News Corp profits drop 25% but UK newspapers thrive

News Corporation, the global media company owned by Rupert Murdoch, yesterday counted the cost of higher newsprint prices, the sale of its educational publishing division and the end of the Net Book Agreeement by announcing a 25 per cent drop in net profits to A$1.02bn (pounds 650m).

But the company's decision to raise prices in its UK stable of newspapers helped boost half-year operating profits at News International, Mr Murdoch's British subsidiary, by 25 per cent to pounds 153m.

Advertising revenues for the UK titles, including the Sun, Times, News of the World, and Sunday Times, rose 7 per cent overall, with the Times adding 20 per cent in the wake of its scaled-back price war.

News Corporation said it expected better times ahead, with profits rising by at least 20 per cent in the full year.

Peter Macourt, chief financial officer at News Ltd, the Australian arm of News Corp, said: "I think the result is pretty close to expectation. I mean, it is slightly down because of the book publishing result. We do have a very positive outlook in the next year."

Despite his comments, shares in News International fell 14p to 346p on disappointment over News Corp's results. In Australia, News Corporation shares closed 7 cents down at A$6.40.

Steve Hiscock, head of equities at National Australia Asset Management, said: "It was fractionally disappointing give market expectations."

Paul Xiradis, associate director at BZW Investment Management Australia, said: "Clearly the market is saying it is disappointed. They did appear to put in all the bad news and write off quite a few things in this last quarter and things should start improving."

Despite the drop in profits News Corp cited the success of its summer film, Independence Day, which will contribute at least pounds 60m to the company's year-end profits.

However, analysts pointed to other films which have been far less successful than was hoped for, including Great White Hope and Periscope.

Mr Macourt said: "We had a disappointing year in the film production side of the business where we really didn't have any box office hits. It happens in the movie business."

But he cited high revenues from the Star Wars trilogy, which sold 29 million copies of its re-released videos, as a mitigating factor.

The drop in profits includes a loss of A$243m from the sale of the educational books division of Harper Collins, a News Corp subsidiary.

Revenues at Harper Collins dropped from A$1.52bn to A$1.23bn, while operating income halved to A$90m. Mr Macourt blamed part of the fall on the ending of the Net Book Agreement.

"The fact is, I think, that most publishers expected the lower [book] prices to result in higher volumes and it did not happen," he said.