News Corp. reported a $6.4-billion quarterly loss Thursday as the deteriorating economy prompted the media conglomerate to take an $8.4-billion write-down on the value of its television, newspaper and digital business units.
The New York company, which already has instituted a hiring freeze and eliminated 800 jobs across all of its Fox divisions, scaled back its earnings forecast for this year, and its shares sank in after-hours trading as much as 6%.
The loss, amounting to $2.45 a share, was a big turnaround from a profit of $832 million, or 27 cents a share, for the previous year's fiscal second quarter, ended Dec. 31. Revenue dropped 8% to $7.9 million.
"The results . . . are a direct reflection of a recession that is deeper than anyone predicted," said Chief Executive Rupert Murdoch. "Indeed it is the worst global economic crisis we witnessed since News Corp. was established more than 50 years ago."
Nearly every part of News Corp.'s media empire was buffeted by the weakening advertising market and reduced consumer spending. Only the cable and the magazines and inserts divisions showed increases in operating income.
Despite its cost-cutting measures, the company said it now expected annual operating income to fall 30% from last year. It previously said it expected a percentage decline in the low to mid-teens.
"This guidance assumes no further weakening in the advertising markets and of economic conditions," said Chief Financial Officer David DeVoe. "And I want to stress again that we have less-than-perfect visibility into the markets."
The film group, which includes the Fox movie studio, reported an operating income of $112 million, compared with $403 million in the year-earlier period. The 72% drop is mainly the result of slowing DVD sales for such holiday home entertainment releases as "Horton Hears a Who!" and the domestic television release of "Juno."
The quarter also included the marketing costs associated with the worldwide theatrical releases of "The Day the Earth Stood Still" and "Max Payne," as well as the successful holiday release of "Marley & Me" and the Oscar-nominated independent film "Slumdog Millionaire." The company expects to reap the box-office proceeds from the latter two movies in the current quarter.
Sluggish DVD sales have bedeviled the movie industry, and some attribute lower sales to a fundamental shift in how consumers are seeking to be entertained. But Chief Operating Officer Peter Chernin says it's "too soon" to tell whether that theory is true. Instead, he blamed the 15% drop in DVD purchases on the recession.
"Given the depths of the consumer recession, that certainly is a pretty good way to account for most of what's going on out there right now," Chernin said.
But Laura Martin, a media analyst with Soleil Securities, agrees that viewers are going online and elsewhere for their entertainment.
"The recession pushes consumers to adopt free or low-cost substitutes like Hulu," Martin said. "Even after the recession is over, you've accelerated that consumer adoption. So they never go back."
Operating income for News Corp.'s TV business plummeted 93% from the year-earlier quarter, reflecting both the recession's effect on the ad market and the higher costs of programming and sports licenses. The company owns the Fox broadcast network, television stations and STAR.
The cable group, which includes the Fox News Channel, the Big Ten Network and Fox Business News, continued to improve despite the recession as operating income rose 27%. Fox News brought in increased affiliate fees and advertising, boosted by its highest prime-time ratings.
Operating income for the newspaper group, which includes the Wall Street Journal, fell 9%; the book publishing segment 66%, and the interactive segment, which includes social networking site MySpace, reported an operating loss of $38 million, compared with a profit of $23 million for the year-earlier quarter.
News Corp. released its financial results after the stock market closed. Its shares had gained 33 cents, or 5%, to $6.94, but fell more than 9% in after-hours trading to $6.30.