Fox’s cable TV business made up the vast majority of News Corp’s profits for the quarter ending March 31, contributing $993 million of the $1.36 billion in operating income for the period. Total revenues were $9.54 billion, up 14 percent over the previous year.

The overall home video market is up five percent and “we’re up a bit more than that,” Carey said. “The driving force is digital…the overall marketplace continues to grow really well, and digital is becoming a growing part of what we do.” He also said that the DVD business has stabilized, “with Blu-Ray offsetting the decline in the older formats,” and that “really low-priced rentals” through services like Redbox  are “becoming less of a force.”

In response to an analyst’s question about the future of Hulu, Carey said that the service has “great momentum,” and “we’re particularly excited about subscriptions” through Hulu Plus. “There’s an important role for Hulu Classic in the marketplace,” he said, but “we need to develop the dual-revenue side of it.” In a few years, he said, “Hulu will look a bit different than it does today,” partly in response to changes in Netflix’s business: “Netflix talks about evolving their business to somewhat different business models” (he didn’t elaborate on what those are).

When asked to offer general advice to the broadcast networks, Carey said they are still the “viewership leaders,” but acknowledged the networks might need to “be a bit more targeted in the types of series [they] invest in…networks have been more about the volume game, stuck in historical practices…Do you need to break some of those rules? The answer is clearly yes.”

Succession

Lachlan Murdoch may yet end up running one of the companies some day but his father smacked down speculation that he will be the publishing CEO post-spin. FBN’s Neil Cavuto, did the house interview but also asked some of the same questions many of us would. Cavuto inquired about the fate of sons Lachlan, who left the company but is not on the board, and James, the deputy COO who was hit hard by the hacking scandal. Murdoch quickly reminded him (as he did another interviewer later) that he also has a daughter involved with the company. Cavuto shrugged that off and asked again about expanded roles for Lachlan and James. Murdoch’s reply:

“Well, they have to earn it, and they have to want it.”

He added, “Lachlan is very happy running his own businesses in Australia. And he loves living there. So we’ll see.”

Pushed on Lachlan as publishing CEO, Murdoch replied: “I think that is highly unlikely.” Cavuto didn’t ask the same question about James, and he seems to have forgotten about Elisabeth, who came back to News Corp. when it acquired her Shine production company. She has yet to join the News Corp. board as planned.

Murdoch’s succession plans have long been a concern and a matter of great interest, especially for investors. During an interview on CNBC, Murdoch, 81, passed up a chance to talk up Chase Carey as his successor, opting first for a flippant “you’ll have to talk to my board after they bury me” — before admitting there probably would come a time when he shouldn’t run the company. Carey, deputy chairman and COO of News Corp., is slated to be president and COO of the media and entertainment company; Murdoch touted him as his successor last year. But now he’ll need two.

What about James? Faber asked if James Murdoch, who has been under fire for his management of UK publishing unit News Int. as part of the hacking scandal that broke last July, has a damaged reputation now that would keep him from following his father. Murdoch defended his son, saying that if anyone’s reputation had been damaged, it was his own.

Publishing

And what about a CEO for publishing? (Someone not involved suggested to me this week that the best punishment for James, whose greatest success has been with BSkyB and other pay TV, would be to give him that job.) Murdoch said repeatedly that the expected length of the process, about a year, provides “plenty of time to make up our mind who actually will be CEO at my right hand.” He told Bloomberg News, ” We’ll be working exactly as we are today for approximately 12 months, and within that time, I will make my choice. … Unless there’s something very extraordinary I think it would be internal.”

That would seem to make Lex Fenwick, the new CEO of Dow Jones, a leading contender. Murdoch called Dow Jones the “center” of the new company, stressing its global expansion plans and paying digital subs. He also told CNBC he was considering a name change for the Wall Street Journal to WSJ.

Murdoch insists the publishing company not only can survive on its own, but can grow, telling Bloomberg’s Liu: “It will have a positive cash flow from day one with the assets going into it and it will have no debt. It will also have cash reserves. We have as a company very large reserves of cash in the bank earning next to nothing.”

Some of those billions are being used for the share buyback that helped the stock price improve following the hit from hacking and the loss of the deal to buy the rest of BSkyB.

He told CNBC: “We throw off plenty of cash in Australia but we reorganizing so we’ll throw off more. We’re making cash in Britain, not as much as before because News of the World is gone and we started the Sunday Sun. Dow Jones is very cash positive.”

Although revenue has been shrinking, the publishing division is firmly in the black without assets like investments in Australian pay TV being added. What about cost cutting? That’s already been going on at various properties. Murdoch told Liu, “We are going through a reorganization in Australia, which will result in cuts; we have some reorganizing starting in Britain. Here at the Wall Street Journal, we’re going to be as efficient as we can, of course. I would say net net around the world, we’ll be increasing our numbers and increasing our costs — and hopefully increasing our revenues.”

The new company will have enough to keep investing and experimenting but Murdoch told the Financial Times each paper ultimately will be expected to stand on ts own:

“You’re not going to see any print losses tolerated anywhere. We may start something that’ll take three years to turn a profit, or we’ll have maybe a bad time.”

The patron saint of paywalls

Murdoch wants to be viewed as the patron saint of paying for content, claiming that he was the first to say people should pay for digital news. It’s a dubious claim, even within his own company given that the WSJ’s subscription plans far predate News Corp.’s ownership — and that he initially promised to make WSJ.com completely free.

But he is passionate about it and about experimenting with it, investing $30 million in The Daily, the digital-only tabloid that launched on the iPad, implementing paywalls at the Times of London and Sunday Times, charging for apps, and earlier, selling Kindle subscriptions.

Why now?

Murdoch freely admits that he was the roadblock all along but it doesn’t sound like there was an “a ha moment” that changed his mind the split. His COO Chase Carey and CFO Dave DeVoe were among those internally who have pushed for the change, long urged by some investors and analysts. He told Cavuto, “They (Carey and DeVoe) look at the markets and I don’t — to the same extent. What brought me to it was after resisting … I’ve been 58 years building a company, gradually. …I realize the logic of it and how all the companies would be managed better, would be a lot better in every way.”

At CNBC, he added, “Frankly, I finally considered it, pros and cons. A couple of months, several weeks ago, I finally reached the conclusion I was right about it.”

It was time to change. The performance of other companies post-split helped sway him. “I think we’ve seen it at IAC … there’s now a Diller premium,” he joked with Faber. That’s a reference to a term — “Diller discount” or, in this case, a “Murdoch discount” — where the value of a company is depressed because of the majority shareholder’s control.

No, Britannia

Murdoch continues to resist linking the decision to the situation in England, when the uproar over phone hacking at the newspaper subsidiary dovetailed with efforts to buy the stake in BSkyB — and derailed it. News Corp. pulled the bid rather than face a regulatory decision on whether a company led by Rupert and James Murdoch was morally fit to own the pay TV operator, even after public apologies and the closing of the lucrative but damaged News of the World. Both were called to testify in various British proceedings and the fallout continues. Numerous ex-employees have been arrested.

But the events of the past year clearly soured him on investing much more in Britain. He first let loose with Cavuto (see the video clip at the top), telling him about BSkyB: “No, I think we have moved on in our own thinking from that. There were billions and billions of dollars and if Britain didn’t want them we have good places to put them here. I am much more bullish on America than I am about England.”

His repeated negative comments about investing in England plus his decision to be CEO of the larger company rather than the newspapers quickly led to conclusions that he was giving up on the papers there, too:

following @sdkstl on Murdoch. Unless I am reading it wrong it looks like the beginning of the end of the UK papers as Murdoch’s property

— emily bell (@emilybell) June 28, 2012

After listening to a few Murdoch variations, I think the message was aimed primarily at shutting down talk of a renewed BSkyB bid post split. But his attitude could come back to haunt. I also wouldn’t read Murdoch being chairman but not CEO of publishing as a sign that he’s pulling away.

But it is the pending end of an era.

@RupertMurdoch

One media outlet Murdoch has skipped so far: Twitter. The last time he tweeted out to his nearly 259,000 followers was June 24 and it was to scold Mitt Romney for his failures as a campaigner.

Now, faced with low profit margins and revenues shrinking for many of the publishing properties on an accelerated pace — and in a glaring spotlight thanks to the hacking scandal in the UK — it looks like Murdoch has budged. News Corp.’s Wall Street Journal reported late Wednesday that the board has agreed in principle to a split. An announcement could come before the market opens.

The likely result, which could take a year to make it through the process, will be a publishing company that should have a few profitable years left while it retools for the future (my colleague Mathew Ingram has some ideas), — and an entertainment company that no longer will be able to blame publishing for lowering its value. The news publishing spinoff also should take the company’s name with it because what will be left isn’t News Corp.

For now, think of it instead as 21st Century Fox, a global blend of television; cable programming; satellite programming and distribution; a major movie studio with other nimble film brands; and a significant web presence and various digital properties. In the first nine months of News Corp.’s fiscal 2012, which ends June 30, those assets accounted for roughly $4.1 billion operating profit on $18.6 billion in revenue.

The News Corp. board met Wednesday in New York to resolve the restructuring. Murdoch’s scheduled an interview with Neil Cavuto on Fox Business News at 10 a.m. Thursday Eastern, a tradition whenever he has a message to get across. Cavuto promises “big news there that could shake your idea of what media companies in the future look like, and a good bellweather for the economy,”according to TVNewser.

But, unless Murdoch is going to try something Barry Diller-ish and spin multiple companies, here’s the outline of 21st Century Fox with Rupert Murdoch still at the head and current News Corp. COO Chase Carey, the former CEO of DirecTV, still leading operations and strategy:

Cable: Even though there’s been a little slowdown in the U.S. cable industry lately, cable brings in the most money now and remains the biggest opportunity, especially when it comes to international. With revenue from license fees as well as advertising, the Fox Cable Networks, including Fox News, FX, the Fox sports regional networks, National Geographic (U.S. and worldwide), accounted for $2.5 billion in operating profit on $6.6 billion in revenue the first nine months of fiscal 2011. While cord cutting is an issue, the biggest drain is something that can’t be avoided in this environment — rights to live sports events. The future here relies on reigning in costs; finding efficient ways to sell advertising across platforms; developing programming that draws viewers and users across platforms; making money from non-linear viewing; and expanding internationally. (News Corp. recently announced an agreement to buy out equal partner ESPN’s 50 percent stake in ESPN STAR Sports (ESS), giving it a stronger hold in Asia.) Cable faces the same challenge to remain relevant to distributors but is even more at risk because of its reliance on the license fees that provide steady income even when advertising is iffy.

Television: The Fox broadcast network and the company’s 27 owned-and-operated television stations are responsible for $3.6 billion in revenue so far this year, with $493 million in operating profit. Revenue is cyclical on the network and local levels, and more at the whim of the economy than cable with its multiple revenue streams. Retrans fees are a relatively new source of income and could be at risk in a TV Everywhere world. That’s one reason Fox is trying an eight-day window for steaming its shows.

Local can ebb and flow with the network’s success with programming. . To move ahead, the local outlets will have to continue to consolidate and do more with less, while serving as an invaluable local resource across platforms and growing digital revenues. Very tricky.

Filmed entertainment: Done right, movie studio 20th Century Fox and the TV studios produce the gifts that keep on giving, providing content that moves from screen to screen and can be sold or syndicated in a variety of ways. For example, a $24 million increase in revenue in the third quarter was attributed not only to successful movies but to increased revenue from licensing TV shows for streaming along with traditional syndication deals for hit shows. The division made $1.7 billion on $5.5 billion in revenue over the first nine months. The group has been careful in some respects with digital but also willing to experiment with bundling digital downloads with DVDs, cloud-based options and other efforts to increase ways to make money from shows or movies while protecting it as IP. Those efforts will need to move up the scale in terms of payout.

Direct Broadcast Satellite Television: The entertainment group also likely would include Sky Italia, the Italian satellite subscription service. It’s shown a slight improvement in revenue but is also at the mercy of Italy’s tough economy. Its revenues have barely budged year over year but profits are up despite losing subscribers. With only $165 million in profit from nearly $2.8 billion in revenue, it’s hard to see where this will fit. But News Corp. is looking for other opportunities in pay TV, especially since the hacking scandal stymied efforts to acquire the rest of BSkyB. It recently made a buyout offer to acquire of Australia’s Consolidated Media Holdings, which would double its stake in Australian pay-tv provider Foxtel.

News Corp. still owns 39.1 percent of BSkyB and other international entertainment investments, in addition to its stake as a founding joint equity party in Hulu. It’s hard to see a scenario where they wouldn’t stay with the entertainment assets but it’s always possible Murdoch and company have something surprising in mind.

Could this new version deliver on the newspaper-less high expectations? It would have all the right pieces but a lot of those pieces are traditional media facing traditional challenges. Being 21st Century Fox will take making the most of the traditional income and finding a faster path to a more digital future than News Corp. did with newspapers.

Post-decision update: When the plan to start the spin-off process was announced Thursday, the only key difference between the two companies as I described them above was a surprise twist regarding Foxtel. Turns out all the Australian assets will stay together, with the Foxtel and Fox Sports investments going to publishing along with the papers and digital properties. The pay TV properties staying with the media and entertainment company are Sky Italia and Sky Deutschland.

News Corp. is stressing “media and entertainment” to cover the broadcast and digital outlets that stay with the larger company.

If the spinoff comes through, Rupert Murdoch will be chairman of both companies and CEO of the larger one Carey as president and COO. A CEO for publishing hasn’t been decided, Murdoch told interviewers during his media tour Thursday. Two clues: son Lachlan joining the company in that role is “extremely unlikely” and the most likely candidates are already at News Corp.

Truth be told, Sarandos (pictured left with his better angels and worser devils) told a morning panel that also featured Time Warner CEO Jeff Bewkes and News Corp. deputy chairman Chase Carey, and which was moderated by CNN personality Piers Morgan, Netflix’s impact on the multichannel business is far from “black and white.”

“We’re additive to certain programs,” he told the audience, that included entertainment trades Deadline Hollywood and the Hollywood Reporter. “We’re additive to certain programs. Whether we are cannibalistic or not to other programs, I don’t know. We have billions of hours of viewing, so we are going to take away from something.”

Patrick Esser, president of the No. 5 pay TV service in the U.S., Cox Communications, summed up Netflix’s role as a teenager might break down a dichotomous classmate: the company is simply a “frenemy” to the pay TV industry.

Moderator Morgan brought up a recent hot media-on-media story, which has tied double-digit ratings losses for Viacom-owned kids channel Nickelodeon to tikes choosing to stream shows like Dora the Explorer on Netflix.

Sarandos denied a direct connection between his company’s streaming deal and ratings drops on Nick.

“People’s tastes are so diverse that no specific network and no specific show has such high viewing concentration that you’d see that kind of cause-and-effect on ratings,” he explained.

The flip side of that story is that AMC’s popular adult dramas, Mad Men, Breaking Bad and The Walking Dead, have reportedly received ratings help from the streaming service, with new viewers turned on by watching legacy seasons of these shows on Netflix.

Perhaps belying his earlier deflection regarding Nick, Sarandos definitely sees a connection on that positive interaction.

“In the gap between season four and season five, we brought maybe 1 million new viewers to AMC,” he boasted. “There were people who had four years to watch the show and didn’t. Because we gave them a good opportunity and a well-priced model (they were able) to catch up on the show.”

Netflix’s positive impact on the broadband business was also brought up.

Esser noted that in March, about 40 percent of Cox’s nearly 4.8 million subscribers were streaming Netflix — a boost to the cable company’s high-speed internet services.

Fenwick has been at Bloomberg for the past 25 years, most recently as founder and CEO of VC fund and startup incubator Bloomberg Ventures. Before that, he was CEO of Bloomberg LP. His new position is effective February 13. He will report to Chase Carey, President and COO of News Corp.

The Financial Times reported last week that Fenwick was in the running for the Dow Jones CEO position, noting “the talks with Mr Fenwick surprised some media executives, who noted his limited experience with advertising, one of the biggest sources of revenue for the Wall Street Journal, and with editorial operations. Bloomberg News was under the command of Matt Winkler while Mr. Fenwick was chief executive.”

In a statement, News Corp. chairman and CEO Rupert Murdoch said, “We have clearly established WSJ as the premium consumer newspaper and we are thrilled that Lex will be driving our plans to grow all our Dow Jones franchises into true innovative market leaders for today’s digital world. We believe our enterprise business has the potential to follow the brand’s success in the consumer space, and be the premier product in providing the kind of hard-to-find, premium content that the financial customer demands. We are committed to making it happen and we think Lex is the executive to get us there.”

release

Below, some as-it-happened commentary via tweets from Staci D. Kramer (@sdkstl), Robert Andrews (@RobertAndrews) and other media figures — including Rupert Murdoch biographer, the outspoken Michael Wolff:

[Permalink to Storify timeline embedded below]

The stage is already being set for a possible transition. Early Monday evening, Bloomberg reported that some independent directors would seek to replace Murdoch with Carey should his performance in front of the Culture Committee go awry, quickly countered with variations that have Murdoch considering the move on his own. Of course, both can be true — if the independent directors lose confidence, he can opt to jump rather than be pushed.

The stakes are even higher for son James, who has managed his public appearances during the unfolding scandal fairly well (aside from the unfortunate bits about keeping Rebekah Brooks on), especially for someone who can have a sharp tongue: his shot at succession, his chairmanship of BSkyB (NYSE: BSY) — and avoiding potential ammunition for eager prosecutors.

Brooks, who resigned as chief executive of News International Friday and was arrested, then released without being charged Sunday, is the highest ranking News Corp. executive to be arrested so far.

Her lengthy questioning that day has heightened speculation about the potential danger to James Murdoch, who was her boss in recent years and personally authorized high payments to hacking victims. He has said he regrets having agreed to the payments. Those payments are the biggest question mark for him in a scandal riddled with questions: were the hefty payments packaged with non-disclosure-agreements meant to thwart investigations into illegal practices by News of the World. She still plans to testify Tuesday in a separate session from the Murdochs.

Carey being upped to CEO wouldn’t obliterate the chances for James to be CEO one day; if he can avoid the personal legal fallout, Carey potentially could give him the cover he’ll need for exec rehab.

More to come — and more details in our News of the World archive.

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