Star operating profit down 36% in Dec 06 quarter

MUMBAI: In the first contraction in profit that Star has had since it began generating profits in early 2003, News Corp's Asian arm has reported second quarter operating income down 36 per cent from the same period a year ago.

Though the quarter (up to 31 December 2006) saw growth in subscription revenues, it was more than offset by a decline in advertising revenue at Star Plus.

On the distribution side, the biggest initiative by Star India during the quarter was the $ 175 million deal with Nimbus to distribute its channels.

According to Hong Kong-based Media Partners Asia (MPA), operating profit or EBIT (earnings before interest and taxes) was down 36 per cent year on year to under $ 30 million. Operating profit in the September 06 quarter was up 8 per cent YoY. MPA estimates for the first half of the year show operating profit down 28 per cent YoY to $41 million, MPA estimates.

A point of note of course is that the corresponding period in 2005 not only had the second season of KBC on Star Plus but also saw the first season of Nach Baliye on Star One providing a strong push to advertising sales revenues. Still, there is no getting away from the fact that softness in ratings at Star plus is also contributing to revenue declines.

Speaking about Star's performance during a conference call with analysts after the announcement of News Corp's results, president & COO Peter Chernin said: "When the third season (of KBC) did finally launch and the numbers were extremely strong, up more than 25 per cent over last year's premier, which should give us great momentum for the second half of the year and lead to not only higher advertising results but higher ancillary revenues led by phone revenue from additional calls that come in with the show."

Chernin also made a mention of the executive roiling that has been going on at Star when he said, "You've also read that we made some changes to senior management, changes which we think will strengthen our operations and improve our programming going forward.

"... I think we have aggressive expectations for Star. Beginning on India, we'd like to see continued growth in our channels. We expect the growth of Tata Sky (in which News Corp holds 20 per cent) to continue. I think the most significant impact digital (DTH, CAS) will have on the company is growth of revenues inside Star as we see additional subscribers and an ability to, you know, get higher declarations of subs from the cable/pay-TV operators. We'll also see new channel launches there (Tata Sky), and also important new ancillary businesses in the Internet, production and movies, et cetera. So we're optimistic about Star going forward in India. "

News Corp chairman Rupert Murdoch was equally gung ho about the expectations on the DTH front: "Tata Sky DTH in India at 500,000+ subscribers, will hit 1 million during 1H 07, adding 8,000 subs per day at peak levels, averaging about 5-6,000 per day. I'd just say that Tata Sky is [going] a lot faster than we had budgeted for."

Commenting on the expectations from the rest of Asia, Chernin said, "Additionally, we're also ambitious in other Asian countries, particularly Indonesia, where we've recently launched. We recently acquired a television network which we're optimistic. A very big country. We're hoping that could be the next India... and also just continuing growth in other territories, Taiwan, Hong Kong, China, and expanding into others."

On the China side, Murdoch was almost diffident when he said: "We don't do very well in China. We have an interest -- we just sold half of it in Phoenix (China Mobile deal, $165 million sale). We've got more than our money back [in our] total investment and we're still there. We brought in a new partner China Mobile [inaudible] relations and we think it will do nicely. And we have our own little channel, XK [Xing Kong], which is produced in Shanghai and distributed through the southeast. That's pretty much a break-even operation.

"We are very [inaudible] all I would say there is that nobody and I challenge anyone to argue this, none of the leading American companies or British media companies have made any impact there yet. It's possible that, I mean there MySpace finds room there… It may be a MySpace China, which we can license, but we're just feeling our way there. It's a vast market, but it's certainly a very, very sensitive one and as we've seen what's happened to Google there, what's happened to eBay there, even to Yahoo. It is a very difficult market for outsiders."

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