Fox Entertainment Group on Wednesday reported an 11 percent drop in first quarter net income due to a poor performance at its Fox television network, and warned of soft TV advertising sales in its current quarter.
Fox, which is controlled by Rupert Murdoch's News Corp. Ltd. and includes the Fox film studio, TV production group, TV network and various cable TV holdings, reported net income before one-time charges of $38 million, or 5 cents a share, in the Sept. 30 quarter, vs. net income of $43 million, or 6 cents per share, last year.
Including a $494 million charge for changing the way entertainment companies account for marketing and development costs, Fox reported a net loss for the quarter of $458 million, or 63 cents per share.
While below year-ago levels, the quarterly operating earnings matched analysts' consensus forecast of 5 cents, according to research firm First Call/Thomson Financial.
But Fox executives said weak ratings for its coverage of World Series baseball games in October coupled with a soft overall market for advertising in November and December would affect results going forward.
"We are going to see some softening in the second quarter due to baseball," News Corp. Chief Operating Officer Peter Chernin said in a conference call with reporters.
Chernin also said Fox Broadcasting expects "single-digit declines" in advertising revenues in November and December after talking to major advertisers.
The ad sales forecast adds to recent market concern that media companies like Fox and its parent News Corp. Ltd. , The Walt Disney Co. with its ABC television network and Viacom Inc. with CBS, will see their advertising revenues dip in months ahead. Those worries have pressured media stocks for several weeks.
Investors are jittery because ad spending usually declines in the year following an election because political advertising ends. That factor, coupled with the lack of Internet company spending and the specter of a slow-growth economy, has industry experts predicting a weaker ad market.
But Chernin's concern was tempered by those same discussions with advertisers because the ad executives believe the market will pick up by the start of calendar year 2001.
"They expect to be back at normal levels at the beginning of the year," Chernin said.
He hopes a recent uptick in ratings from the fall season premieres of shows like "Ally McBeal" and "The X-Files," as well solid series premieres for "Boston Public" and "Dark Angel", will help mitigate the softer ad sales.
Indeed, through the first five nights of the key November sweeps period when networks measure their audience size to set ad rates, Fox's audience of adults 18 to 49-years-old climbed four percent from last year. That viewer group is highly coveted by advertisers for their spending power.
Overall, Chernin called the fiscal first quarter earnings a "mixed bag" of results as weak summer TV ratings - which translate into lower ad sales - from a slew of re-runs were offset by strong results for summer movies such as "X-Men."
In the TV arena, Fox aired lower-rated shows that were part of its unused program inventory, and those shows could not compete with reality-based hits like the CBS hit "Survivor." It also had to compete with NBC's Summer Olympics programming in September by airing re-runs.
The low performance at its TV unit was offset by a strong showing at the box office for movies such as "X-Men" and "Big Momma's House." Summer hit "X-Men" has grossed over $288 million in worldwide ticket sales since its debut last summer.
Fox executives noted that upcoming home video releases of action flick "X-Men" and comedies "Big Momma's House" and "Me, Myself and Irene" with Jim Carrey should spur revenue growth.
Fox shares ended the day off 1/8 at $21-1/16 on the New York Stock Exchange. Its results were released after the market closed.