Fox's Earnings Trot

Fox (NYSE:FOX) reported earnings for its first quarter yesterday, and it was an interesting tale of two accounting methods. Let's hunt down some of the salient highlights and see what we find.

If you want to ignore depreciation and amortization and all of that, what you get is growth in operating income on the order of 9% to $744 million. However, net income declined year over year by 20% on a dollar basis, coming in at $320 million ($0.33 per diluted share) versus $401 million ($0.45 per diluted share) in 2003. Net revenues grew 5% to about $2.9 billion.

Taking a look at individual operating segments, we see different trends. Filmed entertainment operating income (once again, before depreciation and amortization) declined 11% to $306 million. The television station group was essentially flat, while the broadcast network itself lost $4 million, instead of $41 million like it did last year.

The cable segment grew 44% to $206 million; this is to be expected, as cable channels typically do well compared with their network brethren, mainly because networks have higher-priced programming needs. Disney's (NYSE:DIS) ABC, Viacom's (NYSE:VIA) CBS, and General Electric's (NYSE:GE) NBC are all in the same boat. Those companies' film units -- I'll throw Motley Fool Stock Advisor recommendation Time Warner (NYSE:TWX) into the mix as well -- are also battling increased costs because of the development of movie projects, and this tends to be a drag on such media outfits. Fox reports that marketing expenses on films such as I, Robot and Alien vs. Predator helped keep income in that segment down.

Prime-time ratings declined by 12%, which meant that even though lower programming obligations improved the loss structure, a positive number couldn't be achieved. I have a feeling that the next report should bring in some better news for the overall ratings picture and the broadcast segment, since the recent baseball frenzy with the Red Sox certainly must have helped this segment to one degree or another. I am not much of a sports person, so I can't say that I was an asset to Mr. Murdoch in this regard (I did, however, see both I, Robot and the Alien film).

For the most part, this quarterly report didn't impress me. I'm not enamored with the 5% revenue growth and would definitely need to see an improvement in the movie and broadcast operations. Of course, this is only one quarter, and it is entirely possible that Fox will report a good full fiscal year, as Rick Munarriz noted back in August.

I do believe in the business model of the synergistic union between platforms and film/TV libraries, but the inflation of costs associated with such a marriage must be controlled. Hopefully, media companies will figure out better ways of achieving this goal.

To see recent articles on Fox, click on:

• Fox and the Hounds
• Will Fox's Bowl Runneth Over?
• The Force Is With Fox
• Fox Hunts
• Alien and Predator, Together Forever?
• Red Sox in the Big Show

Fool contributor Steven Mallas owns shares of Disney and General Electric.