Twenty-First Century Fox 2008 Annual Report Download - page 66

NEWSCORP
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
by the worldwide release of Night at the Museum, Eragon, Borat: Cultural Learnings of America for Make Benefit Glorious Nation of Kazakhstan,
The Devil Wears Prada and Fantastic Four: Rise of the Silver Surfer. Fiscal 2006 theatrical releases included Ice Age: The Meltdown, X-Men: The Last
Stand, Fantastic Four, Walk the Line, Big Momma’s House 2 and Cheaper by the Dozen 2.
Operating income at the Filmed Entertainment segment for fiscal 2007 increased $133 million, or 12%, as compared to fiscal 2006. The
improvement was primarily due to the revenue increases noted above, which were partially offset by a $402 million increase in operating expenses
resulting from higher releasing costs and higher amortization of production and participation costs directly associated with the increase in
revenues noted above.
Television (20% and 21% of the Company’s consolidated revenues in fiscal 2007 and 2006, respectively)
For the fiscal year ended June 30, 2007, Television segment revenues increased $371 million, or 7%, as compared to fiscal 2006. The Television
segment reported a decrease in Operating income for the fiscal year ended June 30, 2007 of $70 million, or 7%, from fiscal 2006.
Revenues at the U.S. television operations increased for the fiscal year ended June 30, 2007 as compared to fiscal 2006. The increase was
primarily due to the broadcasts of the BCS and NASCAR’s Daytona 500 with no comparable events in fiscal 2006 and higher FOX prime-time
advertising revenue due to higher pricing and additional commercial inventory sold. Also contributing to the increased advertising revenues was
higher political advertising at the Company’s television stations due to the November 2006 elections. The increase in revenue was partially offset
by revenue decreases at the Company-owned MyNetworkTV affiliated stations. Operating income at the Company’s U.S. television operations for
the fiscal year ended June 30, 2007 decreased from fiscal 2006. The decrease in Operating income was a result of expenses associated with the
first full year of MyNetworkTV which was launched in September 2006, higher sports programming costs related to the BCS, Daytona 500 and the
new NFL contracts, partially offset by the increase in revenues noted above.
Revenues for the fiscal year ended June 30, 2007 at the Company’s international television operations increased over fiscal 2006. The increase
was primarily due to higher advertising revenues in India and higher subscription revenues. Operating income for the Company’s international
television operations decreased for the fiscal year ended June 30, 2007 as compared to fiscal 2006, primarily due to higher programming costs.
Cable Network Programming (13% of the Company’s consolidated revenues in fiscal 2007 and 2006)
For the fiscal year ended June 30, 2007, revenues at the Cable Network Programming segment increased $544 million, or 16%, as compared to
fiscal 2006. The increase was driven by higher net affiliate and advertising revenues at the RSNs, Fox News and FIC, as well as increased net
affiliate revenues at FX.
The RSNs’ revenues increased 12% for the fiscal year ended June 30, 2007 as compared to fiscal 2006, primarily due to net affiliate and
advertising revenue increases. Net affiliate revenues increased 13% as compared to fiscal 2006, primarily due to higher average rates per subscriber
and a higher number of subscribers, including those from the acquisition of SportSouth in May 2006. Advertising revenue increased 8% as
compared to fiscal 2006, primarily due to additional revenues from the increased number of MLB and National Basketball Association (“NBA”)
games broadcasted.
Fox News’ revenues increased 19% for the fiscal year ended June 30, 2007 as compared to fiscal 2006, primarily due to net affiliate and
advertising revenue increases. Net affiliate revenues increased 55% for the fiscal year ended June 30, 2007, as a result of increases in average rates
per subscriber and lower cable distribution amortization as compared to fiscal 2006. Advertising revenues for the fiscal year ended June 30, 2007
increased 2% as compared to fiscal 2006 due to higher pricing and higher volume. In addition, revenue from licensing fees contributed to the
increase in fiscal 2007. As of June 30, 2007, Fox News reached approximately 92 million Nielsen households.
FX’s revenues increased 4% for the fiscal year ended June 30, 2007 as compared to fiscal 2006, primarily due to an increase in net affiliate
revenues. Net affiliate revenues increased 7% as compared to fiscal 2006, primarily due to an increase in the average rate per subscriber and in the
number of subscribers. As of June 30, 2007, FX reached approximately 92 million Nielsen households.
Revenues at the Company’s international cable channels increased 65% for the fiscal year ended June 30, 2007 as compared to fiscal
2006. The increases were primarily due to incremental revenues of $65 million from the consolidation of NGC Network International LLC (“NGC
International”) and NGC Network Latin America LLC (“NGC Latin America”) beginning January 1, 2007, as well as improved advertising sales and
subscriber growth at the other FIC channels.
The Cable Network Programming segment Operating income increased $226 million, or 26%, for the fiscal year ended June 30, 2007, as
compared to fiscal 2006. This improvement in Operating income was primarily driven by the revenue increases noted above, partially offset by a
$318 million increase in operating expenses primarily due to higher sports rights amortization mainly due to additional games and higher
entertainment programming for new shows. Also contributing to the Operating income increase was $16 million of incremental Operating income
from the consolidation of NGC International and NGC Latin America.
Direct Broadcast Satellite Television (11% and 10% of the Company’s consolidated revenues in fiscal 2007 and 2006, respectively)
For the fiscal year ended June 30, 2007, SKY Italia’s revenues increased $534 million, or 21%, as compared to fiscal 2006. This revenue growth
was primarily driven by an increase in subscribers over fiscal 2006. During fiscal 2007, SKY Italia added approximately 368,000 net subscribers,
which resulted in SKY Italia’s subscriber base totaling almost 4.2 million at June 30, 2007. The total churn for the fiscal year ended June 30, 2007
was approximately 423,000 on an average subscriber base of approximately 4.0 million, as compared to churn of approximately 314,000
subscribers on an average subscriber base of approximately 3.6 million in fiscal 2006. Subscriber churn for the period represents the number of SKY
Italia subscribers whose service was disconnected during the period. During the fiscal year ended June 30, 2007, the weakening of the U.S. dollar in
relation to the Euro represented 7% of the increase in revenues.
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