This was published 13 years ago
News result is better than titanic
James Cameron's 3D Avatar flowed to the News Corp bottom line like no other movie, including Titanic.
By Malcolm Maiden
JAMES Cameron's 3D blockbuster Avatar was unleashed in December and the June-year profit result for Rupert Murdoch's News Corporation released yesterday showed that it flowed to the bottom line like no other movie has, including Cameron's first colossus, Titanic.
News Corp's total operating income was up by 11.2 per cent, or $US401 million ($A438.4 million), from $US3558 million to $US3959 million. Within that, the filmed entertainment division that includes Avatar's owner, 20th Century Fox, boosted operating income by $US501 million, or 50 per cent, from $US848 million to $US1349 million.
Avatar wasn't the only big movie News released last year. Ice Age: Dawn of the Dinosaurs, an animated 3D romp that generated revenue of $US884 million worldwide, also received an honourable mention.
But it was Avatar that made the difference and the comparison with Titanic is interesting.
Cameron's shipwreck weepie hit theatres in mid-December 1997 and went on to take $US1.8 billion.
But as production costs blew out to more than $US200 million, Fox decided to make the project a joint venture with Sumner Redstone's Paramount Pictures, and the result was that Titanic's impact on News's bottom line was big, but not in fact titanic.
News announced a 56 per cent increase in operating profit from $A1700 million to $A2646 million in the year to June 30, 1998, and the Fox film division's contribution jumped by 140 per cent to $A254 million. Movies including Titanic therefore generated 9.6 per cent of group operating earnings, up from 6.1 per cent a year earlier.
Avatar has been bigger: for News - in absolute box-office terms and because Fox kept 100 per cent of the project, even as criticism of its cost and predictions of box-office failure proliferated (just as they had before the release of Titanic in 1997). In the result for the year to June 2007, filmed entertainment was responsible for 23.8 per cent of News's operating earnings. In the latest year, the Avatar cash tsunami inflated its contribution to 34 per cent.
The best thing News Corp investors can do with the Avatar effect is ignore it: you don't get an Avatar or a Titanic every year, or even every decade.
While cash flow in the movie business is a protracted affair, with cinema ticket sales dominating year one and follow-on sales on platforms including DVDs and TV following, News's long-term numbers suggest that despite its Imax-sized contribution in 2009-10, Fox Film is on a path to becoming a less influential earnings driver for News.
In the years immediately after Titanic, Fox Film had some fabulous results, but, more recently, its contribution to the group's total operating profit has been declining, from almost 30 per cent in 2004-05 (remember Day After Tomorrow, Alien vs. Predator, Garfield, Dodgeball, I, Robot and Napoleon Dynamite?) to just over 28 per cent in 2005-06 (Ice Age: The Meltdown, Walk the Line, Fantastic Four, X-Men), 27.5 per cent in 2006-07 (The Devil Wears Prada, Borat, Night at the Museum, Little Miss Sunshine), 23.1 per cent in 2007-08 (The Simpsons Movie, Live Free or Die Hard, Alvin and the Chipmunks, Fantastic Four, Juno) and 23.8 per cent last year (Fox did not highlight any blockbusters).
Fox Film is a major Hollywood player and it will expect Avatar to continue to shine this financial year, as it is distributed more widely. It is already the biggest-selling Blu-ray disc. James Cameron is also preparing a re-release of Titanic, this time in 3D, and you wouldn't want to bet against it doing well.
But if you were looking at News's results in recent years and guesstimating the profit contribution that the film division might make in coming years, you might choose about 20 per cent of group profit - and if that had been the contribution in the year to June 2010, News's result would have been less buoyant.
Film would have contributed $US791 million, and News's total operating profit would have been $US3401 million - $US157 million, or 4.4 per cent, less than it was in 2008-09 before global crisis-related asset value write-downs.
That is not to say that a long-term decline in the contribution that movies make to earnings is a problem.
In fact, so far, it has been a sign of gathering strength. Fox's movie business was becoming less of a swing factor in News group profits before the latest result because other parts of News were growing faster - the Fox cable TV programming division, in particular.
Fox cable is the unit that houses the News Corp stable of pay TV channels, including Fox News, and it is now News's No. 1 earner, having boosted its share of group operating profit from about 20 per cent five years ago to no less than 57.3 per cent in the latest year after a 37 per cent leap in operating profit from $US1653 million to $US2268 million.
Movie industry profits are volatile. In the rare ''Cameron years'', like the one just reported on, that's a great thing.
In the more common Cameron-less and occasionally fallow years, the bulked-up cable TV operation is an increasingly fat cushion.
mmaiden@theage.com.au