BSkyB profits boost bails out News Corp: Newspaper price cuts hurt Murdoch

THE BATTERING inflicted on profits at Rupert Murdoch's media empire by the decision to cut the cover price of the Sun and Times newspapers has been more than offset by a fivefold boost in earnings at British Sky Broadcasting, the satellite broadcaster in which it has a 50 per cent stake.

BSkyB's decision last September to relaunch the majority of its channels as subscription-only appears to have been vindicated, with the number of subscribers up by 40 per cent to 3.25 million, of which more than half now take the most expensive, multi-channel option.

While some viewers were lost as a result of the switch, a big surge in revenues as many became subscribers, together with continuing growth in new dish purchases, meant turnover rose by more than 40 per cent to pounds 241m.

The number of BSkyB viewers has accordingly remained roughly the same; before the relaunch, the 2.35 million subscribers were augmented by another million or so who watched for free. That in turn has helped to protect advertising revenues, which account for around 20 per cent of BSkyB's profits.

As a result, operating profits at BSkyB, in which Pearson, Granada and Chargeurs also have stakes, rose to pounds 84.8m in the six months ended December.

That enabled News International, the UK subsidiary of Mr Murdoch's News Corporation, to record a pounds 30.9m profit in respect of its investment in the group - four times the pounds 7.5m profit credited in respect of the satellite broadcaster last year.

The improvement compensated for the damage done to News International's profits by Mr Murdoch's decision last September to cut the price of the Times by 15p to 30p, a move that followed the July reduction of the cover price of the Sun by 5p to 20p.

The price reduction appears to have boosted circulation especially at the Times, where the number of buyers rose by around 100,000 to just over 439,000 in December. The rise in the Sun's circulation was a proportionately more modest increase of about 400,000 to about 3.7 million. News International indicated yesterday that advertising had also seen growth of up to 10 per cent.

But the result has been a sharp fall in newspaper profitability at News International, where operating profits dropped by more than pounds 26m to pounds 49.8m.

Nevertheless, BSkyB's contribution, coupled with pounds 22.5m from asset disposals, helped total pre-tax profits to rise from pounds 86.9m to pounds 126.7m.

At group level News Corp's profits were up substantially, with net operating profits rising 28 per cent in the first half to Adollars 624.9m ( pounds 306m) on revenues up 9 per cent at Adollars 5.8bn.

Profits were further boosted to Adollars 748m by the sale of News Corp's 35 per cent stake in the South China Morning Post newspaper and an equity-accounted surplus on the sale of some BSkyB assets.

As well as the poor performance of UK newspapers, News Corp's profits were dented by problems in the group's US-based free-standing insert business, which is facing vicious price competition. On the plus side, film earnings more than doubled - though from a very low base - mostly thanks to the success of Mrs Doubtfire.

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