News Corp. Profit Slips on Higher Costs, Restructuring

News Corp. saw its net income drop 7.8% in its most recent quarter because of a loss associated with the restructuring of a sports partnership and the increased costs at its Fox broadcast network, the company reported Wednesday.

Net income for its fiscal third quarter, which ended March 31, fell to $400 million, or 13 cents a share, from $434 million, or 15 cents, a year earlier. Revenue jumped 17% to $6.04 billion, fueled by stronger cable advertising at such networks as FX and Fox News Channel.

Operating profit also improved at News Corp.’s newspapers and its movie studio, 20th Century Fox.

The decline in overall net income resulted from a $77-million loss from reconstituting an alliance with cable operator Cablevision Systems Corp. Under the deal, News Corp. gave up part ownership in sports cable networks in New York, Chicago and New England in exchange for full ownership of channels in Florida and Ohio that were previously jointly owned.

Operating income at the Fox network and TV station group fell 15% to $221 million from the same period a year earlier. Fox said it spent more on promotion, new development, programming such as the Super Bowl and on several series that were canceled, such as “Jonny Zero” and “Point Pleasant.”

“We were in a bit of a hole coming out of the fall, and we wanted to get out of that hole,” News Corp. President Peter Chernin said during a conference call with analysts. “You won’t see that kind of spending again.”

Chernin predicted that the success this year of such programs as “American Idol,” “House” and “Nanny 911” would propel Fox to win the season in ratings among 18-to-49-year-old viewers for the first time in its history.

During the call, News Corp. Chairman Rupert Murdoch dismissed allegations of a scandal at the hit show “American Idol.” A former contestant named Corey Clark has alleged that he had a romantic relationship with judge Paula Abdul during the 2003 season, when he was competing. Fox has said it is investigating Clark’s claims.

But Murdoch said Wednesday, “What scandal?” Bolstering the network’s charge that Clark is just out to make a buck, Murdoch said Clark’s representatives had “tried to sell their story to TV Guide for $30,000.”

Sources close to the situation say it was actually TV Guide’s new magazine, Inside TV, that was approached by Clark’s people. TV Guide is owned by News Corp.

During the call, Chernin also said the Fox News Channel, launched a decade ago, was probably the most valuable channel on pay TV at the moment. A surge in advertising at the channel lifted income 45% in the quarter over a year ago.

Murdoch predicted that momentum would continue as News Corp. demanded significant increases in subscription fees from the channel’s satellite and cable distributors when contracts began to expire in late 2006. He said Fox News earned half the fee of rival CNN for delivering twice the audience.

The movie studio turned in a better performance than many on Wall Street expected. Profit rose 15% on the strength of home video sales of titles such as “I, Robot,” “Alien vs. Predator” and “Napoleon Dynamite.” Home video sales of TV shows including “Family Guy” and “24” also were strong.

During the call, Murdoch said the company was at a sensitive impasse in negotiations to buy back voting shares of News Corp. that have been bought by cable giant Liberty Media Corp. Wall Street has been unsettled by Liberty’s ownership of an 18% bloc because of fears that Murdoch would have to pay a premium to buy back the shares, which threaten his control over the family-owned conglomerate. Murdoch owns about 30% of News Corp.

Murdoch would not discuss details of the talks, but told analysts that he hoped to resolve the situation in the next three months.

News Corp. reported third-quarter results after the stock market closed Wednesday. Its shares rose 35 cents to $16.35 on the New York Stock Exchange.