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The folks at News Corp. are no doubt pleased about a 76 percent jump in third-quarter operating profits at the company's film and TV production unit, largely the result of the earnings generated from "Avatar" (here's the LAT story). Companywide, operating income jumped to $1.3 billion from $810 million. But net income for the three month period was down 69 percent from a year earlier, when the company took a $1.2-billion one-time gain. So which do you go by: Operating income or net income? Generally, net is considered a better measurement because it takes into account all aspects of a business. It's the ultimate bottom line. But in Sarah Ellison's new book, "War at the Wall Street Journal," Murdoch lieutenant Robert Thomson is seen favoring operating income. From the Vanity Fair excerpt:
On February 4, 2008, News Corp. released its quarterly earnings for the first time as the official owner of Dow Jones. The company reported a 24 percent increase in operating profit, though its net income rose only fractionally--just 1 percent. Thomson strolled by [former Managing Editor Marcus] Brauchli's office and said, in a stage whisper, "Operating profit, operating profit, operating profit." Brauchli was initially puzzled but then realized that Thomson must be referring to the earnings release. Brauchli brought Thomson into his office and explained that the Journal always emphasized net income first in its stories, since that figure took into account taxes, depreciation, and all the other costs that affected a business's performance, and the paper considered it the most important figure in a company's earnings release. Any other number allowed a corporation to include or exclude various charges and other figures that could make the earnings appear rosier. "Oh, don't change the standard, then," Thomson replied. "Just be consistent." The following day, Brauchli was amused to see that the New York Post's story on the topic led with a "record" increase in operating income.
Brauchli is long gone as ME, but the Journal still led with net income in this afternoon's News Corp. story.
Mark Lacter created the LA Biz Observed blog in 2006. He posted
until the day before his death on Nov. 13, 2013.