Twenty-First Century Fox 2005 Annual Report Download - page 49

NEWS CORPORATION
Day After Tomorrow . Fiscal 2004 included the theatrical releases League of Extraordinary Gentlemen , Cheaper by the Dozen , Master and
Commander: The Far Side of the World
, 28 Days Later , Man on Fire , The Day After Tomorrow , Garfield , and Dodgeball .
For the year ended June 30, 2005, the Filmed Entertainment segment reported Operating income of $1,058 million as compared to $905
million in fiscal 2004. This improvement was due to the revenue increases noted above as well as the distribution fees earned for Star Wars
Episode III: Revenge of the Sith
and Mr. and Mrs. Smith , partially offset by increased theatrical releasing costs, home entertainment marketing
and manufacturing costs, amortization of production and participation costs directly associated with the increase in revenues noted above and
the disappointing theatrical release of Flight of the Phoenix .
Television (22% and 24% of the Company’s consolidated revenues in fiscal years 2005 and 2004, respectively)
The Television segment reported revenue of $5,338 million for the fiscal year ended June 30, 2005 as compared to $5,027 million in fiscal
2004. Operating income at the Television segment was $952 million as compared to $950 million in fiscal 2004.
Revenues for the fiscal year ended June 30, 2005 at the Company’s U.S. television operations increased approximately 6% from fiscal
2004. The Company experienced increased advertising revenues from the telecast of the Super Bowl and Daytona 500, which were not telecast
on FOX in fiscal 2004 and higher pricing for NFL regular season and prime time broadcasts. This increase was partially offset by a decrease in
prime time ratings as compared to fiscal 2004, advertising weakness in the U.S. markets as well as the adverse impact of the transition to LPMs
on ratings. Operating income for the fiscal year ended June 30, 2005 at the Company’s U.S. television operations decreased approximately 7%
as compared to fiscal 2004. This is due primarily to increased sports programming costs for the Super Bowl and Daytona 500 and increased
entertainment program costs for returning series. Partially offsetting this increase in Operating loss are lower advertising expenses, lower priced
renewals of expired syndicated product and lower music license fees.
Revenues and operating income for the fiscal year ended June 30, 2005 at the Company’s international television operations increased from
fiscal 2004. These increases were primarily driven by increased advertising revenues due to growth in India and increased subscription revenues
due to the launch of new channels in India.
Cable Network Programming (11% and 12% of the Company’s consolidated revenues in fiscal years 2005 and 2004, respectively)
Total revenues for the Cable Network Programming segment increased by $279 million or approximately 12% from $2,409 million to $2,688
million for the fiscal year ended June 30, 2005. This increase reflected improved results across all of the Cable Network Programming channels.
Fox News Channel’s(“Fox News”), the FX Network’s(“FX”) and the RSN’s revenues increased 20%, 18%, and 9%, respectively, over fiscal
2004.
At Fox News, advertising revenues increased 22% over fiscal 2004 primarily driven by higher national pricing and higher volume. Net affiliate
revenue increased 14%, which can be attributed to an increase in subscribers and higher rates per subscriber as compared to fiscal 2004. As of
June 30, 2005, Fox News reached approximately 88 million Nielsen households, a 3% increase over fiscal 2004.
At FX, advertising revenues increased 18% over fiscal 2004 due to higher ratings and improved pricing. Net affiliate revenue increased 18%
over fiscal 2004, reflecting an increase in subscribers and higher average rates per subscriber. As of June 30, 2005, FX reached approximately
87 million Nielsen households, a 4% increase over fiscal 2004.
At the RSNs, net affiliate revenue increased 11% over fiscal 2004 primarily due to an increase in DBS subscribers and higher average rates
per subscriber, net of allowances related to the cancellation of the 2004-05 National Hockey League (“NHL”) season, as well as the additional
revenue from the consolidation of the RSNs in Florida and Ohio in April 2005. Advertising revenues increased 3% due to the consolidation of
RSNs in Florida and Ohio in April 2005, which more than offset the negative impact from the absence of NHL telecasts as a result of the
cancellation of the NHL season.
The Cable Network Programming segment reported operating income of $702 million, an increase of $214 million over fiscal 2004. This
improvement was primarily driven by the revenue increases noted above as well as lower programming costs at the RSNs due to the NHL
season cancellation and the absence of losses from the Los Angeles Dodgers (“Dodgers”) due to the its sale in fiscal 2004. Partially offsetting
these improvements were higher programming expenses for original series and movies at FX, higher programming and news gathering costs at
Fox News and for additional MLB and National Basketball Association (“NBA”) events at the RSNs.
Direct Broadcast Satellite Television (10% and 8% of the Company’s consolidated revenues in fiscal years 2005 and 2004,
respectively)
For the fiscal year ended June 30, 2005, SKY Italia’s revenues increased to $2,313 million from $1,665 million in fiscal 2004. The 39%
revenue growth was primarily driven by the addition of approximately 650,000 net new subscribers during fiscal 2005 which resulted in SKY
Italia’s subscriber base growing to approximately 3.3 million at June 30, 2005. SKY Italia also improved its subscriber churn rate to approximately
9% from approximately 19% in fiscal 2004. Subscriber churn for the period represents the number of SKY Italia subscribers who terminate
service during the period divided by the average SKY Italia subscribers for that period.
Also contributing to revenue growth during the year ended June 30, 2005 was an increase in average rate per subscriber (“ARPU”) from
approximately €42 in fiscal 2004 to approximately €44 in fiscal 2005. This increase was driven by subscribers opting for more premium
programming. SKY Italia calculates ARPU by dividing total subscriber-related revenues for the period by the average subscribers for the period,
and dividing that amount by the number of months in the period. Subscriber-related revenues are comprised of total subscription revenue, pay-
per-view revenue and equipment rental revenue for the period. Average subscribers are calculated for the period by adding the beginning and
ending subscribers for the period and dividing by two.
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