Twenty-First Century Fox 2011 Annual Report Download - page 16

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
prices in managing its businesses to maximize operating profit during expanding and contracting economic cycles. Paper is a basic commodity and
its price is sensitive to the balance of supply and demand. The Company’s costs and expenses are affected by the cyclical increases and decreases in
the price of paper. The Publishing segment’s products compete for readership and advertising with local and national competitors and also
compete with other media alternatives in their respective markets. Competition for circulation and subscriptions are based on the content of the
products provided, service, pricing and, from time to time, various promotions. The success of these products depends upon advertisers’ judgments
as to the most effective use of their advertising budgets. Competition for advertising is based upon the reach of the products, advertising rates and
advertiser results. Such judgments are based on factors such as cost, availability of alternative media, distribution and quality of readership
demographics. The Company believes that competition from new media formats and sources and shifting consumer preferences will continue to
pose challenges for the Publishing segment’s businesses.
Other
The Other segment consists primarily of:
Digital Media Group
The Company sells advertising, sponsorships and subscription services on the Company’s various digital media properties. Significant expenses
associated with the Company’s digital media properties include development costs, advertising and promotional expenses, salaries, employee
benefits and other routine overhead. The Company sold Myspace in June 2011.
Wireless Generation
Wireless Generation, the Company’s education technology business, provides data systems and professional services that enable teachers to use
data to assess student progress and deliver individualized instruction. Significant expenses associated with the Company’s education technology
business include salaries, employee benefits and other routine overhead.
News Outdoor
News Outdoor sells outdoor advertising space on various media, primarily in Russia. Significant expenses associated with the News Outdoor
business include site lease costs, direct production, maintenance and installation expenses, salaries, employee benefits and other routine overhead.
The Company sold its outdoor advertising businesses in Russia and Romania in July 2011.
Other Business Developments
In June 2010, the Company announced that it had proposed to the board of directors of British Sky Broadcasting Group plc (“BSkyB”), in
which the Company currently has an approximate 39% interest, to make a cash offer of 700 pence per share for the BSkyB shares that the
Company does not already own. Following the allegations regarding News of the World, on July 13, 2011, the Company announced that it no
longer intended to make an offer for the BSkyB shares that the Company does not already own. As a result of the July 2011 announcement, the
Company paid BSkyB a breakup fee of approximately $63 million in accordance with a cooperation agreement between the parties.
During fiscal 2011, the Company acquired an additional interest in Asianet Communications Limited (“Asianet”), an Asian general
entertainment television joint venture, for approximately $92 million in cash. As a result of this transaction, the Company increased its interest in
Asianet to 75% from the 51% it owned at June 30, 2010.
In August 2010, the Company increased its investment in Tata Sky Ltd. (“Tata Sky”) for approximately $88 million in cash. As a result of this
transaction, the Company increased its interest in Tata Sky to approximately 30% from the 20% it owned at June 30, 2010.
In fiscal 2011, the Company agreed to backstop €400 million (approximately $525 million), of financing measures that were being initiated by
Sky Deutschland of which approximately €342 million (approximately $450 million) has been completed. As part of these financing measures, the
Company acquired 108 million additional shares of Sky Deutschland, increasing its ownership from approximately 45% to 49.9%. The aggregate
cost of the shares acquired by the Company was approximately €115 million (approximately $150 million) and the shares were newly registered
shares issued pursuant to the total capital increase.
In addition, in accordance with the backstop, the Company agreed with Sky Deutschland to subscribe to a bond issuance that is convertible
for up to 53.9 million underlying Sky Deutschland shares. The convertible bond was issued to the Company in January 2011 for approximately
€165 million (approximately $225 million). The Company currently has the right to convert the bond into equity, subject to certain black-out
periods. If not converted, the Company will have the option to redeem the bond for cash upon its maturity in four years. The remaining amount
under the backstop of approximately €58 million (approximately $75 million), must be funded prior to December 2011 and will be provided as a
loan to the extent Sky Deutschland does not generate other proceeds through capital increases or convertible bond issuances. The Company has
also agreed to loan Sky Deutschland approximately $70 million to support the launch of a sports news channel. The Company expects to fund
these amounts in fiscal 2012.
In November 2010, the Company formed a joint venture with China Media Capital (“CMC”), a media investment fund in China, to explore
new growth opportunities. The Company transferred the equity and related assets of its STAR China business along with the Fortune Star Chinese
movie library with a combined market value of approximately $140 million and CMC paid cash of approximately $74 million to the Company.
Following this transaction, CMC holds a 53% controlling stake in the joint venture and the Company holds a 47% stake.
In December 2010, the Company disposed of the Fox Mobile Group (“Fox Mobile”).
In fiscal 2011, the Company acquired Wireless Generation, an education technology company, for cash. Total consideration was
approximately $390 million, which included the equity purchase price and the repayment of Wireless Generation’s outstanding debt.
In April 2011, the Company acquired Shine Limited (“Shine”), an international television production company, for cash. The total
14 News Corporation