News Corp. Losses Widen

Media giant News Corp. on Wednesday posted a wider loss of $1.74 billion in its fiscal fourth quarter ended June 30 stemming from a write-down of its investment in troubled Gemstar-TV Guide International.

But News Corp.’s quarterly operating profit surged 25% to $452 million, helped by recovering TV ad sales.

The company also said it enjoyed a strong performance by its 20th Century Fox film unit, which still is reaping profit from the animated film “Ice Age” and also was helped by video sales of “Behind Enemy Lines.”

News Corp.’s Gemstar write-down is a noncash adjustment that is not expected to affect operations. But it does reflect a further deterioration in what has proved an ill-fated investment in the Pasadena-based developer of on-screen program guides.

“It’s a paper thing,” News Corp. Chairman Rupert Murdoch said in a conference call with reporters. “It’s an unfortunate thing.... We still have great faith in the company. The underlying values are there.”

This isn’t the first hit that News Corp. has suffered at the hands of Gemstar. In its previous quarter, the company posted a $4-billion net loss as a result of the investment.

For the full fiscal year, News Corp. lost $6.3 billion, nearly all of it attributable to Gemstar, compared with a loss of $445 million a year earlier.

Revenue this year rose 10% to $15.2 billion, compared with $13.8 billion a year ago.

In the fourth quarter, News Corp.’s revenue climbed 11% to $3.8 billion, up from $3.4 billion a year ago. In last year’s fourth quarter, News Corp. had a net loss of $265 million.

Gemstar’s stock has been especially hammered in the wake of an unfavorable patent ruling. Gemstar shares closed Wednesday at $3.34 a share, down 33 cents on Nasdaq, and are worth less than 10% of the company’s 52-week high of $39.30

“News Corp. will have another $500 million to go [in losses] if Gemstar’s stock stays where it is,” said Larry Haverty, an analyst at State Street Research & Management Co., an owner of News Corp. American depositary receipts. “Overall, though, the pain has been taken.”

But News Corp.’s write-off didn’t faze Wall Street, which reacted favorably to the operating results.

Merrill Lynch media analyst Jessica Reif Cohen noted that the company’s operating results were healthy, adding that News Corp.’s balance sheet is growing stronger with its cash balance boosted by $700 million, to $3.6 billion, and debt slashed by $800 million, to $8.7 billion.

News Corp.’s American depositary receipts closed Wednesday at $21.48 in trading on the New York Stock Exchange, up 73 cents.

The biggest boost in News Corp.’s fourth-quarter operating income came at its film unit, which showed income of $75 million compared with a year-earlier loss of $3 million.

Cable network programming posted quarterly operating income of $34 million, compared with a $1-million loss a year earlier. Television operating income was off less than 3%, to $179 million in the fourth quarter.

Separately, Cablevision Systems Inc. may have to pay News Corp. an estimated $1 billion to buy out its 40% interest in a sports programming partnership, Murdoch said.

In a conference call with analysts, Murdoch said he wants to restructure the partnership. If the two sides can’t reach an agreement, he would exercise an option requiring Cablevision to buy back News Corp.’s stake, possibly by December.

Bloomberg News was used in compiling this report.