Twenty-First Century Fox 2006 Annual Report Download - page 8

8NEWS CORPORATION
advertising revenues and the expiration – beginning
this October – of our early deals with cable and
satellite providers will shortly allow us to renew our
carriage agreements at substantially higher rates.
Meanwhile, FX’s mix of original programming,
compelling syndicated content and first-rate
theatrical films continue to lead the entertainment
cable market among 18-49 year olds. It is now
one of the top five basic cable channels in the
U.S., driven by hits like Rescue Me,The Shield,
and Nip/Tuck.
Spanning 49 of the country’s top 50 media
markets, Fox Sports Networks’ 21 owned-or-affiliat-
ed regional sports networks today reach more than
85 million homes and continue to thrive on the
strength of original local programming, established
national shows and strong team and community
relationships. With the acquisition of Turner South
earlier this year, FSN added 8 million subscribers
in six U.S. states.
Even within this segment, our threefold strategy
applies. If FX, Fox Sports and FOX News are the
established businesses, then SPEED and the National
Geographic Channel are the next generation –
except, in this case, the next generation is already
profitable and growing robustly. Our third gener-
ation of channels – Fox Reality, FUEL TV, Fox
Soccer Channel and Fox Sports en Español – are
being built into the growth drivers of the future.
Turning to our satellite platforms, SKY Italia
was profitable for the first time last year and is
now our company’s fastest growing asset. Its broad
appeal and wide channel offerings have pushed
subscriber levels to more than 3.8 million with
the lowest churn – below 10 percent – compared
to DIRECTV and BSkyB. In fact, the subscriber
base has grown every quarter since the service’s
launch, and the Italian market – with high rates
of TV viewership yet the lowest percentage of pay
TV penetration in Europe – holds huge potential
for future growth. Because a large share of the
costs are already fixed, nearly all of this growth
will translate directly into profits which we con-
servatively estimate will reach into the hundreds
of millions in coming years.
At DIRECTV, revenues grew by 15 percent,
driven by higher revenues per subscriber and
nearly 850,000 net new subscribers. The company
is introducing new exclusive content that will
further differentiate this service from its cable
rivals. DIRECTV greatly expanded it’s flagship NFL
SUNDAY TICKET package and launched the new
music show CD USA. Even more exciting, DIRECTV
signed a deal with Fox to offer FOX network and
FX original content on demand – and, in an indus-
try first, in some cases beforethe shows air. Set to
launch next year, this is yet another exciting option
customers can’t get through conventional cable.
BSkyB, meanwhile, has topped 8 million sub-
scribers and is aggressively branching out into new
services. The company turned competitors’ heads
this year by announcing that it will begin offering
free broadband to its customers. And DIRECTV is
looking to follow suit, first with broadband video
service 2,000-titles strong and later with a full
broadband offering for all customers.
Our print businesses – the historic heart of
this company – continue to deliver value for our
company and shareholders. I have argued that it
is much too soon to pronounce the death of print
media. Yet real challenges lie ahead. Traditional
sources of income like classified advertising are
under attack. More ominously, although circula-
tion remains strong at most of our properties, it
is declining throughout the industry and survey
after survey shows that newspapers are less
integral to people’s lives with each passing year.
Younger consumers prefer alternative means
of getting the news, such as reading the online
versions of newspapers for free.
Yet the hunger for news and information – for
content – is not fading. It is intensifying. And
as a content provider, we are well positioned to
capitalize on that hunger, provided we are smart
about reaching younger consumers in the ways
they prefer to be reached. Right now our print
businesses have more total readers than they ever
have, thanks to the Internet. All of this is to say
that, while in a certain sense our digital and
Internet efforts are specific and part of a defined
segment of our company, in the broader sense our
effort to redefine this company for the digital age
is being and must be applied to every segment.
This year’s results at the Newspaper segment
were mixed. A soft advertising market and invest-
ments in new color printing plants in the U.K.
combined to cause a decrease in operating income
overall. Yet revenues increased – particularly at
The Sun,The Times and The Sunday Times – and
our papers still generate enormous cash flow for
our company.The Times of London launched
an American edition, on sale in the New York
metropolitan area and soon to expand elsewhere,
furthering its international reach and influence.
In Australia, operating income was up on strong
advertising sales and higher circulation revenues
as a result of our acquisition of QPL.
HarperCollins’ income rose on the success
of several blockbuster titles, including The Purpose
Driven Life,YOU: The Owner’s Manual and
Freakonomics. And income rose at our Magazines
and Inserts segment on increased demand for
in-store marketing products.
SKY Italia was profitable for the first
time last year and is now our company’s
fastest growing asset.