Magazine article Editor & Publisher

Coping with Tough Times

Magazine article Editor & Publisher

Coping with Tough Times

Article excerpt

THE RECENT SHARPLY improved results from News Corp., Rupert Murdoch's international publishing empire, reflect particularly strong performances by its British operations.

For the year ended June 30, after-tax profits were $384 million, against a loss of $307 million for the previous year. Operating income rose 2%, to about $1.2 billion. This increase came, the company said, despite asset sales and the lack of gains from foreign exchange.

Stephen Barraclough, chief financial officer for News International --. News Corp.'s U.K. arm -- said that British operations contribute 12% to 15% of the group's annual turnover, but "the improved picture here," he added, "was about 30%."

The results represent a sharp turnaround, against a backdrop of heavy corporate debt and worldwide recession. In recent years, the company's debt burden had many experts worried about its long-term stability.

Murdoch has traditionally preferred to raise capital from banks rather than the stock market in order to maintain more effective control over his operations. However, bankers, concerned at the extent of those debts, pressured News Corp. to sell assets and curb its strong acquisitive instincts.

By agreeing to these conditions, News Corp. was able to delay repayment of $3.26 billion of its debt from 1994 until 1997.

"The thing that gives us great confidence as a corporation as a whole," Berraclough said, "is that the Australian economy is horrible. The U.K. economy is horrible, and the U.S. economy is hardly glowing, and yet we managed to produce this level ofresuk. There's an awful lot of upside potential in view as and when the different economies start to come out of the recession."

Over the last 18 months, Barraclough said, News International has been able to reduce its costs by more than 40 million pounds (about $76 million) a year. This has been done mainly through cutting the payroll, "but also using the new investment to do things more efficiently and effectively than they have in the past.

"A lot of the savings have been labor-related," he continued. "We've taken a long hard look at all of our internal working practices, sweeping out layers of management which we felt weren't needed. We've dramatically simplified the management structure."

News Corp. was also pleased at the performance of its broadcasting operations. It reported record ratings for its Fox Broadcasting stations in the United States, and its BSkyB satellite television service in Britain entered operating profit in March.

During 1991, News International said, the number of British homes with satellite dishes capable of receiving BSkyB went from 2.3 million to 3.3 million.

News International, which hopes to have recouped its investment in BSkyB by 1994, has signed a major deal to broadcast English soccer games.

On the film side, News Corp. reported a poor performance by 20th Century Fox. It blamed this on the failure of three movies. Murdoch, who has moved to Los Angeles to concentrate on movie production, has been making noises about challenging the big pay deals offered Hollywood stars.

Analysts agree that the better performance of News Corp. in the U.K. stemmed directly from cost-cutting efforts the company began about 18 months ago under pressure from the banks. These measures included a wage freeze and streamlining of head office procedures.

The absence of the wage inflation of previous years has helped the company, as has a fall of about 20% in newsprint prices over the last year.

"It's always nice to see companies producing profit growth in this rather gloomy environment," said a London financial analyst. "There's been quite an aggressive move to reduce costs and, if you're successfully reducing your cost base in newspapers -- particularly at the tabloid end -- the revenue just drops through to the bottom line."

"Our recent dealings with the banks," Barraclough said, "caused us to look much more closely at the operations we have and how we can make them work more efficiently and more effectively. …

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