News Corp. Results Hurt by Write-Down on Gemstar Stake

News Corp. posted a $4-billion net loss in its third fiscal quarter stemming from an expected write-down on its stake in ailing Gemstar-TV Guide International, but it showed a big surge in operating earnings, thanks largely to a stellar performance by its 20th Century Fox film unit.

The Australian media giant’s noncash write-down of $4.2billion on Gemstar, the Pasadena company that publishes TV Guide and features on-screen program guides, was taken to meet new accounting rules on how to treat goodwill that decreases permanently in value.

Gemstar’s value has plunged by about two-thirds, stemming from such things as a patent dispute, questions about its accounting methods and management turmoil.

Goodwill is an intangible asset on a company’s books that reflects the premium a company paid when it acquired an asset. Several major media companies, notably AOL Time Warner and Vivendi Universal, also have taken big write-offs recently to more accurately reflect the fair market value of assets they acquired.

Despite the Gemstar problem, News Corp.’s results exceeded Wall Street expectations. News Corp.’s operating earnings climbed 54% to $549 million for the quarter ended March 31, compared with a year earlier, with revenue rising 18% to $3.85 billion. Much of the increase is owed to profit from the animated hit film “Ice Age,” which to date has grossed some $300 million worldwide. The results also came despite disappointing results at the Fox TV network.

Merrill Lynch analyst Jessica Reif Cohen in a report called News Corp.’s overall results a “blow-out quarter,” adding that the operating earnings exceeded her projection by $125 million.

Filmed entertainment contributed $161 million to News Corp.’s third-quarter operating profit, up from $43 million a year earlier.

The film unit is part of Fox Entertainment Group, a publicly traded company that is 85% owned by News Corp. Fox Entertainment Group, which reported its results simultaneously, said its net income was $108million in the quarter, contrasted with a $9-million loss a year earlier.

In addition to “Ice Age,” News Corp.’s filmed entertainment operation saw a strong performance worldwide from “Moulin Rouge” and growing DVD sales, as well as profit from such syndicated shows as “Buffy the Vampire Slayer,” “King of the Hill” and “The Practice.”

News Corp.’s television operations posted a slight increase in quarterly operating income to $114million, from $111million a year ago, with softer results at Fox Broadcasting offsetting the performance of the company’s TV station group. One of the company’s brighter spots was its cable networks, which include the Fox News Channel, the Fox Sports Network and the FX Channel, in which operating income jumped to $73 million from $24 million last year.

In a conference call with analysts, Chairman Rupert Murdoch said that although he is pleased with the quarter, “it makes me all the more impatient for our share price to reflect the company’s positive momentum.”

Media stocks have been battered by investors, in part because of softness in advertising and problems meshing newly merged operations. News Corp.’s American depositary receipts have been trading near a three-year low, although they jumped $2.07 to $28.45 on Tuesday after the results were announced.

Murdoch said he isn’t prepared to declare an end to the advertising recession but said he is seeing signs of a turnaround in the company’s television, cable and film divisions.

“I think we can justly claim we’re now beginning to deliver on that promise and seeing real profits,” Murdoch said.

Times wire services were used in compiling this report.