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Chernin Downplays Sports-Tiers Talk

5/18/2003 8:00 PM Eastern

News Corp. president Peter Chernin did his best to downplay possible moves of Fox regional sports networks onto separate pricing tiers.

"Our services are fairly priced," Chernin said during a conference call with reporters to discuss News's first-quarter results last week. "If you look at the margin on the sports business, they are far, far lower than ESPN and it's a much lower margin than many, many other basic cable channels. The idea that we are taking an undue profit on the sports business is just not true.

"Any cable operator or anyone who really analyzed these services correctly would pretty quickly come to the conclusion that News Corp. or Fox is not gouging them in terms of the profit or the margin we are taking out of those businesses."

Earlier, on a call with analysts, Chernin said that News could look to raise affiliate fees for some of its cable networks, particularly Fox News Channel.

CNN disparity

"We're very cognizant of where our rates are relative to others. Clearly our rates are currently below CNN, which is a joke. And you know we'll maximize that. But we're not going to pre-negotiate on this call."

As his $6.6-billion deal to buy control of direct-broadcast satellite giant DirecTV Inc. wends its way through regulatory channels, News chairman Rupert Murdoch downplayed cable operators' fears of the combination.

It could have been much worse for cable had EchoStar Communications Corp. (whose earlier bid for Hughes was rejected by regulators) prevailed, he said.

"The cable operators, because we are something of an unknown quantity, were worried earlier about it but not now," Murdoch said. "There is no question that if EchoStar got Hughes, it would have been a massive company and a very competitive force against cable. We intend to grow that way. The idea that they [operators] preferred [EchoStar] to us, there is not much impetus for that."

Murdoch said some of his executives have met with DirecTV engineers, but dampened speculation that News Corp. would replace senior DirecTV management with executives from its U.K. DBS holding British Sky Broadcasting Group Plc.

Earlier speculation had BSkyB CEO Tony Ball in line to replace DirecTV president Roxanne Austin.

News numbers

"We had a meeting with the main engineers of DirecTV last week, and we had senior engineers from Sky as well as Fox there," Murdoch said. "We'll be pulling these things together as much as we can. But there is no plan to have a contingent of executives move in to run DirecTV as such."

News Corp. reported strong growth in its fiscal third quarter, led by its cable and broadcast networks.

Revenue rose 14%, to $4.39 billion, and operating income rose 25%, to $685 million.

Cable networks revenue rose 17%, to $545 million, and operating income rose 16%, to $95 million, spurred by strong ratings and advertising revenue growth at Fox News Channel and FX and higher affiliate revenue at its regional sports networks.

At its television stations and broadcast network, strong 32% ratings growth drove operating income up 82% ($93 million) to $207 million on revenue of $1.1 billion (up 4.9%).

News Corp. raised its 2003 operating income guidance from the mid-to-low 20% range to the low 30% range.

September