Twenty-First Century Fox 2006 Annual Report Download - page 49

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Results of Operations (CONTINUED)
Subscriber acquisition costs per subscriber (“SAC”) of approximately €260 in fiscal 2006 increased over fiscal 2005 due
to changes in the consumer offer that reflected lower upfront activation fees and increased advertising and marketing costs
on aper gross addition basis, although fiscal 2006 marketing and advertising costs on an aggregate basis remained relatively
flat as compared to fiscal 2005. SAC is calculated by dividing total subscriber acquisition costs for aperiod by the numberof
gross SKY Italia subscribers during the period. Subscriber acquisition costs include the cost of the commissions paid to
retailers and other distributors, the cost of equipment sold directly by SKY Italia to subscribers and the costs related to
installation and acquisition advertising, net of any upfront activation fee. SKY Italia excludes the value of equipment cap-
italized under SKY Italia’s equipment lease program, as well as payments and the value of returned equipment related to
disconnected lease program subscribers from subscriber acquisition costs.
During the fiscal year ended June 30, 2006, the strengthening of the U.S. dollar resulted in decreases of approximately
4% in both revenues and operating income as compared to fiscal 2005.
For the fiscal year ended June 30, 2006, Operating results at SKY Italia improved by $212 million as compared to fiscal
2005. The improvement was primarily due to the revenue increases noted above, partially offset by increased programming
costs associated with the largersubscriber base, as well as higher spending primarily due to the broadcast of additional
movie titlesandnewentertainment channels on the basic programming tier.
Magazines and Inserts (4% of the Company’s consolidated revenues in fiscal 2006 and 2005, respectively)
For the fiscal year ended June 30, 2006, revenues at the MagazinesandInserts segment increased $22 million, or 2%, as
compared to fiscal 2005. The increase in fiscal 2006 primarily resulted from an increase in sales of the Company’s in-store
marketing products due to higher demand in supermarkets, partially offset by lower rates for the publication of free stand-
ing inserts.
Operating income for the fiscal year ended June 30, 2006 increased $9 million, or 3%, as compared to fiscal 2005. The
increase was primarily due to volume increases for in-storemarketing products, partially offset by the lower rates for the
publication of free standing inserts, as noted above.
Newspapers (16% and 17% of the Company’s consolidated revenues in fiscal years 2006 and 2005, respectively)
The Newspapers segment revenues were relatively flat as compared to fiscal 2005. Operating income decreased $223 mil-
lion, or 30%, for the fiscal year ended June 30, 2006 as compared to fiscal 2005. During the fiscal year ended June 30, 2006,
the strengthening of the U.S. dollar resulted in decreases of approximately 2% in both revenues and operating income as
compared to fiscal 2005.
For the fiscal year ended June 30, 2006, the U.K. newspapers’ revenues decreased 7% as compared to fiscal 2005. The
U.K. newspapers’ advertising revenues decreased from fiscal 2005 as a result of ageneral weakness in the U.K. advertising
market. Advertising revenues were affected by lower mono display and lower classified revenues acrossalltitles. Revenues
also decreased due to the absence of revenue from TSL Education Ltd., which the Company sold in October 2005. The
decrease was partially offset by higher color display revenue on The Sun,The Times and The Sunday Times and increased
circulation revenues due to cover price increases across all titles and higher net circulation on The Times as a result of
promotional activities and strong editorial content.
U.K. newspapers’ Operating income decreased 70% for the fiscal year ended June 30, 2006 as compared to fiscal 2005.
This decreasewasprimarily due to a redundancy provision of $109 million recorded in fiscal 2006 for certain U.K. pro-
duction employees as a result of the Company committing to areduction in workforce expected to occur in fiscal 2007 and
2008. In addition, higher depreciation expense and other costs associated with the development of the newprinting plants
in the United Kingdom also contributed to this decrease. The Company expects annualized personnel cost savings of
approximately $65 million when the U.K. workforce reduction is completed. Also contributing to this decreasein operating
income was the loweradvertising revenue noted above, the absence of the TSL Education Ltd. division noted above,
increased costs associated with employees and increased newsprint costs.
For the fiscal year ended June 30, 2006, the Australian newspapers’ revenues increased 9%, as compared to fiscal 2005,
mainly due to the consolidation of the results of QPL beginning in November 2004. Also contributing to this increasewere
improved display and classified advertising revenues, along with the impact of cover price increases at the major weekend
newspapers. The increase in Operatingincome of 8% for the fiscal year ended June 30, 2006 as compared to fiscal 2005, was
primarily attributable to the consolidation of QPL beginning in November 2004.
Book Publishing (5% and 6% of the Company’s consolidated revenues in fiscal years 2006 and 2005, respectively)
For the fiscal year ended June 30, 2006, revenues at the Book Publishing segment decreased by $15 million, or 1%, from
fiscal 2005 as fiscal 2005 included the effect of significant sales of The Purpose Driven Life.During the fiscal year ended
June 30, 2006, HarperCollins had 109 titles on The NewYork Times Bestseller List with 14 titles reaching the numberone
position. Notable bestsellers during fiscal 2006 included: Marley and Me by John Grogan, Freakonomics by Steven D. Levitt
and Stephen J. Dubner, The Purpose Driven Life by Rick Warren, YOU: The Owner’s Manual by Michael F. Roizen and Mehmet
C. Oz, M.D. and The ChroniclesofNarnia by C. S. Lewis.
ANNUAL REPORT 49