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News Corp profit up on ad recovery, Avatar

News Corp's results beat expectations thanks to “Avatar” and improved advertising sales, and the company raised its outlook and dividend in a sign of confidence for the battered media sector.

The 25% dividend increase announced on Tuesday by Rupert Murdoch's media conglomerate would have been unthinkable a year ago, when crumbling ad revenue decimated TV and newspapers, and sales of DVD and books also cratered.

While the media business still has obstacles, fortunes have started to improve with the economy. Investor interest in media has also been rekindled by a new generation of devices from the likes of Amazon.com and Apple Inc.

News Corp Chief Executive Rupert Murdoch was extremely bullish on a conference call with Wall Street analysts and journalists, saying the company's future would benefit from the willingness of customers to pay for quality content.

“Content is not just king, it's the emperor of all things electronic,” he said.

News Corp shares, which have risen 21% in the last six months, gained another 5.7% after the rosy quarterly results. The company also raised its outlook, saying fiscal 2010 income should climb in the low 20% range.

Perhaps nothing points to a recovery in the entertainment business as clearly as the success of the blockbuster 3-D movie “Avatar,” which has had more than $2 billion in ticket sales, overtaking “Titanic” to become the biggest movie of all time.

It earned nine Oscar nominations and News Corp said 50% or more of the profit from the James Cameron-directed film would show up over the next two or more quarters. News Corp said it was in early talks for a sequel.

“Jim has ideas for one,” said Murdoch. “We haven't come to any agreement with him or budgets or timing or anything.”

But Murdoch made clear that News Corp would not be interested in acquiring film studios of MGM at reported valuations or Walt Disney Co's Miramax. Both film companies are said to be up for sale.

“At the right price, we'd be interested,” Murdoch said on MGM. “But it appears that other people are more interested so I think you can count us out of that one altogether.”

Behind the strength of “Avatar” and better ad climate, News Corp posted fiscal second-quarter net income of $254 million, or 10 cents a share. That includes a $500 million litigation settlement payout to Valassis Communications.

A year earlier, News Corp posted a net loss of $6.4 billion, or $2.45 a share, which reflected a major writedown for its purchase of Dow Jones, and other items.

Excluding charges in both periods, second-quarter adjusted profit was 25 cents a share, up from 15 cents a year ago. Analysts were expecting 20 cents a share on average, according to Thomson Reuters I/B/E/S.

Revenue rose a better-than-expected 10% to $8.7 billion.

“Basically every division outperformed, the ad market is back and newspapers are probably the best outperformer on the operating incoming,” said Miller Tabak analyst David Joyce.

The dividend increase shows the confidence management has in growing operating income for the fiscal year, Joyce said. News Corp will raise the quarterly dividend to 7.5 cents.

Operating income at News Corp's Hollywood studio business nearly tripled to $324 million, while the Fox cable programming unit posted 35% growth in operating profit. And ad sales improved at both the television and newspaper divisions.

The newspaper unit posted a 30% rise in operating income because of higher ad revenue at The Wall Street Journal, lower expenses and favorable foreign exchange rates.

Murdoch had been among the most vocal advocates of the newspaper industry moving to a paid digital model, and has blazed a trail with WSJ.com. He said more digital-newspaper subscription models would be rolled out in the coming months.

He has also set his focus on mobile devices -- the most buzzed-about growth area for TV shows, newspapers, movies and books -- and complained that Amazon's book pricing for e-reader devices like the Kindle devalues the publishing industry.

Murdoch said Amazon.com was prepared to renegotiate over e-book pricing.

Though the company does not break out numbers for MySpace, the unit that houses the social networking site saw its earnings contributions decrease by $32 million during the quarter because of lower search and advertising revenue. (Reuters)