News Corp. executives worked Wednesday to bolster investor confidence for MySpace, the online social network it won praise for buying in 2005 but lately has attracted concern from Wall Street.
Chief Operating Officer Peter Chernin acknowledged that Fox Interactive Media, which includes MySpace, would fall 10% short of revenue projections for the fiscal year. But he said that social networks are the fastest-growing segment of the Internet and News Corp.'s Internet business already has nearly $1 billion in revenue in less than three years.
"We're incredibly optimistic about the future of social media and our role in shaping it," Chernin told analysts and investors during the third-quarter earnings call.
News Corp. reported net income of $2.7 billion, or 91 cents a share, for its fiscal third quarter ending March 31. That's triple the previous year's profit of $871 million, or 27 cents, thanks largely to a $1.7-billion gain on an asset and stock swap with Liberty Media Corp.
Without the one-time gain, News Corp. reported net income of 30 cents a share, below the mean estimate of 31 cents, according to Thomson Reuters. Revenue was up 16% to $8.8 billion from $7.5 billion a year earlier, buoyed by double-digit growth in operating income from the Super Bowl on News Corp.'s Fox network, its cable networks and its newspapers and information services division.
Operating income fell significantly at the Fox movie studio due to weaker box office sales and DVD performance.
News Corp.'s stock took a tumble last month after it was downgraded by Bernstein Research, which cited concerns about MySpace's ability to make money from its online audience. Advertisers have been proceeding cautiously when it comes to social networking sites that are filled with user-generated content, Bernstein noted. At the same time, the research firm said, costs were growing fast as the company added features and struck alliances.
Addressing analysts' concerns, Chernin said MySpace had been buffeted by the explosive growth of social networks such as Facebook and Bebo, which have flooded the online market with advertising outlets. Amid such a glut, it's tough to command a premium from big advertisers, he said.
To boost revenue, Chernin said MySpace had developed a technique it called "hyper-targeting," which enables big advertisers, such as clothing retailer TJ Maxx, to reach specific groups of people as they navigate the network. Such an approach produces 60% larger orders from advertisers -- and 75% repeat business, he said.
"Without a doubt we have challenges, and in some cases things are going a little slower than we expect," Chernin said. But the company is "developing the solutions to meet them."
In response to questions, Chernin said News Corp. was not currently in talks to form partnerships with Microsoft Corp. or Time Warner Inc.'s AOL, explaining "we feel very comfortable with our current positioning on the Web."
Analysts also have been critical of News Corp.'s investment in Dow Jones, publisher of the Wall Street Journal. As the economy weakens, ad revenue at the Journal could suffer.
But News Corp. Chief Executive Rupert Murdoch said the media had been "fixated" on labeling the Dow Jones acquisition as a change in strategic direction. "Getting lost in all this jabber," he said, was that Dow Jones was a broad provider of business information that included the Dow Jones indexes, the news wires and the Factiva database, which, taken together, represented "terrific growth opportunities as we build them out."
"The financial services industry is expanding at breakneck speed, not only here in the U.S. but especially in rapidly developing markets," Murdoch said.
Murdoch said the Wall Street Journal online has attracted more than 1 million paying subscribers; and its print edition is defying industry trends, with individually paid subscriptions climbing 1.6% to nearly 1.5 million. And News Corp. is investing in new features to expand coverage
"We've got to keep this all in perspective," Murdoch said. "We're talking only about the first quarter of numbers. . . . Those of you expecting to see immediate, dramatic results in 12 weeks [since the Dow Jones purchase closed] are only kidding yourselves and setting an unrealistic bar."
Indeed, Murdoch, confident in his newspaper instincts, hinted that he was near a deal to purchase Newsday, the Long Island daily newspaper he has offered to buy from Tribune Co. for $580 million (Chicago-based Tribune also owns the Los Angeles Times). He said the deal would improve the financial performance of another News Corp. holding -- the New York Post -- by consolidating certain aspects of the operation.
"We're hoping to wrap it up within the next week," Murdoch said. "It takes two to agree, but we're -- we are at a pretty advanced stage. Let's just leave it at that for the moment."