Filed by The News Corporation Limited
Pursuant to Rule 425 under the Securities Act of 1933
and Deemed Filed Pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Companies: Hughes Electronics Corporation
General Motors Corporation
Commission File No. 333-105851
Commission File No. 333-105853
NEWS CORPORATION
Earnings Release Conference Call
August 13, 2003
Coordinator Good morning and thank you all for holding. I'd
like to welcome you to the News Corporation and Fox
Entertainment Group's fourth quarter earnings
release conference call. At this time all lines are
in a listen-only mode until the question and answer
segment of the call. Also, this call is being
recorded. If you have any objections, please
disconnect at this time.
I would like to turn the call over to Gary
Ginsberg, Executive Vice President of Investor
Relations and Corporate Communications. Sir, you
may begin.
G. Ginsberg Thank you, Operator. Good morning, everyone, and
welcome to today's conference call to discuss the
fourth quarter and full-year operating results for
both News Corporation and the Fox Entertainment
Group. With me today are Rupert Murdoch, Chairman
and Chief Executive of News Corp.; Peter Chernin,
President and Chief Executive Officer; Lachlan
Murdoch, Deputy Chief Operating Officer; Dave
DeVoe, Chief Financial Officer.
Before we begin our discussion today, let me first
make some preliminary statements. This call does
not constitute an offer to sell or solicitation to
buy in connection with the proposed acquisition by
News Corporation of an interest in Hughes
Electronics. News, GM, and Hughes have filed
materials with the SEC with respect to this
transaction. Because they contain important
information, investors are urged to read these
materials, which are available free of charge at
the SEC's Web site.
Today's call is, of course, governed by the Safe
Harbor provisions. On this call we will make
statements that constitute forward-looking
statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These
forward-looking statements involve unknown risks,
uncertainties, and other factors, including those
described in News' public files with the SEC, that
could cause actual materials to be materially
different from those in the forward-looking
statements.
If any non-GAAP financial measures are discussed on
this call for which a GAAP reconciliation is not
otherwise contained in the News Corp. or Fox
earnings releases, News and Fox will post any
required additional information on their respective
Web sites.
With all that, I'd now like to turn the call over
to Rupert Murdoch.
R. Murdoch Thank you, Gary, and good morning, everyone. We are
of course pleased with today's results, both for
the quarter and for the fiscal year. A record end
to a record year: the most profitable fourth
quarter ever and most profitable year in our
company's 80 years of existence.
The quarter was highlighted by the same durable
trends that have fueled our growth throughout the
past two years: viewership gains at our cable and
broadcast television properties; hit theatrical
movies, coupled with a burgeoning home
entertainment market; market share increases at
nearly all our advertising-dependent businesses;
strict cost controls throughout all layers of the
company; and a continuing focus on converting more
of our profits into free cash flow.
Perhaps most encouraging is that the financial and
operational goals that we set for the year were
surpassed at every one of our key businesses. This
performance is clearly reflected in today's
results.
Record profits at our cable segment. Fox News, FX,
Fox Sports, SPEED, and National Geographic all
reported dramatic subscriber and ratings gains
achieved against formidable competition. The result
was a more than doubling of profits over last year.
Record profits in our Filmed Entertainment segment.
Our ability to create and then leverage hit movies,
both large and small, to produce television shows
that work, and to create new markets such as the TV
DVD market led to the second consecutive year of
record profitability.
Record profits at our Television Station Group,
propelled by the success we achieved in the
integration of our duopoly stations and our
increase in overall operating margins. And
bolstered by the turnaround we accomplished at the
Fox Broadcasting Company over the past two
quarters.
Record profits at HarperCollins, with an array of
best sellers across all genres.
And for the first time ever, full-year profit at
STAR, with the right mix of local programming,
marketing, and a strong local management team,
turning STAR into an exciting and profitable
business with 40 channels in seven languages.
We achieved these results because of three
fundamental factors: first, our determination to
stick to our game plan, a strategy of investing
strictly in what we believe will be high-growth
businesses and then giving those businesses the
resources and support to reach their potential;
second, our focus on permanently lowering our cost
structure so that revenue gains would flow directly
to our bottom line. It resulted, this year, in a
total company margin improvement at News
Corporation of nearly 20% and record cash from
operations at Fox. We're converting more and more
of our operating income into free cash. And third,
a unique and superior mix of businesses, organized
in a successful, closely integrated structure
overseen, I think, by one of the most stable
management teams in the entertainment industry
today. Our companies are working in synch, sharing
best practices and management, and leveraging their
quality content across our global distribution
platforms.
We also made significant strategic progress this
past year, most noticeably in our successful
negotiations to acquire a major interest in Hughes
Electronics and its industry-leading DirectTV
platform. We are pleased with the pace of the
regulatory process to date and we remain very
hopeful the transaction will receive the necessary
approvals by the end of this calendar year.
We're also very encouraged by the successful start
of SKY Italia. Our July 31st launch of the new
service greatly exceeded expectations. Eight
hundred and twenty thousand of the combined
platform's two million digital subscribers have
already changed over to the new service, with ARPU
at least 10% better than expected. We had budgeted
to take 18 months to move into solid profit and
we're on our way now to a great start.
We're also pushing ahead with BSkyB. Last week's
announcement that the company had secured,
beginning in 2004, another three years of exclusive
coverage of British live premier league games at a
discount to its current deal should only reinforce
the service's popularity and growth. After five
years, during which the company converted to
digital and exceeded all its forecasts, we are
seeing significant financial contributions from the
company, which we expect to grow from here.
There is much to be pleased about. The assets we've
worked to build over the past few years are now
performing extremely and reliably well and our
newest assets give us great confidence in the
opportunities ahead. Thank you very much. I'll turn
you, now, over to David DeVoe.
D. DeVoe Thanks, Rupert, and good morning, everybody.
As Rupert just indicated, we are quite pleased with
the company's performance in achieving continued
strong revenue and operating income growth, both at
Fox and at News Corporation, for the fourth quarter
and for the full fiscal year. This performance was
particularly satisfying given the broad-based
nature of our growth throughout almost every
operation of the company.
For today's call I will first discuss Fox's
performance and then follow that with an overview
of News Corporation's results. Since we've just
finished our fiscal year, I will focus primarily on
the year's results.
Before I comment on the Fox results, I call your
attention to today's Fox press release, where we
describe our use of certain non-GAAP measures.
Based upon recent SEC guidance on Regulation G, we
will no longer use the term "EBITDA". Instead, we
will now use the term "operating income before
depreciation and amortization". I want to emphasize
that this is a change in name only and we have not
changed the way we calculate current, prior, or
projected amounts for this measure.
As required, this measure is reconciled to the GAAP
measure of operating income within the press
release and our SEC filings. Now let's take a quick
look at Fox's results.
For the quarter, the Fox Entertainment Group
reported revenue growth of 15%, and operating
profit before depreciation and amortization of $505
million, up 59% from last year. For the year,
operating profit before depreciation and
amortization grew to a record $2.1 billion, up 58%
from a year ago, while operating income reached a
record $1.8 billion. For the year, net income was
slightly more than $1 billion, a 77% increase over
last year's level, and earnings per share were
$1.17. Now let's look at the consolidated results
in a little more detail.
Filmed Entertainment reported their most profitable
year ever, with operating profit before
depreciation and amortization of $717 million.
Driving this year's earnings were significant home
entertainment sales from Ice Age, Shallow Hal,
Behind Enemy Lines, Super Troopers, and various
catalog titles. Additionally, our theatrical
releases in the year had strong market acceptance,
as 19 of the 25 releases will achieve ultimate
profitability, and these releases include X-Men 2,
Drumline, and Phone Booth. These strong results
were slightly offset by the theatrical release
costs of Down With Love, 28 Days, and the July
release of The League of Extraordinary Gentlemen as
well as the performance of Solaris and From Justin
to Kelly.
Our Television Production business, 20th Century
Fox Television, also had a successful year,
reflecting higher syndication profits from the
X-Files, and increased home entertainment sales
from 24, Buffy, and The Simpsons. At our Television
segment, our Television stations had a record year
of revenues and profits, with operating profit
before depreciation and amortization reaching $983
million. This growth was led by the strength of
local news and the network schedule and has
resulted in the stations achieving record market
share that was accomplished despite the
non-recurrence of the Super Bowl on Fox a year ago.
At the Fox Broadcasting Network we had the most
significant improvement in any of our businesses
this year. The operating loss before D&A,
depreciation and amortization, was $81 million, an
improvement of $182 million from a year earlier.
High ratings for American Idol and Joe Millionaire
led this substantial growth. Peter will comment
more on the network in a moment.
Moving on to the Cable Network Programming segment,
here we also reported record profits for the year.
Our channels continued to experience increases in
subscribers and ad revenues while controlling costs
across all networks. You should note that this
segment's results were negatively affected last
year by approximately $30 million and this is due
to a write-off we took on the Adelphia bankruptcy.
The Cable segment's growth was led by the Fox News
Channel, where substantial ratings gains translated
to higher ad revenues, subscriber gains to higher
affiliate fees, and profits increased despite
preemptions and costs for war coverage in Iraq. The
Regional Sports Networks, SPEED Channel, and FX all
continued their subscriber growth, while ratings
gains at FX led the 15% increase in its revenues.
Now let's take a look at News Corporation.
News Corporation also reported record operating
income for the year of $2.53 billion, driven
primarily by our Filmed Entertainment, Television,
and Cable Network businesses, the results of which
were just highlighted. Losses at our associated
entities, before other items, of $93 million,
improved by $72 million, which is primarily the
result of the inclusion of increased contributions
from BSkyB, improved results from our Latin
American platforms both in Brazil and Mexico,
offset in part by the equity accounted losses of
Stream, which is now a consolidated operation,
which I'll talk about in a minute.
News Corporation's net profit for the year, before
other items, was $1.1 billion versus $636 million a
year ago and earnings per ADR, before other items,
was $0.83 versus $0.49 a year ago. Now let's
briefly look at News Corporation's divisional
results.
Film and Cable results at News Corporation are in
line with the comments I just made. At News
Corporation's television segment, operating income
for the year was the highest ever, at $851 million.
This performance primarily reflects the growth of
the network and the stations discussed earlier. In
addition, as Rupert just mentioned, STAR registered
its first full year of operating profit, as
advertising and subscription revenues increased by
a combined 14% across the region led by India.
These were achieved despite costs associated with
the startup and launch of two new channels in
China.
One of our key strategic initiatives occurred in
late April when we closed on the acquisition of
Telepiu and formed SKY Italia, which is now
classified as a new reporting segment of the
company and it's called the Direct Broadcast
Satellite Television. SKY Italia's operating loss
of $68 million was better than expected, primarily
due to delayed advertising and launch-related
spending, which is now expected to occur in the
first quarter of fiscal 2004. As Rupert indicated,
while we only launched the new consumer offering
two weeks ago, initial indicators are very, very
positive.
At our Magazines and Insert Division we reported an
operating income improvement of 9% over 2002
levels. This steady profit improvement is driven by
higher revenues, particularly in the FSI division,
and reduced paper cost. In our Newspaper segment,
operating income declined $30 million from a year
ago. Growth in Australia, particularly from a
healthy advertising environment, was offset by the
current price initiative at The Sun in the U.K. The
cover price of The Sun was returned to normal
levels in May this year, so we expect this segment
to continue the growth it's had in the prior year,
as we look into fiscal 2004.
At our book company, HarperCollins, it delivered
record operating profits for the year, as each of
their divisions focused on a balanced front list
and backlist publishing program and stringent cost
controls to improve their margins.
Finally, before I address our financial
expectations for fiscal 2004, I need, again, to
provide some Regulation G comments. As more
completely described in Fox's 10-K and 10-Q filings
and in the earnings release distributed today, we
believe operating profit before depreciation and
amortization is a key financial performance matrix
for Fox and is determined by taking operating
income and adding back depreciation and
amortization.
If you are looking to reconcile our estimates of
Fox's 2004 operating profit before deprecation and
amortization to operating income, we estimate that
deprecation and amortization for the year will
approximate $300 million. With that, let me address
our expectations.
As we look to fiscal 2004, essentially all of our
operating divisions are projecting continued
growth. Based on the assumptions inherent in our
projections, we are expecting that 2004 operating
income growth at News Corporation will be in the
range of the high single digits to low double
digits, which includes absorbing losses from SKY
Italia of approximately $300 million. At Fox,
operating profit before deprecation and
amortization is projected to increase in the
mid-teens above fiscal 2003 levels.
With that, I'd like to turn the call over to Peter
for his comments.
P. Chernin Thanks, Dave. Good morning, everyone. Our fourth
quarter and full-year performances indeed reflect a
company that is operating superbly. As you've
heard, we've had record annual performances from
our key content businesses in TV, cable, film, and
book publishing. We had industry-leading revenue in
operating income before D&A growth for the year.
None of our competitors was even close. We improved
our operating margins at News by nearly 20% and at
Fox by 40% and we beat our year-end forecasts at
both News and Fox, even more impressive, given that
we increased our forecasts three times during the
year.
Our gains, as you've heard, come from strong
execution of a well-articulated and consistent
business plan, from cost discipline and shrewd risk
management, but most of all from producing and
distributing content that attracted bigger
audiences and higher CPMs.
But as strong a performance that we put in this
year, I'm confident that there's still significant
room for improvement at all levels of the company.
One of the things that distinguishes News and Fox
is our hunger to always do better, and you can be
sure that despite our growth this year, that is
exactly what we intend to do.
Certainly, the engines that propelled our growth in
2003 will be present and, in fact, many of them
even stronger in 2004. Fox Broadcasting, coming off
the single most dramatic turnaround in our history
last season, going from last place in the November
Sweeps to two consecutive 18-49 Sweep wins in
February and May, has enormous momentum going into
this season. We are far and away the number one
network now in teens and in 18-34 demographics, and
we're nipping on the heels of NBC for supremacy
among adults 18-49.
American Idol and Joe Millionaire were the headline
stories for the year; two of the three top shows on
primetime television and two of the biggest
generators of advertising revenue in the industry.
The less-known story was how dramatically those two
hit shows lifted our entire schedule.
Since January, 24 was up 20%; That 70's Show up
26%; King of the Hill up 19%; and Bernie Mac up an
astounding 76%. Practically all our returning shows
from last year grew, won their time periods, and
all will be coming back this coming season.
Two events this summer have added to our momentum
on the Fox Broadcasting front. First of all, Simon
Cowell has been signed for another three years,
guaranteeing American Idol's future with Fox.
Anyone who thinks American Idol's success last year
as a fluke should be wary. American Idol is a
genuine American phenomenon; it's here to stay, and
its success should be just as durable as a runaway
hit scripted series and just as valuable to us as
Survivor has been for CBS.
Secondly, Ashton Kutcher, the star of That 70's
Show, has signed a new deal, which ensures the
continuation of That 70's Show for at least the
next two years.
The challenge for us now is as clear as it is
attainable: to build on the momentum we achieved
last fiscal year with the ultimate aim of
overtaking NBC as the number one network among
adults 18-49. We've gotten an earlier start than
usual toward reaching that goal by launching a
number of our key shows during the summer rather
than waiting until the traditional September launch
week.
Most importantly, we launched The O.C. last week
and the pilot episode has been seen by more than 17
million viewers. It was a solid start to a show we
have high hopes for, a show that's a part of a
longer-term strategy to go underneath the
competition on Thursday nights and peel away the
young audiences, who are always the first to sample
new shows.
As a network, we have been able to capitalize on
hit shows, to build new shows. Using, first, Joe
Millionaire and then American Idol, we built 24 and
Bernie Mac into certifiable hits, while creating
the second highest rated new comedy last season,
Wanda At Large. Now we going to continue using that
strategy next year by scheduling Skin, a show we're
very excited about, behind Joe Millionaire 2 and
another show I'm excited about, Stan Hooper, behind
That 70's Show.
Advertising at the network remained very strong.
We're basically sold out through the end of the
quarter and scatter, what little we're selling of
it, is up double digits over up-front pricing.
Given the strength of our up-front performance in
May, we're very well positioned, actually, I'd say
almost insulated, against any potential softening
of the market share in the year. Furthermore, we're
again seeing historically low cancellations.
We're doing particularly well with sports
advertising. Football is far ahead of last year's
pace. We've sold almost 60% of inventory for this
season and CPMs are up 10% over last year. Baseball
is also looking up. We're feeling better about
baseball than anytime in many years. We're in great
shape for the league championship series and CPMs
are up in the mid- to high-single digit range.
Advertising at the local level also remains very
solid. We're facing difficult comparisons to last
year, particularly given the amount of political
spending we all enjoyed last year during the third
and fourth calendar quarters, but we're expecting
pacings for the first fiscal quarter to be up in
mid-single digits with the Fox O&Os performing much
better than the market in general.
We're very upbeat about the full year as well. The
strength of the network up front should be felt by
the stations beginning in September and we're
looking forward to a big bump from increased
political spending beginning in the second half of
the year.
We've improved our market share at the stations 6%.
On average now, our stations garner somewhere
around a quarter of their market's total
advertising spend. This is in part due to the
extraordinary ratings performance of our stations.
In the last Sweeps period, 21 out of 24 of our O&O
markets were number one in adults 18-49 for Fox
common prime. Overall, Fox affiliated O&Os improved
their total day ratings by more than 10% in all
three key demos, led by prime and morning news,
which remarkably is now capturing a 20s share.
By the way, we've now virtually completed the
complex process of integrating our duopoly
stations. Only New York, and basically its news
facilities, still need to be integrated, which
should happen by April of next year. On the whole,
we are quite pleased with how the process played
out, specifically with the amount of permanent cost
we were able to strip out of the second stations
and how quickly we've been able to improve overall
station margins.
Our cable networks, as I'm sure you noticed, also
had a phenomenal year; in fact, the second
consecutive year of greater than 100% growth. I
won't repeat the reasons for our success; by now
they're well known to you. I do want to say,
however, that we believe that we are on track for
another spectacular year. Fox News' lead over CNN
on any given night is now anywhere between 50% and
100% and growing. FX is on a roll.
Nip Tuck is the highest-rated new original series
on basic cable, even outperforming ABC and CBS in
its Tuesday primetime period among adults 18-49.
Fox Sports continues to grow revenues with no
meaningful rights agreements up for the remaining
of fiscal 2004. SPEED and Nat Geo meanwhile will
continue to grow ratings and subscribers, the
benefits of which will be seen during the fiscal
year.
Cable Advertising, like Broadcasting, had a very
strong upfront. Our three primary channels all
experienced strong double-digit CPM and total
dollar gains over last year. Fox News' CPMs are now
above CNN's and climbing. The additional
opportunity here, of course, is the affiliate fee
gains we can expect down the road as first FX and
then Fox News' carriage agreements expire and new
rates are set based upon the great success of these
channels.
Dave talked about the record profits of the Film
segment this year. While I can't promise, this
early in the fiscal year, a third consecutive year
of profitability, I can say that we will continue
to benefit from the same forces and drivers that
have lifted us so well the last few years. Home
entertainment sales should again be strong with the
releases in this fiscal year of X2, which has
grossed over $400 million worldwide so far, and
Dare Devil, which has already sold more than 3.2
million DVDs domestically.
We'll also continue to exploit our successful TV
series on DVD, a market we essentially created with
revenues last year in excess of $250 million, with
new releases scheduled this year of Bernie Mac,
season two of 24 on September 9, and season three
of The Simpsons later this month. Our upcoming
release slate is also quite exciting. Runaway Jury,
based on the John Grisham bestseller, in October;
Master and Commander by Peter Weir, starring
Russell Crowe in November; the next Farrelly
brothers' comedy, Stuck On You, starring Matt Damon
in early December; a big Christmas comedy, Cheaper
By The Dozen, starring Steve Martin on Christmas
Day.
Next summer also looks quite exciting, starting
with the next installment from Roland Emrick, the
creator of Independence Day, titled The Day After
Tomorrow, followed by a big family movie, Garfield,
which is a combination of live action and CG
animation, and then in early July, I Robot starting
Will Smith.
I'd be remiss if I didn't mention the tremendous
success of Searchlight, which was responsible for
such hits at 28 Days Later and Bend It Like
Beckham, which have generated an excess of $28
million and $40 million respectively, in box
office, off a combined investment of less than $10
million.
Our Print businesses should also show growth this
fiscal year. Our newspapers, from stronger
advertising markets in the U.K. and Australia, and
the cessation of the tabloid price war in the U.K.,
News America Marketing from its vastly expanded
market share, and HarperCollins, with its
diversified product offerings. Finally, STAR
enjoyed its first full year of profitability and we
expect it to continue to grow profits in the fiscal
year and beyond.
As Weekly Variety said this week, we're a company
firing on all cylinders. We have the right mix of
developed and developing assets, a firm eye on our
day-to-day businesses, but also an eye on
identifying and building businesses for the future,
as we're doing here in the U.S., in Italy, China,
and India. We have the strongest brands in the
business, run by the strongest, most stable
management team in the industry. Our margins and
market shares are growing across all of our key
businesses. We're generating near-record amounts of
free cash flow and shareholders are being rewarded.
We've accomplished so much in this past fiscal
year, but what's exciting for all of us is the
almost limitless opportunities we have to take this
great story even further and to deliver even better
results this fiscal year and hopefully for many
years to come.
Thank you very much. I think with that, Rupert,
Lachlan, Dave and myself will now take your
questions.
Coordinator Thank you. Richard Bilotti, your line is open and
please state your company name.
R. Bilotti Good morning. In looking forward at the stations,
what is the gap between the margins on, say, the
UPN affiliate and your traditional Fox stations?
What's the potential to close that gap? Given that
your station agreements, in some cases, start to
come up this year and you're being so much more
successful on the Fox Network than in past years,
would you consider re-branding these stations Fox
and starting your own second network?
L. Murdoch Rich, it's Lachlan here. The UPN stations
are all pacing ...16 to roughly 20 points behind
our core Fox O&Os. That's the bad news. The good
news is, actually, that the margins are actually
holding up very strongly to our plans, so while the
pacings are behind, all of our UPN stations are
still showing record profitability for us, and
certainly we're very much ahead of last year.
In terms of our view of the performance of UPN,
obviously we're very unhappy with it, but they have
new management in there and I think we have to give
that management a shot with it with this new
season, to see how they turn around the performance
of that network. Obviously, if they can't turn it
around, we have lots of options available to us,
and I'll leave it at that.
Richard Thank you.
Coordinator George Colman, your line is open and please state
your company name.
G. Colman It's Citigroup. I guess the numbers really speak
for themselves. I'm interested in your comment,
that you're satisfied with the pace of the
regulatory approval process for Hughes. Can you
speak briefly to how you interpret the pushback of
the FCC's deregulation? Is that an irrelevancy or
is it, in fact, a positive for your deal?
R. Murdoch I think it's an irrelevancy, as it's quite a
different issue altogether. We believe that this
great feeling in the Congress against the cap is
based on a lot of ignorance, that, in fact, free
television needs help, not limitation at this time.
It really doesn't affect us and it, in no way,
crosses over into the issue of DirectTV. There has
been no attempt by anybody in the Congress or in
any of the questions we've had from the FCC or DOJ
to suggest that there's any connection.
G. Colman Rupert, just on that, you nominated a subscriber
target one call back, which Hughes is now well in
front of for the year. Do you have a long-term
target in mind in terms of potentially redefining
the market opportunity here?
R. Murdoch No, I just think we have to make DirectTV a unique
viewing experience. There's a tremendous amount of
work to do and I believe it will make great
progress. I'm hoping we can get back to growth of
one million net subscribers a year for a number of
years. Obviously you can't do that forever, but we
can certainly grow the business in the long term
into something much bigger. That's our intention.
G. Colman Thank you.
Coordinator Jessica Reif-Cohen, your line is open and please
state your company name.
J. Reif-Cohen Merrill Lynch. The numbers in the guidance, it
sounded like, Dave, you almost thought that every
division, including Film, would be up. Could you
just give us color? Did you expect it to be in the
same ballpark as this past year?
Peter, I think you said that cancellation options
were at record lows. Did you actually get the
options for the December quarter based on the 2003
up fronts?
Dave, could you comment on the potential for a
ratings improvement, a ratings upgrade, given your
balance sheet has improved so significantly in the
past year?
P. Chernin That was a lot of questions, Jessica.
J. Reif-Cohen Hi, Peter.
D. DeVoe With respect to the guidance, we'll leave the
guidance as it stands. We're not prepared to really
give anymore guidance than what I gave and Peter's
comments. I think on the ratings expectation, yes;
you can never be totally positive on this, but I
would be pretty confident that over the course of
the next year we should see a ratings upgrade,
given the strength of the company's balance sheet
and the company's financial performance.
P. Chernin I would say, first of all, my comment about the
movie company was just that I think anyone would be
crazy to predict movie company earnings one month
or three weeks into the year because we have a lot
of big movies coming out. As some of our colleagues
have seen this summer, one movie is capable of
damage. We're not particularly nervous about
anything, but we don't want to go out on a limb and
guarantee where we are.
Cancellations are running low though we have not
had December cancellations yet, but we're in the
beginning of the second fiscal quarter
cancellations.
J. Reif-Cohen Could you comment on the average length of
contracts with MSOs for your regional sports
networks? Is there anything coming up?
P. Chernin There is nothing coming up. They're all over the
place. We have certain contracts generally coming
up with MSOs, almost in any given year, but there's
not one year in which they all come up; they tend
to come up sporadically. A certain amount of them
come up virtually every year.
Coordinator Yolanta Mosojada, your line is open and please
state your company name.
Y. Mosojada Credit Suisse First Boston. Can I just ask what
advertising assumptions you're making to underpin
the guidance that you've provided in the major
geographic territories in which you operate?
D. DeVoe Principally, I don't really want to get into
the details of all this, but certainly, on the
television side, it's mid-single-digit range on
some. The print business is slightly above that.
Y. Mosojada Thank you.
D. DeVoe Relatively, we view that as relatively
conservative.
Coordinator Anthony Noto, your line is open and please state
your company name.
A. Noto The company name is Goldman Sachs. I was wondering
if you could comment more on your outlook for the
broadcast network. Specifically, in the last two
quarters combined, you've had over $70 million in
EBITDA in absolute dollars. Based on your guidance,
which is obviously a much faster growth rate for
your overall company at the Fox level than the rest
of the industry, it would imply that you're either
taking a very conservative approach to broadcast
network or you're going to increase your spending
in either development spending on production or on
investment spending. I was just wondering if you
could give us a little sense of what your plans are
there specifically, and whether you're just
providing some cushion, or are there incremental
program expenses we didn't expect? Thanks.
P. Chernin Look, similar to the movie business, broadcast
season is fraught with a lot of volatility. We have
a tremendous number of new shows we're planning on
launching. I think it's foolhardy to assume that
they're all going to be successful and you're not
going to have some failure; you're not going to
have marketing expenses. That being said, we have
no change in the model. We are not anticipating
significantly higher spending in any areas. We're
just making what we think are reasonably
conservative but sensible assumptions about where
the business goes.
A. Noto Great. Thank you.
Coordinator Our next question comes from Alex Pollak. Your line
is open. Please state your company name, Sir.
A. Pollak It's Macquarie Bank. Rupert, I'm very curious to
get some more color on this film number that you're
talking about. I recognize, of course, that if you
have a couple of big films and they go bad on you,
that you're going to have some difficulties in
terms of exceeding the 2003 number of $641 million
U.S. at the film level. But I wonder whether you
could comment on the increased contribution of the
DVD component of the business, both TV product and
film, and whether you could even go so far as to
say what component of the $641 million comes out of
the DVD business and how much more, as a
percentage, that is relative to, obviously, a few
years ago it didn't exist, but how much more you
anticipate that being in the next few years and how
fast that will grow. I think you also mentioned one
billion U.S. EBIT down the track from film, a
couple of years hence, as a target; maybe a soft
target, but a target nevertheless.
D. DeVoe Peter, before you answer, we're not prepared
to provide any additional guidance with respect to
the components of the film segment, beyond what
Peter will say to you right now. As far as
numerically, we're not prepared to do that.
P. Chernin What I was going to say is, first of all, in terms
of - and Dave will stop me if I'm going too far -
the general rule of thumb is that the home
entertainment segment of the business accounts for
about 50% of the revenues of the business, which
includes DVD and home video. Also, obviously, the
TV product is reported, except for a small
distribution fee is reported in the TV company
earnings and in 20th Century Fox Television
earnings.
I think our view is that we are continuing to see
growth in the DVD category, particularly I think
there's a lot of growth in international and I
think there still remains growth domestically.
We're still right around the 50% penetration in
U.S. households in DVDs and it's still a very
fast-growing consumer product and I think we're
still somewhere in the high teens, low 20%
penetration in DVDs internationally. We feel
confident that there's still a lot of growth left
in the whole category.
A. Pollak Thank you.
Coordinator Our next question comes from Kathy Styponias.
Please state your company's name, Ma'am.
K. Styponias Prudential Equity Group. Dave, I was wondering if
you could give us color on what kind of comps
you're going to face with respect to political
revenues in the second half at the TV stations.
Rupert, I believe you mentioned that in your sports
rights in the U.K. for BSkyB were actually at a
discount to what you had originally paid for them
last go around. I was wondering if there were any
parallels; what drove that lower price and are
there any parallels you can draw to the U.S.
market? Thanks.
D. DeVoe I'll start just quickly on the comps in terms
of the political revenues. Obviously, last year,
the first and second quarter was sort of massive
force in terms of political revenue. It's
interesting that that affects this year's pacings.
In the first quarter of 2003, for political
revenue, I'll put it in terms of the market by
month for the markets that our O&Os are in. In July
there was roughly just over $20 million in revenue;
in August, roughly $60 million; and in September,
well over $80 million. So a huge amount of
political revenue in those markets came in in the
first quarter.
If you compare that to this year in terms of the
market, what we think the markets are doing,
including political, it'd make the markets roughly
flat, but if you exclude political, they're up very
strongly in the mid- to high-single digits. That's
the market. We're pacing above those numbers in
terms of the overall market because of our market
share gains.
If you look at the second quarter going in, the
story is even stronger. There was even more
political revenue in the second quarter; over $200
million in October in those markets, over $140
million in November, just a tiny bit, just a couple
million dollars, in December. So those numbers are
even stronger in terms of what it says about the
underlying base markets, excluding political, are
very strong.
So from a comparison point of view, when we're
talking about our pacing, you are comparing it to
very, very strong political markets last year. I
think it bodes well for the underlying base markets
in terms of those overall comments.
R. Murdoch On the question of the SKY football contract, we
now have SKY a lot more football than before. We
have a champions' league; we have FA Cup, which we
share with the BBC, and all the Premier League, was
purchased as a package.
They, under some pressure from the Brussels
regulators, divided up the Premier League into four
separate packages of games, totaling almost double
the number of games that were available for live
television in previous contracts. We bid on all
four packages and won all four with just very
slightly less money in total.
The purpose of this is to keep the Premier League
happy, of course, but we now have potential, I
think, to put up to 60 games on Pay Per View out of
that, which will reduce the net price to us quite
considerably if we do it.
Overall, we have a very mutually satisfactory
contract for ourselves and for the Premier League,
which is something that, over the years, really
built SKY. We're very pleased with it and we expect
the Premier League to put up a very vigorous
defense of this contract before the regulators. You
have the American parallel. There's no parallel to
it here, really, the NFL. We won't be around again
for some time. We value it greatly.
Like I say, though, it is another positive aspect,
looking forward, that our advertising bookings for
this coming season are well ahead of last year's,
with the cost per thousand rates up about 10% on a
year ago. So we're in great shape for the coming
football season here and we're also ahead, well
ahead, of where we were this time last year with
the post-season baseball.
Coordinator Richard Greenfield, your line is open and please
state your company name.
R. Greenfield Fulcrum Global Partners. You look at the
tremendous strength on the operating level of Fox,
BSkyB, and even GMH, which you're going to be
acquiring hopefully at the end of the year. What
are your thoughts regarding harvesting cash from
those investments, such as through dividends?
Separately, a quick follow-up for Dave: You
mentioned that it was $182 million year-over-year
improvement at the Fox Broadcast Network. How much
of that was a year-over-year benefit from the
write-off you took at the sports side last year?
Thanks.
D. DeVoe Rich, given Regulation G, I can't comment on
it. I can't give you an answer. I'm sorry. With
respect to the dividends, those entities, Rupert
may want to follow up on it. We don't have any
plans at the moment to take dividends out of those
entities. I think the GMH, we haven't even closed
the transaction yet, so it's premature for us to
even think about it.
R. Murdoch If you look at GMH, there's very little positive
cash flow there. When we achieve it, we'll
certainly wind up pouring it right back into
development. We want to be aggressive with the
growth of DirectTV if and when we get our hands on
it.
Coordinator Our next question comes from Brendan Lyons. Your
line is open and please state your company name.
B. Lyons The company name is JB Were. This time last
year you gave cash flow guidance figures for the
New Year, fiscal 2004. Are you prepared to do that
again this year?
D. DeVoe Brendan, I thought we gave cash flow guidance at
the end of the first quarter, but let me say this.
We would expect the free cash flow, which is cash
provided from operations after capital expenditures
but before investments, next year to exceed this
year, and at Fox we would expect the cash flow to
be slightly less than in the current year. We will
provide more numeric guidance for that at the first
quarter conference call.
B. Lyons Just looking at the cash flow reported there
in the fourth quarter, it looks like it's increased
considerably less than the fourth quarter last
year. In particular, there was a large increase in
receivable in the period. I'm wondering if you can
add anymore detail to that.
D. DeVoe The majority of that, the receivable increase, has
to do with the acquisition of SKY Italia and the
closing of SKY Italia. The working capital used,
there were significant prepayment of the European
football in the fourth quarter.
B. Lyons Are you prepared to give a split-out of the STAR
contribution in the fourth quarter or is that not
permitted?
D. DeVoe We don't disclose it.
B. Lyons Thanks.
Coordinator Our next question comes from Tony Wilson. Your line
is open and please state your company name.
T. Wilson UBS. The cost containment within the TV
station, Rupert, has been excellent over the last
12 months, and that's obviously been assisted by
the move to duopoly markets. Is there any reason
why cost growth shouldn't stay at a fairly moderate
level going forward the next 12 months at the TV
station groups?
Also, just in the newspapers, if you could give us
a comment on the U.K. Newspaper result in the
fourth quarter. I think you stated in your release
that the operating income was down around 10% -
just the reason behind that?
L. Murdoch I'll start with the stations. We think that there
are no new syndicated shows picked up for next year
in the station shows. We expect our cost to be,
from a programming point of view, very flat or
basically flat from a programming point of view.
So, overall, the cost growth is going to be
extremely small.
R. Murdoch As far as the U.K. Newspaper Group goes, this was
just the price war between The Sun and The Mirror,
which ended about halfway through the quarter. It's
gone now. I might say that the result of all that
was The Mirror is now 5% less in sales than it was
before this and The Sun is 2% more. It widened our
margin to about 7%.
T. Wilson I thought that the price war probably had a more
significant impact in Q4 of last year than in Q4 of
this year, given that it was the entire subscriber
base that was discounted for about half of that
fourth quarter in last year.
D. DeVoe I think it's as Rupert said; I think in addition in
the fourth quarter we had some significant
promotions on The Sun as we came off of the
discounted cover price.
T. Wilson Thank you.
Coordinator Michael Mangin, your line is open and please state
your company name.
M. Mangin Deutsche. Congratulations. It is a great
result. Just on the other associates, I noticed it
quadrupled in the fourth quarter. I was just
wondering if you'd be able to give us some color as
to what was driving that. Is that Gemstar?
D. DeVoe What did you say quadrupled, Mike?
M. Mangin Sorry. In the fourth quarter, the other associates
jumped from a $6 million contribution last year to
a $27 million contribution this year.
D. DeVoe Mike, I just don't have the information in front of
me. Can I suggest that you call Reed after the call
and he'll provide you with the information?
M. Mangin Can I ask another question then?
D. DeVoe Sure.
M. Mangin The turnaround in Latin America in the fourth
quarter, I gather that's mostly currency?
D. DeVoe The majority of that is currency, yes. It's a
reversal of the losses that we took in the first
quarter of the year.
M. Mangin Great. Thanks.
Coordinator Our next question comes from Douglas Shapiro. Your
line is open and please state your company name.
D. Shapiro Bank of America Securities. I was wondering
if you could address qualitatively the reasons why
the operating expenses at the network are down year
over year. And then the second thing is there's
been some speculation that Cablevision may sell
some of its interest in its non-New York RSNs. I'm
just curious if you have any rights of first
refusal on those stakes. Thanks.
P. Chernin I think that to the degree that there are some
slight cost reductions at the network, they are a
function of we don't have some of the big expensive
series - the David Kelly series, the Joss Weedon
series that we premiered last year - so there's
been a slight reduction in programming cost. We
have a right of approval over anything Cablevision
does, but whatever they do, you'd be better served
asking them.
D. Shapiro Thank you.
Coordinator David Goldsmith, your line is open and please state
your company name.
D. Goldsmith Buckingham Research. If you could remind us what
the free cash flow was at Fox and at News Corp for
fiscal 2003?
D. DeVoe At News Corp the free cash flow number is
$1.267 billion. I've been told I can't give the Fox
free cash flow because we haven't filed it yet. We
will be filing the Fox 10-K soon and you'll have
it.
D. Goldsmith Thank you.
D. DeVoe Let me just say this: With respect to the Fox free
cash flow, I think our guidance was $1.1 billion to
$1.3 billion and the free cash flow is within that
range, to the lower end.
D. Goldsmith Perfect. Thank you.
G. Ginsberg Operator, we'll take one last question.
Coordinator Our last question comes from Spencer Wang. Sir,
your line is open and please state your company
name.
S. Wang JP Morgan. I was wondering if you could give
us an update on the status of a new NFL deal with
your affiliates, and can you also just remind us
what you have in terms of off-network syndication
in fiscal 2004? Thanks.
P. Chernin I think that there's no status of an NFL deal. You
mean with our affiliates?
S. Wang Yes.
P. Chernin We are working on that and we are optimistic that
we will have something finalized pretty quickly. It
will be probably similar to where we've been in the
last year.
What was the second question?
S. Wang Off-network syndication in 2004.
P. Chernin This is not a huge year for us. We have some
ongoing stuff, clearly, with King of the Hill, The
Simpsons, and some of the other things. The big
year for us is next September where Malcom in the
Middle hits syndication.
S. Wang Thank you.
G. Ginsberg Thank you, everybody. If you have any additional
questions, as always, feel free to call Reed or
Craig ... and myself in New York. Thank you very
much for joining us.
* * *
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