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Q2-2016: News Corp lower ad, book publishing revenues, forex lower overall revenue

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BENGALURU: Strong growth in the Digital Real Estate Services segment at News Corporation (News Corp) was offset by lower advertising revenues at the News and Information Services segment and lower consumer revenues at the Book Publishing segment for the quarter ended 31 December, 2015 (Q2-2016, current quarter). News Corp reported year-on-year (YoY) 4.3 per cent revenue decline in the current quarter at $2,161 million as compared to $2,258 million. As a matter of fact, except for News Corp’s Digital Real Estate Services segment, all other segments reported lower revenues and EBIDTA.

News Corp’s News and Information Services segment revenue fell 8.1 per cent YoY in Q2-2016 to $1,400 million as compared to $1,523 million, while revenue from its Book Publishing segment declined 4.9 per cent YoY in the current quarter to $446 million as compared to $469 million. Digital Real Estate Services segment revenue increased 35.1 per cent YoY to $208 million from $154 million. The decline in total reported revenues includes a negative impact from foreign currency fluctuations of $141 million says the company.

News Corp reported Q2-2016 Total Segment EBITDA of $280 million, a 20 per cent decline as compared to $352 million in Q2-2015. Adjusted Total Segment EBITDA in Q2-2016 declined 16.8 per cent to $317 million, compared to $381 million in the corresponding prior year quarter. The company says that continued strength at the Digital Real Estate Services segment was more than offset by the declines at the News and Information Services, Book Publishing, and Cable Network Programming segments. Negative foreign currency fluctuations reduced Total Segment EBITDA by $25 million as compared to Q2-2015.

Company speak

News Corp CEO Robert Thomson said, “News Corp is evolving rapidly into a more digital and increasingly global company with a diverse revenue mix that we believe will drive long-term growth in profits and shareholder returns. The company is, by most measures, the world's largest player in digital real estate, a position certainly enhanced by the rapid growth in the US of realtor.com.”

“In our News and Information Services segment, print advertising remained challenged, but we are seeing growth in digital advertising and circulation revenues. We are particularly focused on cost reductions and sharing services around News Corp to streamline operations at the newspapers in Australia and the UK,” he added.

“Unruly, the viral digital advertising company acquired late last year, has been swiftly integrated into many of our companies, bringing cutting-edge metrics and a savvy social sensibility. We are developing advertising products for clients keen to benefit from the rise of video and mobile, and taking advantage of our world-class mastheads which are increasingly powerful platforms, editorially and commercially,” Thomson said.

“Macro-economic conditions in most of our markets have not been auspicious, and foreign exchange fluctuations have been particularly volatile, but we believe in the enduring value of our prestigious brands and the sound logic of our digital strategy,” he added.

Segment results

News and Information Services segment

News and Information Services segment revenues have been mentioned above. News Corp says that total segment advertising revenues declined 12 per cent, primarily due to weakness in print advertising, negative foreign currency fluctuations and lower revenues at News America Marketing, partially offset by growth in digital advertising revenues, including at Dow Jones, where digital revenues accounted for approximately one-third of advertising revenues in the quarter. Circulation and subscription revenues declined five per cent, due to negative foreign currency fluctuations. Growth in paid digital subscribers in the US and Australia, higher subscription pricing and selected cover price increases offset print volume declines and the impact from the change in the digital strategy at The Sun. At Dow Jones, the company continued to see modest growth of professional information business revenues.

Segment EBITDA decreased $58 million in Q2-2016 to $158 million as compared $216 million in Q2-2015. Adjusted Segment EBITDA decreased 22 per cent compared to the prior year, driven by lower advertising revenues, higher promotion and marketing costs in the UK and transaction costs of $5 million related to the acquisition of Unruly.

Book Publishing segment

Book Publishing segment revenues mentioned above declined due to lower e-book sales, negative foreign currency fluctuations and lower revenues from the Divergent series, partially offset by strong sales in General Books resulting from the popularity of The Pioneer Woman Cooks: Dinnertime by Ree Drummond. Digital sales represented 16 per cent of consumer revenues for the quarter. Segment EBITDA for the quarter decreased $20 million, or 26 per cent, from the prior year, primarily due to the factors noted above. Adjusted revenues decreased three per cent and Adjusted Segment EBITDA decreased 25 per cent compared to the prior year.

Digital Real Estate Services segment

Digital Real Estate Services revenues mentioned above increased primarily driven by the inclusion of the results of Move, acquired in November 2014. At REA Group Limited, increased revenues from greater residential listing depth product penetration were offset by negative foreign currency fluctuations. Segment EBITDA in the quarter increased $16 million, or 28. per cent to $73 million, compared to the $57 million in the corresponding prior year quarter, primarily due to the increased revenues noted above and the absence of one-time transaction costs of $16 million related to the acquisition of Move, partially offset by negative foreign currency fluctuations.

Cable Network Programming segment

In Q2-2016, revenues decreased $6 million, or 5.4 per cent YoY to $106 million, compared to $112 million in the corresponding prior year quarter. Adjusted revenues increased 10 per cent, primarily due to higher affiliate and advertising revenues. Segment EBITDA in Q2-2016 decreased $15 million, or 27.8 per cent YoY to $39 million from $54 million as compared with the corresponding prior year period. Adjusted Segment EBITDA declined 22 per cent, primarily due to expected higher programming rights and production costs related to the Rugby World Cup of $11 million. Negative foreign currency fluctuations reduced reported revenues and Segment EBITDA for the second quarter of fiscal 2016 by $17 million and $3 million, respectively, as compared to the prior year.

‘Other’ segment

Reported revenue for Q2-2016 was $1 million as compared to nil in Q2-2015. Segment EBITDA in the quarter improved by $5 million compared to the prior year, primarily due to lower fees and costs, net of indemnification, related to the claims and investigations arising out of certain conduct at The News of the World (UK Newspaper Matters). The net expense related to the UK Newspaper Matters was $7 million for the Q2-2016 as compared to $13 million for Q2-2016.

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