Emphasizing a major shift in strategy, News Corp. all but conceded Wednesday that its once-dominant social network MySpace is no longer competitive with rival Facebook or micro-blogging service Twitter and will seek to rebuild the site around entertainment.
News Corp. said MySpace -- whose 2005 acquisition was once considered so pivotal that it landed Chairman and Chief Executive Rupert Murdoch on the cover of Wired magazine -- has undergone layoffs and a massive restructuring but continues to lose revenue. The site is attempting to regain momentum by building online communities around music, video and games.
"I think we got spread a bit wide and thin and what we're focusing on is sort of the heart of our business going forward really being a social network around key content," said President and Chief Operating Officer Chase Carey. "We're not trying to compete with Facebook or beat Twitter. We're trying to create a unique experience."
Carey's comments are the most pronounced yet from News Corp. that it sees a need to change course with MySpace, a pioneer of social networking that was supposed to burnish the media giant's tech-savvy credentials. But MySpace has lost ground in recent years, and News Corp. disclosed Wednesday that it was expecting to fall $100 million short in revenue under a contract with Google Inc.
News Corp. discussed the difficulties in turning around MySpace during a conference call with analysts to discuss its fiscal first-quarter results. A strong summer at the box office and a healthy cable TV business contributed to an 11% increase in profit for the company, offsetting decreases in the media giant's broadcast television, newspaper and digital businesses.
The owner of 20th Century Fox and the Fox broadcast network reported net income of $571 million, or 22 cents a share, for the company's fiscal first quarter ended Sept. 30. That compares with $515 million, or 20 cents a share, a year earlier. News Corp. said the year-over-year gains reflected higher operating income and equity contributions because of the absence of a $422-million write-down of its investment in satellite broadcaster Sky Deutschland (formerly known as Premiere).
Revenue for the quarter fell 4% to $7.2 billion from $7.5 billion, mostly reflecting the downturn in television and print advertising.
Filmed entertainment posted operating income of $391 million compared with $251 million a year ago, thanks to the box-office performance of "Ice Age: Dawn of the Dinosaurs," which News Corp. said was the highest-grossing film of all time internationally with more than $880 million in ticket sales. The results also include the home entertainment release of "X-Men Origins: Wolverine."
"Fox Film has proven itself adept at expanding its franchises," said Murdoch, who took the opportunity to plug the studio's big upcoming holiday film, James Cameron's 3-D sci-fi epic "Avatar.' "
The television group reported a 54% drop in operating income to $38 million, largely due to lower revenue from its local stations, which have been hit hard by a decline in automotive, movie and political advertising. The cable networks, however, experienced a 41% jump in operating income to $495 million from $350 million a year ago. Fox News Channel achieved its highest quarterly profit and increased its operating income by 79% compared with a year earlier.
"At our U.S. television operations, we're seeing marked improvement from last year when we experienced the largest ever year-over-year drop in earnings in our history," Murdoch said. "Fortunately, we appear to be emerging from the bottom of that cycle."
Strong sales of Maurice Sendak's classic children's book, "Where the Wild Things Are," and of L.J. Smith's "The Vampire Diaries" helped fuel HarperCollins' operating income, which rose to $20 million from $3 million a year ago.
The beleaguered state of the newspaper industry was reflected in News Corp.'s earnings. The newspapers and information services group reported a precipitous 81% drop in operating income to $25 million from $109 million a year ago. Murdoch said that advertising was picking up "sooner than we anticipated," and that the company was finding ways to extract more money for digital content, including the Wall Street Journal's online site and news delivered via e-readers such as Amazon.com's Kindle.
The group that includes MySpace and News Corp.'s other digital assets saw its losses deepen to $128 million from $101 million a year ago. News Corp. projects that MySpace will lose an estimated $100 million this year in revenue that it anticipated from its three-year, $900-million deal with Google that ends in June. MySpace failed to deliver enough ad impressions to collect its guarantee.
"We've taken steps that point us in the right direction. It's clearly still a work in progress," Carey said. "We're still losing traffic. So it is still a business going through this transition."