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Management’s Discussion and Analysis of Financial Condition and Results of Operations
(continued)
the 2004-05 season. Also contributing to this increase were newly acquired series and more original programming at FX. In addi-
tion, marketing expenses increased at FX due to increased promotion costs for its new original series, as well as returning shows in
fiscal 2006.
Direct Broadcast Satellite Television (10% of the Company’s consolidated revenues in fiscal 2006 and 2005 )
For the fiscal year ended June 30, 2006, SKY Italia revenues increased $229 million, or 10%, as compared to fiscal 2005. This
revenue growth was primarily driven by an increase in subscribers over fiscal 2005. During fiscal 2006, SKY Italia added approx-
imately 513,000 net subscribers, which resulted in SKY Italia’s subscriber base totaling more than 3.8 million at June 30, 2006. The
total churn for the fiscal year ended June 30, 2006 was approximately 314,000 on an average subscriber base of 3.6 million, as
compared to churn of approximately 270,000 subscribers on an average subscriber base of 3.0 million in fiscal 2005. Subscriber
churn for the period represents the number of SKY Italia subscribers whose service was disconnected during the period.
ARPU for the fiscal year ended June 30, 2006 was over €44. The ARPU for the fiscal year ended June 30, 2006 improved slightly
over fiscal 2005 primarily due to a nearly €2 price increase during the second quarter of fiscal 2006, which was partially offset by
price promotions.
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 a per gross addition basis, although fiscal 2006 marketing
and advertising costs on an aggregate basis remained relatively flat 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 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 asso-
ciated with the larger subscriber base, as well as higher spending, which was primarily due to the broadcast of additional movie
titles and new entertainment channels on the basic programming tier.
Magazines and Inserts (4% of the Company’s consolidated revenues in fiscal 2006 and 2005)
For the fiscal year ended June 30, 2006, revenues at the Magazines and Inserts segment increased $22 million, or 2%, as com-
pared 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-standing 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-store marketing 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 million,
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 a general weakness in the U.K. advertising market. Adver-
tising revenues were affected by lower mono display and lower classified revenues across all titles. Revenues also decreased due to
the absence of revenue from TSL, which the Company sold in October 2005. The decrease was partially offset by higher color dis-
play 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
decrease was primarily due to a redundancy provision of $109 million recorded in fiscal 2006 for certain U.K. production employees
as a result of the Company committing to a reduction in workforce expected to occur in fiscal 2007 and 2008. In addition, higher
depreciation expense and other costs associated with the development of the new printing plants in the United Kingdom also con-
tributed 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 decrease in operating income was the lower advertising revenue noted
above, the absence of the TSL 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 increase were improved dis-
play and classified advertising revenues, along with the impact of cover price increases at the major weekend newspapers. The
increase in Operating income 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 by Rick Warren. During the fiscal year ended
June 30, 2006, HarperCollins had 109 titles on The New York Times Bestseller List with 14 titles reaching the number one position.
NEWS CORPORATION 2007 Annual Report 53