, while remaining the foundation upon which we develop and expand all our activities, as well as generating reliable cash flows to fund our new businesses. The businesses that I call our developing operations are already delivering profits but still have room for stronger growth as they continue to further penetrate new markets. Our third-generation assets – our newest businesses – are just starting their growth cycles and are poised to become the Company’s future growth drivers.
This “virtuous cycle” has served us well. We have consistently broadened our offerings, from newspapers to feature film to free television to cable channels to books to paytelevision to many Internet offerings. And we have expanded our reach, from Australia to the U.K., then to the U.S. to Continental Europe and to East and South Asia.
One of last year’s best examples of this formula at work was our Cable Network Programming, a segment containing established, developing and new channels. Nearly every asset in this segment contributed more than its fair share to the bottom line. Among our established channels, the FOX News Channel showed strong growth during the year. The ongoing renegotiations of the Channel’s affiliate deals, coupled with strong advertising sales, drove record operating income and revenue growth. FX, another of our established channels, remained a leader in basic cable entertainment, producing double digit operating income and revenue growth. The regional sports networks, SPEED and National Geographic, also grew briskly during the year. One particular stand-out was our Fox International Channels, a relatively unheralded part of our cable group that nonetheless saw its profits grow strongly this year as it expanded its channel audience to a larger global audience. We will launch the FOX Business Network (FBN) this October. FBN has already signed deals with three of the nation’s largest cable operators, providing the channel on day one with more than 30 million subscribers – the largest launch of any cable channel in history. We are confident that FBN, under the leadership of Roger Ailes and his talented team, will be successful.
Over the past two years, we have begun to transform our Company from a traditional media giant into a digital juggernaut. I’m pleased to say we made substantial progress toward achieving that goal last fiscal year. Today our Internet portfolio reaches more than 160 million people globally. MySpace, our most popular site, now ranks first in the U.S. in total page views and is among the top five worldwide in unique visitors.
And we are extending this success abroad, with sister sites in 17 other countries. During the past fiscal year, MySpace turned profitable for the first time. We improved the site’s infrastructure, broadened its offerings, and made a number of small acquisitions through FIM to better enable us to monetize its enormous traffic. This year, we should see the benefits of these improvements in the form of increased revenues and profits.
Two of FIM’s key strategic acquisitions underscore News Corporation’s commitment to transforming the media landscape. Photobucket, which commands more than 30 percent of the photo website market, is a perfect fit with MySpace, many of whose millions of users host their pictures on the popular site. Strategic Data Corp. will help us monetize our massive traffic across all FIM sites. Through SDC’s proprietary technology, we are able to target ad delivery based on the massive amounts of data our audience provides through their profiles, comments, media, and more. While last year’s deal with Google locked in the best text-based search advertising, SDC’s technology represents the first time any website will have the technical ability to truly “hyper target” a brand message directly to a consumer.
Furthermore, we announced, along with our partner NBC/Universal, the creation of the world’s premier professionally produced video website. When launched, it will make available thousands of hours of premium video content from a dozen networks and two film studios. With a blue-chip lineup of distribution partners, the site at launch will reach 96 percent of all monthly U.S. Internet users. With the click of a mouse, consumers will now have instant access to the largest library of content ever assembled. Among our established businesses, our Filmed Entertainment segment posted its fourth straight year of record revenues and profits. What clearly distinguishes our film studio from the rest of Hollywood is the stability of our senior management team, their consistent good judgment in choosing films to make, and the business model they have faithfully followed that keeps costs relatively low while minimizing risk. This past fiscal year, the segment posted record operating income of $1.2 billion, an increase of 12 percent. We are still very early in fiscal 2008, but not too early to claim that we should have another very solid year in film, based largely on the success of our key summer films:
Fantastic Four: Rise of the Silver Surfer, Live Free or Die Hard, and The Simpsons Movie, each of which are critical and financial successes. Meanwhile, Twentieth Century Fox TV remains one of Hollywood’s most successful television producers, with hit shows airing not only on the FOX network (such as 24 and The Simpsons) but also on rivals like CBS (Shark), NBC (My Name Is Earl) and ABC (Boston Legal).
At the Television segment, the FOX Broadcasting Company was for the third year in a row the most watched network among the coveted 18-49 demographic. American Idol remained the most popular show on U.S. television, and hits like 24 and House continued to draw huge audiences. Unfortunately, results for the Television segment as a whole were mixed. MyNetworkTV, launched last fall in part as replacement programming for those stations that had been airing the now defunct UPN Network, garnered ratings far below expectations. We have since reworked the lineup for the network, placing more emphasis on movies and reality shows, lowering production costs.
At our Asian television operations, we experienced a slowing of the strong growth recorded in previous years. We are keeping a strong focus on our businesses at STAR and expect operating momentum to return in late fiscal 2008. SKY Italia achieved significant operating profit growth. This business is now a major growth driver. BSkyB, of which our Company owns 39 percent, added some 400,000 net subscribers, and also two new services: residential broadband and telephony, each of which has already attracted customers in the hundreds of thousands. The substantial costs of bringing these services to market largely account for the decreased rates of income and profit growth, but the business continues to thrive in a very competitive market.
Our print businesses, led by our world-famous newspapers, continued to provide reliable cash flows. Our own newspapers remain one of the bright spots in an otherwise troubled industry. While I share the concerns of those who fret about the future of newspapers, I have never shared their sense of gloom. We recognize the necessity in these times above all to ensure that our newspapers remain market leaders – and ours most assuredly are. Investments in new color printing plants in the U.K. are paying off, lowering costs, increasing the quality of the product and offering new options for advertisers.
As the digital revolution accelerates, newspapers should be seen as simply one delivery method for news organizations. Properly executed, great news brands will expand, not contract.
In our Magazines and Inserts segment, News America Marketing had another successful year as North America’s largest in-store consumer advertising and promotion network. News America Marketing delivered brand messages to more than 200 million shoppers each week last year.
Meanwhile, in Book Publishing, HarperCollins published many fine books but had a relatively flat year for profits, with operating income slightly down from the previous year. We achieved significant strategic milestones in fiscal 2007. We agreed to exchange Liberty Media’s 16.3 percent stake in News Corporation for our stake in DIRECTV, three regional sports networks, and approximately $588 million in cash. When this transaction is completed, which should be later this calendar year, we will have locked in a tax free gain of roughly 50 percent generated since we acquired our DIRECTV stake in December 2004, as well as effectively buying back approximately 16.3 percent of our own stock.
We also completed the sale of our stake in SKY Brasil for $302 million and a part ofour investment in Phoenix Satellite Television Holdings for $164 million, adding cash to our balance sheet. In addition, we decided to sell nine of our smaller local TV stations and announced that we would explore strategic alternatives for our holdings in News Outdoor and support Gemstar’s decision to look at its own strategic alternatives. There has been an understandable focus on our planned acquisition of The Wall Street Journal, the world’s pre-eminent business newspaper, but Dow Jones has a plethora of prestigious brands and a range of content that will provide us with a remarkable opportunity to take advantage of the two most profound social and economic trends of our age, globalization and digitization. We are at a moment in history when there is a confluence of content and of digital delivery and of increasingly sophisticated micropayment systems, meaning that the value of analysis and intelligence to a business user can be far more accurately reflected in the price of that content – that trend is as true for a businesswoman in Bangalore as it is for an investor in Idaho.
The relative success of WSJ.com in attracting paying customers is evidence that business readers will purchase need-to-know information, but how much more influential will Dow Jones content become, for example, if it is linked directly to our television networks in India, Europe and elsewhere in the world? The partnership permutations within our Company are limited only by our ambition and creativity, with each medium able to drive traffic to other platforms and bring content of the highest quality to ever larger audiences.
Even as we enjoyed financial success last fiscal year, we did not forget that we also have great responsibilities to the communities we serve. In May, News Corporation announced one of our boldest moves ever when we launched our industry-leading Global Energy Initiative. Our aim is to engage our audiences on the issue of climate change, and to transform the way our Company uses energy. We will get our own house in order by making our Company carbon neutral by 2010: reducing the amount of energy we use, using renewable resources and energy wherever possible. By reducing our energy use – in workplaces, in the production of our content, and in the packing material for our products, for instance – we will spend less and make our contribution to help protect the climate.
To News Corporation’s 53,000 employees, I close by saying thank you for your hard work and relentless spirit of innovation. We are where we are today – atop the world as one of the fastest growing, most exciting, and most successful media companies – because of your efforts. And to our stockholders, I thank you for your support.
We have never made the mistake of celebrating present success at the expense of future performance. We remain in relentless pursuit of new markets, innovations and ideas to fuel our growth this year and beyond.
