News Corp.: Conan’s Not Coming to Fox Just Yet; Amazon’s Ready to Bend on E-Book Pricing

Two interesting nuggets from a wide-ranging earnings call today:

  • News Corp. CEO Rupert Murdoch tried to lower expectations that his Fox broadcast network would hire Conan O’Brien.
  • Murdoch hinted that his book publishing unit is in line to get a new deal on e-books from Amazon, just as Macmillan has demanded (as will other publishers).

On the second point, here’s my on-the-fly transcription and paraphrasing of Murdoch’s comments about Amazon (AMZN), Apple (AAPL) and e-book pricing. It’s one of the most candid descriptions you’ll hear from a top executive about Big Media’s reluctance to embrace digital distribution at the expense of its existing system and revenue:

“We don’t like the Amazon model of $9.99….We think it really devalues books and hurts all the retailers of hardcover books. We’re not against electronic books; on the contrary, we like them very much” because they cost us less to distribute, “but we want some room to maneuver.” The Apple deal…“does allow some flexibility and higher prices” though e-books will still be lower than print versions. And now Amazon is willing to sit down with us again and renegotiate.

UPDATE: Here’s a more complete transcript from Seeking Alpha:

We don’t like the Amazon model of selling everything at $9.99. They don’t pay us that. They pay us the full wholesale price of $14 or whatever we charge. We think it really devalues books and it hurts all the retailers of the hard cover books. We are not against [inaudible] books. On the contrary we like them very much indeed. It is low cost to us and so on. But we want some room to maneuver in it. Amazon, sorry Apple in its agreement with us which has not been disclosed in detail does allow for a variety of slightly higher prices.

There will be prices very much less than the printed copies of books but still will not be fixed in a way that Amazon has been doing it. It appears that Amazon is now ready to sit down with us again and renegotiate pricing.

Again, it’s impossible to stress how scarring the music labels’ experience has been for Big Media. And they’re determined not to repeat the experience. Their takeaway, though, seems to be that they can stave off digital distribution by keeping prices high and inventory relatively scarce. Hard to believe consumers are going to go for that.


Earlier

A first glimpse at News Corp.’s fourth-quarter earnings (which, due to the company’s weird fiscal calendar, is technically the company’s Q2 for 2010): Pretty good. And much better than a year ago (thankfully). After factoring out one-time charges, the company posted earnings of 25 cents on revenue of $8.7 billion.

The Street was looking for earnings of 20 cents on revenue of $8.23 billion, and analysts were also hoping the company would boost its earnings forecast, due in part to a bump from the ginormous success of “Avatar.” No word on guidance in the earnings release, though.

I’ll pick through the release for other worthwhile nuggets for the next few minutes. And then the real show begins at 4:30 Eastern, when the company’s earnings call–easily the most entertaining one in its peer group due to the censor-free presence of CEO Rupert Murdoch–begins. We’ll be looking for commentary on his battle/negotiation with Google (GOOG), upcoming content deals with Apple and the iPad, his thoughts on paid content in general, a dash of political commentary or two, and an update on the turnaround effort at MySpace.

From the release: A pretty nice quarter at most of the conglomerate’s divisions, including the previously battered broadcast TV and newspaper groups. News Corp. says print revenue at The Wall Street Journal was up five percent and ads on the Journal’s digital network were up 17 percent.

MySpace and the company’s other digital properties, shuffled into the “other” category, don’t get much of a mention, but don’t seem to have done much, not surprisingly.

But News Corp does mention that digital media earnings were down $32 million compared with a year ago, “principally due to lower search and advertising revenue.” And the company lost $29 million on “digital media dispositions”–i.e., the fire sale/giveaways of properties like Rotten Tomatoes and Photobucket.

Here’s the breakdown by segment (click table to enlarge):

Liveblog

CFO Dave DeVoe: “Extremely pleased” with the quarter.

Movies: Revenue up due to decent DVD sales (no MGM problem here). Also high costs due to “Avatar,” but big profits from the movie will be coming in during the next couple quarters.

Broadcast TV: Local ads are improving; the telecom, fast food, finance categories are all improving.

Cable: Revenue is up 18 percent. Affiliate revenue is up 21 percent (more money for Fox News subs), and there was a “single-digit” boost in ad dollars.

Newspapers: Journal dollars are up, operating costs down. Ad revenue got better as the quarter progressed.

Books: Revenue up, expenses down.

“Other”/MySpace: Digital media revenue down, but cost-cutting helped trim losses.

News Corp. is boosting its dividend by 25 percent.

Guidance: The company’s operating income growth rate is expected to grow from single digits to the high teens. Better than anticipated: Film group, TV and cable. But revenue goals for digital media, including MySpace, will take longer than anticipated.

Murdoch sings the praises of content. [I will not argue with him, for now]. “Avatar” is awesome, he says, a “harbinger of fundamental change in the industry.” Also really good: “Alvin and the Chipmunks.” Fun to hear Rupe say “Alvin and the Chipmunks.”

WSJ is the No.1 paper in U.S. in terms of circulation, influence, quality. WSJ.com is a “digital model for newspapers around the world.”

Fox News Channel’s audience is both “loyal and lucrative.” Roger Ailes is doing an “admirable job” [translation: Bite me, Michael Wolff--the author of a recent Murdoch biography].

Last year, Murdoch says, News Corp.’s pay-to-play ideas sounded nutty, but now “the content clan has gathered around our ideas.” Consumers must pay and will pay “to be entertained and informed.” All those awesome new gadgets being made in China and sold at the Consumer Electronics Show need content or they’re worthless. Content, content, content. Get it? Content, content, content.

Murdoch says he’ll be wringing more dollars from cable operators. And “when it comes to online news, we’ll be changing that model too,” adding that News Corp. is in “substantive conversations with device makers on developing subscription models” to deliver content. And don’t forget about 3-D!

Not performing well but “long-term growth drivers”: Sky Italia satellite service. Also Sky Deutschland. And MySpace is “not yet where we want it.” In the last quarter, however, MySpace “started to see signs of traffic stabilization.”

Shout-outs for Chase Carey and other managers (but not by name).

Q&A

Question: How big a deal is retransmission consent in coming years? $40 million a month? $100 million a month?

Chase Carey: No numbers, but it’s going to be a “transforming event.” We have two of top 10 distributors done, more coming. It’s a three- or four-year process to knock these deals out.

Q: Does this fix the broadcast model?

Carey: “Yes, I guess you could say simplistically, it fixes it.”

Q: What’s the timing on an “Avatar” DVD, and what about a sequel? Also, how do TV ads look this year?

Murdoch: For “Avatar,” we think about 60 percent of profits will be in the next six months. Which means the DVD will be coming “as soon as possible,” but the movie will stay in cinemas for a while because we’re doing huge dollars in theaters still. Sequel? “Very early talks about it. Jim has ideas for one. We haven’t come to any agreement with him….Being Jim Cameron, I wouldn’t hold your breath for an early one.” Asked about the economics of a future release (“Will you keep the same revenue split?”), Rupe sort of rumbles and growls and sort of doesn’t have much to say. “Ask anybody; it is very easy to drop a $100 million in a hurry on a film, and we’d like to lay off some of the risk.”

Carey: TV trends for this year are “positive.”

Murdoch: TV stations will be up 18 or 19 percent, but last year was terrible. We’re still down compared with two years ago. Hard to see more than a quarter in advance. In newspapers, it’s hard to see more than a few weeks.

[Missed a question on Sky Italia here.]

Q: What are growth prospects for cable networks? They’ve been driven a lot recently by new subscriber fees. How much longer can you get those boosts?

Murdoch: Overall, “we think we have great potential for growth. Quite a long way to go yet.” Look at how NBCU’s USA is growing.

Carey: In the U.S., we’re moving to “quality over quantity”–we can wring more out of foreign exchange, etc. Fox News is only getting more powerful; it has “great upside.”

Q: Regarding newspapers, what growth came from organic increase versus currency fluctuations?

The majority is from foreign exchange.

Q: Does your guidance assume that the “Avatar” DVD is coming in the next two quarters?

Murdoch: “Yes, but it won’t be 3-D” [which I don't think the analyst was asking about].

Q: Back to retransmission consent: You’ve been getting more and more money from cable guys. Why can’t you get $4 or $5 per subscription for Fox broadcast subs?

Murdoch: “We’re modest people.”

Carey: Hyuk, hyuk. Real answer: It takes time. “We try to approach this constructively. We’ve built businesses with [cable guys], we’ve built valuable cable channels” [translation: patience!]. We want to extract more without killing the cable guys.

Murdoch: That said, we’re asking for the same thing [for broadcast channels] that the cable networks are getting, which “certainly won’t kill the cable companies.”

Q: Please talk about value of film libraries (i.e., MGM). They’re generating big operating profits for cable now. How long will this last?

Murdoch: Regarding the MGM auction, “you can count us out of that one altogether” because others will pay more than we’re willing. And we’re not pursuing the Miramax catalog at all.

Carey: A film library by itself, without new stuff coming through, is a “depreciating asset.”

Q: On guidance: You say the ad market getting better, etc., but it sounds like you’re saying Ebidta growth is slowing.

Murdoch: “We honestly do not have any visibility about the last quarter.”

Q: On books/e-books/Apple, what’s going on with that?

Murdoch: We don’t like the Amazon model of $9.99….We think it really devalues books and hurts all the retailers of hardcover books. We’re not against electronic books; on the contrary, we like them very much, lower costs to us, but we want some room to maneuver. The Apple deal does allow “some flexibility and higher prices” though e-books will still be lower than print. And now Amazon is willing to sit down with us again.

Press Q&A

Q: What’s up with plans to charge for newspapers on the Web?

Murdoch: “Not ready to announce yet [long pause]. We won’t be ready yet to make an announcement.” A “lot of talks with a lot of people.” There will be more to say within the next two months, Murdoch adds.

Q: Are you still going to fall $100 million short on the Google deal?

Murdoch: Yes. People using social networks don’t use search a great deal. Facebook has seen this, too. It’s “really too early to make confident predictions…but from going down, we’re beginning to go up.”

Q: Can we get some details about Time Warner Cable (TWC) deal?

Nope.

What about Conan O’Brien on late night?

Murdoch: If the programming people can show us we can do it and make a profit on it, we’ll do it in a flash. I’m sure there have been conversations with Conan, but “if you mean real negotiations, no.”

[Missed two questions here.]

Q: Another late-night question: If you do go into negotiations with Conan, how do you placate your affiliates?

Murdoch: It’s a different deal than NBC. They screwed up 10 pm, which reduced the lead-in to local news. Our affiliates run syndicated programming at 11:30, though, so it will take time to adjust there.

Call ended. This one seemed short to me.

More or less redundant disclosure: News Corp. (NWS) owns this Web site.

Lost, Twitter and the Tragedy of the Commons: A Semi-Modest Proposal

Dear fellow “Lost” fans:

Hi there! Salivating for tonight’s show? Me too.

But I have a request. Please hear me out.

Like you, I’ve invested an embarrassingly substantial number of hours in this thing. And I can’t wait for one last season with Jack, Locke, et al. (Especially Locke. Can’t get enough Locke.)

But unlike some of you, I’m probably not going to be able to watch every show in real-time. Various life requirements are going to force me to watch at least some of these a day or two later on the DVR (or ABC.com or Hulu in a pinch).

Which would be fine, except that I’m also on Twitter a lot, and so are many of you. And many of you want to tweet about the show while it’s running and during its aftermath.

I don’t know why that is. I get the idea of Twittering along with live communal events like “American Idol” or pro football. But you guys realize that “Lost” episodes were taped months ago, right?

Anyway, I’m not here to judge! Just to ask for your help.

My ask: It’d be really great if you folks could lay off the “Lost” tweets until a few days after each show. Because otherwise, I–and, I suspect many other people, as well–will have to make an unpleasant choice: Stop using Twitter for several days a week or wade through lots and lots of spoilers. (This is apparently not a Hobbesian Choice but a Morton’s Fork. Thanks, Wikipedia!)

Yes, I think it’s theoretically possible for me to set up Twitter clients like Tweetdeck to strike some “Lost”-related tweets from my stream. But not all of them.

I also suppose we could also ask Biz Stone and crew to somehow filter out “Lost” tweets from the mainstream, but I think those guys have more important stuff to do. (One other alternative would be to ask all you Twittering real-time “Lost” watchers to head somewhere else for a bit, like Hot Potato, which is supposed to work for just this sort of thing. But I can understand if you’re not up for embracing yet another messaging service.)

So. What do you think ? I’m not asking for much, I think. Just a little near-term restraint. Let’s say two days, max.

That lets the rest of us catch up–remember, East Coasters, that the poor folks on the other side of the country are three hours behind to begin with. And then we can join the rest of you, and we can all discuss this awesome show in 140 or fewer characters.

Thanks in advance for your consideration,

Peter

P.S.: I bet the smoke monster is Jack’s dad. Or something.

YouTube’s Trip to the Movies Nets Enough for Popcorn, and Another Visit

YouTube has finished its first attempt to charge customers to watch Web video. The good news: Some people paid up.

And from YouTube’s perspective, that’s all that matters. Because the Google (GOOG) unit certainly didn’t make any money from the exercise: 2,684 people paid $3.99 a pop to rent indie movies from Sundance, netting all of $10,709.16, the New York Times notes.

But since YouTube hadn’t ever rented a single piece of video to anyone who wasn’t a Google employee before, the company can plausibly claim this was a success. It has been testing movie rentals internally for some time, and Google execs have suggested both publicly and privately that they’ll be renting films–and perhaps TV shows–in the near future.

But among other things, they need to show Hollywood that they can actually do this, so the Sundance experiment could be useful no matter how many dollars it generates.

I’d assumed that the standard pricing/windowing/biz-dev issues were holding up YouTube’s entry into paid video, but some industry executives have told me that there are technical issues to deal with as well, like making sure video files are handled securely. So Sundance has to help, right?

Meanwhile, here’s the trailer from “Be Kind Rewind,” a movie about movies I haven’t seen but would like to. Maybe once this season of “Lost” ends.

A Father and Son Team That Founds Web Start-Ups Wants to Finance Them, Too: Ken and Ben Lerer Get Their Own Fund

Are you cobbling together a start-up in New York City and looking for cash? Good news: A lot of wealthy and wired people want to write you a check.

Meet the newest batch: Lerer Media Ventures, a new fund run by Huffington Post co-founder Ken Lerer and his son, Thrillist co-founder Ben Lerer.

The two men say they’re closing the fund’s first round in the next few days. When they’re done, they will have around $7 million to put into angel/early-stage investments–primarily in New York tech/media companies, though they intend to play on the West Coast too.

If you want a sense of what the Lerers are looking for, check out deals they’ve already done, like Hot Potato, Paperless Post, and GDGT.

Their investors include a number of bold-faced names, at least by tech/media standards. Among them: Pilot Group’s Bob Pittman, ZelnickMedia’s Strauss Zelnick, SoftBank Capital partner Mike Perlis, Hunch co-founder (and prolific blogger) Chris Dixon, uber-angel investor Ron Conway and Lerer’s Huffington Post co-founder, Arianna Huffington.

The Lerers join the ranks of other investors interested in New York start-ups, including early-stage venture capital shops Union Square Ventures, Spark Capital and First Round Capital, and a set of smaller funds like IA Capital Partners, Betaworks and Founder Collective.

The fact that the last two funds are directly connected to the Lerers–Ken is an investor in Betaworks (and shares office space with it), and Chris Dixon is an investor in Founder Collective–shows just how interlinked the New York start-up scene is. The same players seem to invest in the same deals, and now they’re investing in one another.

For instance: Check out the investor list for Brooklyn-based Hot Potato, which looks a lot like the Lerers’ group.

Or consider the fact that Pittman once worked with Ken Lerer at AOL (AOL) and now funds Ben Lerer’s newsletter company. Or the fact that Perlis, via SoftBank, is a Huffington Post investor and that former SoftBank partner and current Huffpo CEO Eric Hippeau will be an adviser to the new fund. Etc.

If you’re a cynic, you might call such familiarity overly cozy. And you might worry about the chances for a start-up that doesn’t find favor with the collective. If you’re an optimist, you’d say there’s nothing wrong with like-minded investors who like to collaborate.

No surprise what side Ken Lerer is on. And what about the growing number of people who want to invest in Web start-ups again? Not a problem, either.

“In angel investing, you don’t really have competitors. You go ahead and do your thing,” Lerer insists. “I don’t look at Internet or Internet investing as competitive, generally.”

Fair enough. If anyone feels otherwise, sound off in the comments below.

And in the spirit of full disclosure, I’ll note that even I have the faintest of links to this group, though it’s mainly aspirational. Ken Lerer was an early backer of my former employer, Silicon Alley Insider, and I have the tiniest of investments in that company, too.

[Image credit: Tony the Misfit]

Steve Jobs Sells the iPad in Three Minutes. Amazing!

Say you fell and bumped your head Wednesday morning and have been dozing since. Here’s the Apple (AAPL) iPad unveiling you missed, helpfully condensed into 180 seconds.

Thanks to Mashable for finding and to body painter (really?) Neil Curtis for the heavy lifting.

And if you liked that, you’re in luck, because there’s a long history (by Internet standards) of Steve Jobs keynote condensations. Well worth another few minutes to engage in some time travel here:

Watch Hollywood Crater in a Single Sentence

DVD sales are collapsing, nearly as quickly as music sales did over the last decade.

It’s important to remember this whenever you see stories about Hollywood’s resurgence, measured by box office receipts. Because box office receipts don’t do that much for Hollywood’s bottom line–that’s the role of DVDs.

It’s also important to remember this when you see stories about Hollywood’s conniption fit over “windowing” and the lawsuit/hardball deal combo the studios have used with Redbox and Netflix (NFLX). Because the studios’ desire to wring every last penny from DVDs is what’s driving those moves.

Ditto for Hollywood’s desire for a 3-D boom: The studios are in desperate need of a new revenue stream to replace the disappearing discs.

So here’s the one-sentence story I promised, which illustrates the collapse. It comes via Edward Jay Epstein’s dissection of MGM’s blowup, published on Defamer (nice get!):

In the US alone, MGM’s net receipts from DVDs fell from $140 million in its 2007 fiscal year (which ended March 31, 2008) to just $30.4 million by 2010.

That clarifies things, no?

Yes, you can add plenty of caveats if you’d like. For instance, MGM has been more or less dormant except for its Bond films the last couple years, and studios rely on new releases to juice DVD sales. And the DVD slump hasn’t hit all studios equally–Disney (DIS) and DreamWorks Animation (DWA) have done less poorly, because parents still need to buy stuff to occupy their kids.

But that’s still a staggering 78 percent drop in a couple years. So even if you’re running a studio whose DVD sales don’t look that bad, you’re looking at plummeting sales. Scary stuff.

Amazon Gives In to Macmillan and Apple, and E-Book Prices Will Go Up

That was fast.

Less than two days after pulling books published by Macmillan in a dispute over e-book pricing, Amazon has conceded.

The world’s dominant e-commerce company says it has agreed to Macmillan’s demands to sell its e-books at a higher price–and in doing so, has made a tacit admission that e-book prices will rise across the board.

That’s because most of the industry’s big players have embraced a similar plan, advanced by Apple (AAPL) to support its iPad launch, to sell e-books for $12.99 and $14.99 instead of the $9.99 Amazon (AMZN) had been pushing.

In an extraordinary statement published on Amazon’s site, the retailer says that it “will have to capitulate and accept Macmillan’s terms because Macmillan has a monopoly over their own titles, and we will want to offer them to you even at prices we believe are needlessly high for e-books.”

No word yet from the other big publishers that have sided with Apple in the e-book pricing war–Pearson’s Penguin Group, News Corp.’s (NWS) HarperCollins, Hachette Book Group and CBS’s (CBS) Simon & Schuster. But keep in mind Steve Jobs’s all-knowing pronouncement about Amazon and Apple e-books: “The prices will be the same.”

Also bear in mind that publishers will actually make less money with the Apple pricing plan. Under the old plan, they sold books to Amazon for around $15 wholesale, and Amazon took a loss in order to retail them for $9.99. Under the new plan, the publishers will get closer to $10 per book.

But the publishers are so freaked out by the parable of the music labels, in which Apple replaced $15 CDs with $1 songs, that they are willing to take the hit in order to maintain some control of their digital pricing.

Odd as this sounds, there’s logic to it, since e-book sales will be small for some time and publishers think that this strategy will help keep the prices up when buyers really do embrace digital.

(Aside: The notion that digital pricing should be dirt cheap simply because it doesn’t cost publishers–or music labels, or Hollywood studios, or whatever–very much to distribute bits, is facile. If you don’t believe me, try ordering a vegetarian entree the next time you go out to dinner, and then tell your waiter you refuse to pay full price because you know that vegetables cost much less than meat. It may be dumb for publishers to try to keep digital prices high, but it’s equally stupid to demand that they lower them on principle.)

It will be interesting to see what Kindle buyers make of the impending price hike, particularly since so many of them are price-conscious consumers who prefer to pay nothing at all for their books.