SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x ~~Quarterly~~QUARTERLY ~~report~~REPORT ~~pursuant~~PURSUANT toTO ~~Section~~SECTION 13 orOR 15(d) ofOF ~~the~~THE ~~Securities~~SECURITIES ~~Exchange~~EXCHANGE ~~Act~~ACT ofOF 1934 ~~for the quarterly period ended December 31, 2003~~

orFor the quarterly period ended December 31, 2004

¨OR ~~Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to~~

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-14595

FOX ENTERTAINMENT GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware		95-4066193
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
1211 Avenue of the Americas, New York, New York		10036
(Address of Principal Executive Offices)		(Zip Code)

1211 Avenue of the Americas, New York, New York		10036
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code (212) 852-7111

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes x No ¨

As of February 112, ~~2004~~2005, 426,959,080 shares of Class A Common Stock, par value $0.01 per share, and 547,500,000 shares of Class B Common Stock, par value $0.01 per share, were outstanding.

FOX ENTERTAINMENT GROUP, INC.

FORM 10-Q

TABLE OF CONTENTS

		~~Page~~	Page
Part I. Financial Information
~~Item 1.~~	~~Financial~~Item ~~Statements~~1.	Financial Statements
	Unaudited Consolidated Condensed Statements of Operations for the three and six months ended December 31, 2003 and 2002	3
		Unaudited Consolidated Statements of Operations for the three and six months ended December 31, 2004 and 2003	3
	Consolidated Condensed Balance Sheets as of December 31, 2003 (unaudited) and June 30, 2003 (audited)	4
		Consolidated Balance Sheets as of December 31, 2004 (unaudited) and June 30, 2004 (audited)	4
	Unaudited Consolidated Condensed Statements of Cash Flows for the six months ended December 31, 2003 and 2002	5
		Unaudited Consolidated Statements of Cash Flows for the six months ended December 31, 2004 and 2003	5
	Notes to the Unaudited Consolidated Condensed Financial Statements	6
		Notes to the Unaudited Consolidated Financial Statements	6
~~Item 2.~~	~~Management’s~~Item ~~Discussion and Analysis of Financial Condition and Results of Operations~~2.	18Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
~~Item 3.~~	~~Quantitative~~Item ~~and Qualitative Disclosures About Market Risk~~3.	32Quantitative and Qualitative Disclosures About Market Risk	27
~~Item 4.~~	~~Controls~~Item ~~and Procedures~~4.	32Controls and Procedures	27
Part II. Other Information
Item 4.	Submission of Matters to a Vote of Security Holders	33
	Item 6.	Exhibits and Reports on Form 8-K	28
Item 6.	Exhibits and Reports on Form 8-K	33
	Signature		29
Signature		34

FOX ENTERTAINMENT GROUP, INC.

UNAUDITED CONSOLIDATED ~~CONDENSED~~ STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

	For the three months endedDecember 31,						For the six months endedDecember 31,
	For the three monthsended December 31,						For the six monthsended December 31,
	2003			2002			2003			2002
	2004			2003			2004			2003
Revenues	$	3,~~380~~943		$	3,~~150~~380		$	6,~~138~~832		$	56,~~494~~138
Expenses:
Operating		2,~~489~~812			2,~~296~~489			4,~~275~~660			34,~~882~~275
Selling, general and administrative		~~289~~337			~~309~~289			~~608~~664			~~631~~608
Depreciation and amortization		4442			4544			8681			9286
Operating income		~~558~~752			~~500~~558			1,~~169~~427			~~889~~1,169
Other income (expense):
Other (expense) income:
Interest expense, net		(1570	)		(4915	)		(23136	)		(9523	)
Equity earnings (losses) of affiliates		(2	)		(12	)		5			(10	)
Equity (losses) earnings of affiliates		(29	)		(2	)		(126	)		5
Minority interest in subsidiaries		(1	)		(7	)		(3	)		(16	)
Other, net		39			(7	)		39			19
Other, net		(7	)		—			19			—
Income before provision for income taxes and minority interest in subsidiaries		692			534			1,204			1,170
Income before provision for income taxes		533			432			1,167			768
Provision for income tax expense on a stand-alone basis		(259	)		(203	)		(448	)		(436	)
Provision for income tax expense on a stand-alone basis		(203	)		(149	)		(436	)		(271	)
Minority interest in subsidiaries, net of tax		(2	)		(1	)		(5	)		(3	)
Net income	$	~~330~~431		$	~~283~~330		$	~~731~~751		$	~~497~~731
Basic and diluted earnings per share	$	0.3644		$	0.3236		$	0.8177		$	0.5881
Basic and diluted weighted average number of common equivalent shares outstanding		~~905~~974			~~874~~905			~~902~~974			~~862~~902

The accompanying notes are an integral part of these unaudited consolidated ~~condensed~~ financial statements.

FOX ENTERTAINMENT GROUP, INC.

CONSOLIDATED ~~CONDENSED~~ BALANCE SHEETS

(in millions, except share and per share amounts)

	As ofDecember 31,2003		As ofJune 30,2003
	AtDecember 31,2004		At June 30,2004
	(unaudited)		(audited)
Assets:
Cash and cash equivalents	$	41161	$	72122
Accounts receivable, net		3,~~382~~964		23,~~647~~002
Filmed entertainment and television programming costs, net		3,~~627~~515		3,~~161~~193
Investments in equity affiliates		8,~~322~~077		18,~~560~~194
Property and equipment, net		1,~~432~~236		1,~~464~~247
Intangible assets, net		8,646		8,663
Intangible assets		8,400		8,400
Goodwill, net		4,816		4,813
Goodwill		4,782		4,758
Other assets and investments		1,~~118~~113		~~919~~1,132
Total assets	$	31,~~384~~248	$	2330,~~299~~048
Liabilities and Shareholders’ Equity:
Liabilities:
Accounts payable and accrued liabilities	$	1,~~704~~706	$	1,~~665~~566
Participations, residuals and royalties payable		1,341		1,141
Participations and residuals payable		1,754		1,395
Television programming rights payable		1,~~312~~001		1,~~397~~102
Deferred revenue		~~408~~353		~~449~~318
Borrowings		~~798~~153		—659
Deferred income taxes		2,~~164~~182		2,~~053~~063
Other liabilities		~~879~~591		~~797~~735
		8,606		7,502
		7,740		7,838
Due to affiliates of News Corporation		54,~~408~~724		~~704~~4,236
Total liabilities		1412,~~014~~464		812,~~206~~074
Minority interest in subsidiaries		329		~~790~~7
Commitments and contingencies
Shareholders’ Equity:
Preferred stock, $.01 par value per share; 100,000,000 shares authorized; 0 shares issued and outstanding as of December 31 and June 30, 2003		—		—
Preferred stock, $0.01 par value per share; 100,000,000 shares authorized; 0 shares issued and outstanding at December 31 and June 30, 2004		—		—
Class A Common stock, $.01 par value per share; 1,000,000,000 authorized; 426,959,080 and 352,436,375 issued and outstanding as of December 31 and June 30, 2003, respectively		4		4
Class A Common stock, $0.01 par value per share; 1,000,000,000 shares authorized; 426,959,080 shares issued and outstanding at December 31 and June 30, 2004		4		4
Class B Common stock, $.01 par value per share; 650,000,000 authorized; 547,500,000 issued and outstanding as of December 31 and June 30, 2003		6		6
Class B Common stock, $0.01 par value per share; 650,000,000 shares authorized; 547,500,000 shares issued and outstanding at December 31 and June 30, 2004		6		6
Additional paid-in capital		15,~~080~~082		1215,~~780~~081
Retained earnings and accumulated other comprehensive income		23,~~248~~683		12,~~513~~876
Total shareholders’ equity		1718,~~338~~775		1417,~~303~~967
Total liabilities and shareholders’ equity	$	31,~~384~~248	$	2330,~~299~~048

The accompanying notes are an integral part of these ~~unaudited~~ consolidated ~~condensed~~ financial statements.

FOX ENTERTAINMENT GROUP, INC.

UNAUDITED CONSOLIDATED ~~CONDENSED~~ STATEMENTS OF CASH FLOWS

(in millions)

	For the six months endedDecember 31,
	For the six months ended December 31,
	2003			2002
	2004			2003
Operating activities:
Net income	$	~~731~~751		$	~~497~~731
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		8681			9286
Amortization of cable distribution investments		6358			63
Equity (earnings) losses of affiliates and distributions		(2	)		13
Equity losses (earnings) of affiliates		126			(5	)
Minority interest in subsidiaries		3			7
Cash distributions received from investees		3			3
Other, net		(1939	)		—(19	)
Deferred income taxes		110			180
Minority interest in subsidiaries, net of tax		5			3
Deferred taxes		120			110
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable and other assets		(~~824~~966	)		(~~1,029~~824	)
Filmed entertainment and television programming costs, net		(~~428~~393	)		(~~265~~428	)
Accounts payable and accrued liabilities		1567			~~205~~15
Participations, residuals and royalties payable and other liabilities		185			395
Participations and residuals payable and other liabilities		359			185
Net cash (used in) provided by operating activities		(80	)		158
Net cash provided by (used in) operating activities		172			(80	)
Investing activities:
Acquisitions, net of cash acquired		(523	)		(~~430~~5	)
Investments in and acquisition of interests in equity affiliates		(7333	)		(8773	)
Other investments		(3026	)		(930	)
Purchases of property and equipment, net of acquisitions		(5062	)		(6350	)
Disposals of property and equipment		—			9
Expenses related to sale of business		(12	)		—
Net cash used in investing activities		(158	)		(580	)
Proceeds from sale of investments in equity affiliates		43			—
Disposals of property and equipment		2			—
Net cash used in investing activities		(111	)		(158	)
Financing activities:
Borrowings		~~338~~—			95338
Repayment of borrowings		(~~276~~507	)		(~~947~~276	)
Increase (decrease) in Minority interest in subsidiaries		1			(1	)
Decrease in minority interest in subsidiaries		(3	)		1
Decrease in Preferred Interests		~~(26~~—	)		(9926	)
Proceeds from the issuance of common stock		—			1,211
Advances from affiliates of News Corporation, net		488			170
(Repayments to) advances from affiliates of News Corporation, net		170			177
Net cash (used in) provided by financing activities		(22	)		207
Net cash provided by financing activities		207			436
Net increase (decrease) in cash and cash equivalents		39			(31	)
Net (decrease) increase in cash and cash equivalents		(31	)		14
Cash and cash equivalents, beginning of year		122			72
Cash and cash equivalents, beginning of period		72			56
Cash and cash equivalents, end of period	$	161		$	41
Cash and cash equivalents, end of period	$	41		$	70

The accompanying notes are an integral part of these unaudited consolidated ~~condensed~~ financial statements.

FOX ENTERTAINMENT GROUP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

Fox Entertainment Group, Inc. (the “Company”) is principally engaged in the development, production and worldwide distribution of feature films and television programs, television broadcasting and cable network programming. The Company is a majority-owned subsidiary of ~~The~~ News Corporation ~~Limited (“News Corporation”),~~ which, as of December 31, ~~2003~~2004, held equity and voting interests in the Company of approximately 82% and 97%, respectively.

The accompanying unaudited consolidated ~~condensed~~ financial statements of the Company have been prepared in accordance with ~~accounting principles~~US generally accepted inaccounting ~~the~~principles ~~United States~~ (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) ~~considered~~ necessary for a fair presentation have been reflected in these unaudited consolidated ~~condensed~~ financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, ~~2004~~2005.

These interim unaudited consolidated ~~condensed~~ financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended June 30, ~~2003~~ 2004 as filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated ~~condensed~~ financial statements and the reported amounts of revenues and expenses during the reporting period. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates.

Certain ~~prior~~fiscal ~~year~~2004 amounts have been reclassified to conform to the fiscal ~~2004~~2005 presentation.

~~Effective~~The ~~for~~Company follows the ~~third~~disclosure-only ~~quarter~~provisions of ~~fiscal 2003, the Company adopted~~ Statement of Financial Accounting Standards (“SFAS”) No. ~~148, “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No.~~ 123,” which requires quarterly disclosure about the method of accounting for stock-based employee compensation and the effect on reported results. The Company follows the disclosure-only provisions of SFAS No. 123 “Accounting for Stock-Based Compensation,” and in accordance with its provisions, applies the intrinsic value method set forth in Accounting Principles Board Opinion (“APB”) No. 25 “Accounting for Stock Issued to Employees.”

The following table reflects the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions for stock-based employee compensation. These pro forma effects may not be representative of future amounts since the estimated fair value of stock options on the date of grant is amortized to expense over the vesting period and additional options may be granted in future years.


	For the three months ended December 31,						For the six months ended December 31,
	2004			2003			2004			2003
	(in millions, except per share data)
Net income, as reported	$	431		$	330		$	751		$	731
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects		(15	)		(17	)		(30	)		(34	)

Pro forma net income	$	416		$	313		$	721		$	697

Basic and diluted earnings per share:
As reported	$	0.44		$	0.36		$	0.77		$	0.81
Pro forma	$	0.43		$	0.35		$	0.74		$	0.77

FOX ENTERTAINMENT GROUP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS

Note 1 – Basis of Presentation - continued

	For the threemonths endedDecember 31,						For the sixmonths endedDecember 31,
	2003			2002			2003			2002
	(in millions except per share data)
Net income, as reported	$	330		$	283		$	731		$	497
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(17	)		(12	)		(30	)		(23	)
Pro forma net income	$	313		$	271		$	701		$	474
Basic and diluted earnings per share:
As reported	$	0.36		$	0.32		$	0.81		$	0.58
Pro forma	$	0.35		$	0.31		$	0.78		$	0.55

Note 2 – Comprehensive Income

In accordance with SFAS No. 130, “Reporting Comprehensive Income,” total comprehensive income for the Company consists of the following:

	For the threemonths endedDecember 31,				For the sixmonths endedDecember 31,
	For the three monthsended December 31,				For the six monthsended December 31,
	2003		2002		2003		2002
	2004		2003		2004		2003
	(in millions)				(in millions)
Net income, as reported	$	~~330~~431	$	~~283~~330	$	~~731~~751	$	~~497~~731
Other comprehensive income:
Foreign currency translation adjustments		3446		834		3456		234
Total comprehensive income	$	~~364~~477	$	~~291~~364	$	~~765~~807	$	~~499~~765

Note 3 – Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R), “Share-Based Payment.” This standard will require the cost of employee compensation paid with equity instruments to be measured based on grant-date fair values. That cost will be recognized over the vesting period. SFAS No. 123(R) will become effective for the Company in the first quarter of fiscal 2006. An illustration of the impact on the Company using a Black-Scholes option valuation methodology is presented in Note 1 – Basis of Presentation.

In October 2004, the American Jobs Creation Act (the “Act”) was signed into law. The Act provides for a special one-time tax deduction of 85% for certain foreign earnings that are repatriated, as defined in the Act. In December 2004, the FASB issued a FASB Staff Position, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004” (“FSP FAS 109-2”). FSP FAS 109-2 allows companies additional time to evaluate the effect of the Act as to whether unrepatriated foreign earnings continue to qualify for the SFAS No. 109 exception regarding non-recognition of deferred tax liabilities and would require explanatory disclosures from those who need the additional time. Through December 31, 2004, the Company has not provided deferred taxes on substantially all of the undistributed earnings of foreign subsidiaries since substantially all such earnings were expected to be permanently invested in foreign operations but has started an evaluation of the effects of the repatriation provision. Whether the Company will ultimately take advantage of this provision depends on a number of factors, including reviewing future Congressional or Treasury Department guidance, before a determination can be made. The range of possible amounts that the Company is considering for repatriation under this provision is up to approximately $300 million. The related potential range of income tax is up to approximately $20 million.

FOX ENTERTAINMENT GROUP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS

Note 34 – Filmed Entertainment and Television Programming Costs, net

Filmed entertainment and television programming costs, net consisted of the following ~~as of~~at:

	December 31,2003		June 30,2003
	December 31,2004		June 30,2004
	(in millions)
Filmed entertainment costs:
Films:
Released	$	732	$	733
Released (including acquired film libraries)	$	689	$	734
Completed, not released		21109		31125
In production		~~614~~496		~~603~~545
In development or preproduction		8667		52
		1,453		1,419
		1,361		1,456
Television productions:
Released		430		481
Released (including acquired libraries)		411		449
In production		221		77
Completed, not released		—		13
		651		558
In production		220		112
Total filmed entertainment costs, less accumulated amortization		2,104		1,977
In development or preproduction		1		1
Television programming costs, less accumulated amortization		1,523		1,184
		632		575
Total filmed entertainment and television programming costs, net	$	3,627	$	3,161
Total filmed entertainment costs, less accumulated amortization		1,993		2,031
Television programming costs, less accumulated amortization		1,522		1,162
Total filmed entertainment and television programming costs, net	$	3,515	$	3,193

Note 4 – Borrowings

In September 2003, the Company purchased substantially all of the outstanding equity of Tintagel Investors L.L.C. (“Tintagel”), the entity that held the Preferred Interest in New Millennium II (“NM2”), for $25.5 million plus accrued and unpaid Preferred Payments in the amount of approximately $106,000. As a result of the acquisition of this equity interest, the Company has consolidated the assets and liabilities of Tintagel for accounting purposes and all Preferred Interests and Preferred Payments in NM2 have been eliminated. The outstanding NM2 Preferred Interest of $762 million at June 30, 2003 was included in Minority interest in subsidiaries on the consolidated balance sheet of the Company and the related Preferred Payments were included in Minority interest in subsidiaries in the consolidated statement of operations. Tintagel’s outstanding indebtedness of $798 million at December 31, 2003 is included in Borrowings on the unaudited consolidated condensed balance sheet and the corresponding interest is included in Interest expense, net in the unaudited consolidated condensed statement of operations. Tintagel continues to be a separate legal entity from the Company with separate assets and liabilities.

For the six months ended December 31, 2003, the Company borrowed $338 million and repaid $276 million under the NM2 credit facility. Borrowings under this facility cannot exceed $824.5 million and each advance is amortized over a nine-quarter period, other than advances after June 26, 2004, which amortize over a six-quarter period. The borrowing agreement with NM2, if not extended, will not allow any new borrowings after June 26, 2005 and any amounts outstanding will be amortized over six quarters.

FOX ENTERTAINMENT GROUP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS

Note 5 – ~~Hughes~~Borrowings ~~Transaction~~

OnIn ~~December~~May 222004, ~~2003,~~the ~~News~~Company ~~Corporation~~ended ~~acquired~~the atransfer ~~34%~~term ~~interest~~under inthe ~~Hughes~~New ~~Electronics~~Millennium ~~Corporation~~II ~~(“Hughes”)~~Agreement, ~~for~~the ~~total consideration~~Company’s offilm ~~approximately~~financing ~~$6.8 billion. General Motors Corporation (“GM”) sold its 19.8% interest in Hughes to News Corporation in exchange for approximately $3.1 billion in cash~~vehicle, and ~~28.6~~will ~~million~~no ~~American~~longer ~~Depositary~~draw ~~Shares,~~any ~~each~~borrowings ~~representing~~under ~~four~~the ~~News Corporation preferred limited voting ordinary shares (“News Corporation Preferred ADSs”), valued at approximately $800 million~~facility. ~~News~~In ~~Corporation~~accordance ~~acquired~~with ~~14.2% of Hughes from~~ the ~~former~~terms GMof ~~Class H common stockholders in exchange for approximately 102.1 million News Corporation Preferred ADSs valued at $2.9 billion. Immediately following~~ the ~~acquisition~~termination, ~~News Corporation transferred its entire 34% interest in Hughes to~~ the Company inwill ~~exchange~~repay ~~for two promissory notes totaling~~ $~~4.5~~636 ~~billion and approximately 74.5~~ million ~~shares~~ of the ~~Company’s~~facility ~~Class~~in Afiscal ~~common~~2005 ~~stock~~and ~~valued at~~ $~~2.3~~23 ~~billion~~million ~~(the~~in ~~“Exchange”)~~fiscal 2006. ~~One~~During of the ~~promissory~~six ~~notes~~months ~~the~~ended ~~Company~~December ~~issued to News Corporation is in the amount of $2 billion~~31, ~~bears interest at a rate of LIBOR plus 1% per annum~~2004, ~~and matures on June 30, 2009. The other promissory note~~ the Company ~~issued~~repaid to$507 ~~News~~million ~~Corporation is in~~ of the ~~amount of $2~~facility.5 ~~billion,~~At ~~bears~~December ~~interest at 8% per annum~~31, and ~~has a maturity date of~~ June 30, ~~2009~~2004, ~~which~~$153 ~~can~~million beand ~~extended~~$659 ~~at the Company’s option for not more than two successive one-year periods. The issuance of approximately 74.5~~ million, ~~shares~~respectively, ofremained ~~Class~~outstanding Aand ~~common~~were ~~stock~~included toin ~~News~~Borrowings ~~Corporation~~on ~~increased~~the ~~its~~consolidated ~~equity~~balance ~~interest~~sheets inand the ~~Company~~ ~~from~~corresponding ~~approximately~~interest ~~80.6%~~expense towas ~~approximately~~included ~~82% while its voting power remained at approximately 97%. For financial reporting purposes,~~ in ~~accordance with Emerging Issues Task Force No. (“EITF”) 90-5, “Exchange of Ownership~~Interest ~~Interests between Entities under Common Control~~expense,” ~~the~~net ~~Company~~in ~~recognized~~ the ~~Exchange~~unaudited ~~based~~consolidated ~~upon~~statements ~~the acquired basis~~ of ~~News~~operations. ~~Corporation~~Subsequent ~~and issued equity~~ to ~~News~~December ~~Corporation~~31, at2004, ~~that~~the ~~value. The~~ Company isrepaid ~~accounting~~principal ~~for~~of ~~its~~$83 ~~interest~~million ~~in Hughes in accordance with APB No. 18, “The Equity Method~~ of ~~Accounting~~the ~~for Investments in Common Stock~~facility.”

~~The~~Note ~~increase~~6 to– ~~Investments~~DIRECTV inTransaction equity affiliates reflects the Company’s investment in Hughes and includes the excess of fair value over book value of the proportionate share of Hughes’ underlying net assets. The Company has not yet determined the final allocation of the excess to Hughes’ long-lived assets and as such no amortization has been recorded.

~~Summarized~~On ~~financial~~December ~~information~~22, 2003, the Company acquired a 34% interest in Hughes Electronics Corporation (“Hughes”) for total consideration of approximately $6.8 billion from News Corporation. News Corporation transferred its entire 34% interest in Hughes to the Company in exchange for two promissory notes totaling $4.5 billion and approximately 74.5 million shares of the Company’s Class A common stock valued at $2.3 billion (the “Exchange”). One of the promissory notes the Company issued to News Corporation is in the amount of $2 billion, ~~determined~~bears interest at a rate of LIBOR plus 1% per annum, and matures on June 30, 2009. The other promissory note the Company issued to News Corporation is in the amount of $2.5 billion, bears interest at 8% per annum, and has a maturity date of June 30, 2009, which can be extended at the Company’s option for not more than two successive one-year periods. The issuance of approximately 74.5 million shares of Class A common stock to News Corporation increased its equity interest in the Company from approximately 81% to approximately 82% while its voting power remained at approximately 97%. For financial reporting purposes, in accordance with ~~Regulation~~Emerging SIssues Task Force No. (“EITF”) 90-X5, ~~accounted~~“Exchanges ~~for~~of Ownership Interest between Entities under Common Control,” the Company recognized the Exchange based upon the acquired basis of News Corporation and issued equity ~~method~~to News Corporation at that value. The Company is asaccounting ~~follows:~~for its interest in Hughes in accordance with APB No. 18, “The Equity Method of Accounting for Investments in Common Stock.”

	For the threemonths endedDecember 31,					For the sixmonths endedDecember 31,
	2003			2002		2003			2002
	(in millions)
Revenues	$	2,953		$	2,451	$	5,523		$	4,645
Operating (loss) income		(113	)		18		(36	)		34
(Loss) income from continuing operations		(312	)		220		(271	)		231
Net (loss) income		(310	)		113		(333	)		99

Subsequent to the above transaction, Hughes changed its corporate name to The DIRECTV Group, Inc. (“DIRECTV”).

Investments in equity affiliates primarily reflects the Company’s investment in DIRECTV and includes the excess of fair value over the Company’s proportionate share of DIRECTV’s underlying net assets at December 22, 2003 as adjusted to record such net assets at fair value, most notably the adjustment to the carrying value of DIRECTV’s SPACEWAY and PanAmSat businesses and assets and its deferred subscriber acquisition costs. This excess, approximately $3.6 billion, has been allocated to finite-lived intangibles, which are being amortized over lives ranging from 6-20 years, and to certain indefinite-lived intangibles and goodwill, which are not subject to amortization in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.”

Summarized financial information for DIRECTV accounted for under the equity method is as follows:


	For the three months ended December 31,						For the six months ended December 31,
	2004			2003			2004			2003
	(in millions)
Revenues	$	3,362		$	2,754		$	6,224		$	5,133
Operating losses		(437	)		(177	)		(1,987	)		(169	)
Loss from continuing operations before discontinued operations and cumulative effect of accounting changes		(283	)		(307	)		(1,209	)		(309	)
Net losses		(283	)		(310	)		(1,292	)		(333	)

At December 31, 2004, the fair market value of the Company’s investment in DIRECTV was $7,691 million.

FOX ENTERTAINMENT GROUP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS

Note 6 – ~~Other~~DIRECTV ~~Acquisitions~~Transaction ~~and~~- ~~Disposals~~continued

InThe ~~August~~Company’s ~~2002,~~share ~~the~~of ~~Company~~DIRECTV’s ~~acquired~~losses ~~WPWR-TV~~for in the ~~Chicago~~six ~~designated~~months ~~market~~ended ~~area~~December ~~(DMA)~~31, ~~from~~2004 ~~Newsweb~~was ~~Corporation for~~ $~~425~~176 million. ~~This~~and includes the Company’s share of DIRECTV’s ~~transaction~~increased ~~has~~loss ~~been~~from ~~treated~~its assale of PanAmSat resulting from a ~~purchase~~reduction in ~~accordance~~the ~~with~~sales ~~SFAS~~proceeds, ~~Nos.~~the ~~141,~~Company’s ~~“Business~~portion ~~Combinations,”~~of ~~and~~the ~~142,~~SPACEWAY ~~“Goodwill~~program impairment and ~~Other~~the ~~Intangible~~amortization ~~Assets~~of certain finite-lived intangibles.”

InNote ~~December~~7 ~~2003,~~– Fox Sports Net, Inc. (“Fox Sports Net”), a subsidiary of the Company, sold its 50% direct ownership interests in SportsChannel Chicago Associates (“SportsChannel Chicago”) and SportsChannel Pacific Associates (“SportsChannel Bay Area”) (collectively the “SportsChannels”) to subsidiaries of Regional Programming Partners (“RPP”) for consideration of $150 million. This consideration was paid in the form of two three-year promissory notes issued by the subsidiaries of RPP, which own only the acquired interests in the SportsChannels, in an aggregate principal amount of $150 million and bearing interest at prime plus 1% per annum. The notes are secured by a pledge of 100% of the interests in SportsChannel Bay Area. Upon the close of this sale, the SportsChannels are held 100% by RPP and indirectly 60% by Rainbow Media Sports Holdings, Inc. and 40% by Fox Sports Net. The Company recognized a net gain on the sale of the SportsChannels of $9 million, which is reflected in Other, ~~net~~Acquisitions ~~in the accompanying unaudited consolidated condensed statements of operations for the three months~~ and ~~six~~Disposals ~~months ended December 31, 2003. (see Note 10)~~

In December 2003, the Company ~~purchased~~sold aits ~~cable~~50% ~~and~~direct ~~satellite~~ownership ~~channel~~interests in ~~Japan~~SportsChannel Chicago ~~from~~Associates ~~News~~(“SportsChannel ~~Corporation~~Chicago”) ~~for~~and ~~net~~SportsChannel ~~consideration~~Pacific Associates (“SportsChannel Bay Area”) (collectively the “SportsChannels”) to subsidiaries of ~~approximately~~Regional Programming Partners (“RPP”) for consideration of $38150 million. ~~based~~This ~~upon~~consideration anwas ~~independent~~paid ~~valuation.~~in Atthe ~~December~~form ~~31,~~of ~~2003~~two three-year promissory notes issued by the subsidiaries of RPP, which own only the ~~net~~acquired ~~purchase~~interests ~~price~~in the SportsChannels, in an aggregate principal amount of $38150 million, ~~which~~and ~~excludes~~bearing ~~$12~~interest ~~million~~at prime plus 1% per annum. The notes are secured by a pledge of ~~cash~~100% ~~acquired,~~of isthe ~~included~~interests in ~~Due~~SportsChannel toBay ~~affiliates~~Area. ofUpon ~~News~~the ~~Corporation~~close ~~and~~of this sale, the ~~net~~SportsChannels ~~assets~~are ~~acquired~~held ~~have~~100% ~~been~~by ~~recorded~~RPP atand ~~News~~indirectly ~~Corporation’s~~60% ~~historical~~by ~~cost~~Rainbow ofMedia Sports $8Holdings, ~~million~~Inc. ~~with~~and 40% by the ~~excess~~Company. ~~$30~~The ~~million~~Company recognized a net gain on the sale of the ~~purchase~~ ~~price~~SportsChannels ~~accounted~~of ~~for~~$9 asmillion, awhich ~~reduction~~was toreflected ~~retained~~in ~~earnings~~Other, net in ~~accordance~~the ~~with~~unaudited ~~EITF~~consolidated ~~90-5~~statements of operations for the three months ended December 31, 2003.

OnIn ~~October~~December ~~10,~~ 2003, the Company ~~announced~~acquired ~~that~~News itBroadcasting Japan, ~~had~~a ~~reached~~cable anand ~~agreement~~satellite channel in ~~principle~~Japan, tofrom ~~sell~~News ~~the~~Corporation ~~Los~~for ~~Angeles~~net ~~Dodgers~~consideration ~~(“Dodgers”),~~of ~~together~~approximately ~~with~~$38 ~~Dodger~~million ~~Stadium~~based ~~and~~upon ~~the~~an ~~team’s~~independent ~~training~~valuation. ~~facilities~~The ~~in Vero~~Company ~~Beach,~~acquired ~~Florida~~this ~~and~~entity ~~the Dominican Republic,~~ to ~~entities~~expand ~~owned~~its byinternational ~~Frank~~cable ~~McCourt~~channel ~~(the~~ownership. ~~“McCourt~~At December ~~Entities”).~~31, ~~The~~2003, ~~sale~~the ~~has~~net ~~been~~purchase ~~approved~~price byof ~~Major~~$38 ~~League~~million ~~Baseball~~was ~~and~~included isin ~~expected~~Due to ~~close~~affiliates ~~shortly,~~of ~~subject~~News toCorporation ~~customary~~and ~~closing~~the ~~conditions. The~~ Company ~~anticipates~~recorded ~~that~~the ~~this~~net ~~sale~~assets ~~will~~acquired ~~result~~at inNews anCorporation’s ~~estimated~~historical ~~loss~~cost of $16 8 million,. ~~which~~The ~~was~~excess ~~recorded~~$30 inmillion ~~Other,~~of purchase ~~net~~price inwas ~~the~~recorded ~~Company’s~~as ~~results~~a ofreduction ~~operations~~to ~~for~~Retained ~~the~~earnings ~~period~~in ~~ended~~accordance ~~December~~with ~~31,~~EITF ~~2003 (see Note 10)~~90-5.

~~Under~~In February 2004, the ~~proposed~~Company ~~terms~~sold ofthe Los Angeles Dodgers (“Dodgers”), together with Dodger Stadium and the ~~agreement~~team’s training facilities in Vero Beach, Florida and the ~~gross~~Dominican ~~purchase~~Republic, ~~price~~to entities owned by Frank McCourt (the “McCourt Entities”). The gross consideration for the sale of the Dodgers franchise and real estate assets iswas $421 million, subject to further adjustment. The consideration ~~will~~at beclosing was comprised of (i) $225 million in cash, ~~subject to adjustment,~~ (ii) a $125 million two-year note secured by non-team real estate, (iii) a $40 million four-year note secured by bank letters of credit and (iv) a $31 million three-year note that is convertible, at the Company’s option, into preferred equity in the McCourt Entities if unpaid at maturity. The Company has agreed to remit $50 million during the first two years following the closing of the transaction to reimburse the McCourt Entities for certain pre-existing commitments. Pending the final determination of contractual adjustments, the sale resulted in an estimated loss of $19 million, which was recorded in Other, net in the unaudited consolidated statements of operations for the three months ended March 31, 2004.

~~Note~~In May 2004, the Company sold its 40% interest in the Staples Arena for aggregate consideration of $128 million. The Company recorded a loss on the sale of the interest in the Staples Arena of approximately $7 –million in Other, ~~Postretirement~~net ~~Benefits~~for ~~Amendments~~the year ended June 30, 2004. In connection with the sale of this interest, the Company was released from several guarantees in the aggregate amount of $22.6 million outstanding at the time of the sale.

~~During~~In ~~the six months ended~~ December 312004, ~~2003,~~ the Company ~~amended~~sold ~~certain plan provisions related to~~ its ~~medical~~20% ~~postretirement~~investment ~~benefits~~in toRogers ~~implement~~Sportsnet ~~cost controls in response~~ to ~~rising~~Rogers ~~medical~~Broadcasting ~~and~~Limited ~~prescription drug claim costs. The Company increased participant contributions and prescription co-payments~~ for ~~retirees~~$41 ~~under the plan effective January 1, 2004~~million. InRogers ~~addition,~~Sportsnet ~~effective~~operates ~~July~~regional ~~1, 2004, the Company will~~sports ~~increase~~networks ~~the~~in ~~required~~Canada ~~years~~covering oflocal ~~service~~sports toevents beplus ~~eligible~~national ~~for postretirement benefits~~programming. ~~This~~For ~~amendment did not have a material impact on~~ the ~~financial condition and results of operations of the Company for the~~ six months ended December 31, ~~2003~~2004, ~~but did reduce~~ the Company’s ~~Accumulated~~recognized ~~Postretirement~~a ~~Benefit~~gain ~~Obligation~~of ~~(“APBO”) by approximately~~ $4539 million. ~~The~~on ~~impact~~this ofsale ~~these~~in ~~plan~~Other, ~~changes~~net ~~and~~in the ~~amortization~~unaudited ofconsolidated ~~the~~statements ~~$45~~of ~~million reduction in APBO will reduce our future net postretirement benefit cost~~operations. ~~(See Note 11)~~

FOX ENTERTAINMENT GROUP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS

Note 8 – ~~Segment~~Pension ~~Information~~Plans and Other Postretirement Benefits

The Company ~~manages~~sponsors non-contributory pension plans and ~~reports~~retiree ~~its~~health ~~activities~~and life insurance benefit plans covering specific groups of employees. The benefits payable for the non-contributory pension plans are based primarily on a formula factoring both an employee’s years of service and pay near retirement. Participant employees are vested in ~~four~~the ~~business~~plans ~~segments:~~after five years of service. The Company’s policy for all pension plans is to fund amounts, at a minimum, in accordance with the Employee Retirement Income Security Act of 1974. During the six months ended December 31, 2004 and 2003, the Company made discretionary contributions of $49 million and $25 million, respectively, to its pension plans. Plan assets consist principally of common stocks, marketable bonds and government securities. The retiree health and life insurance benefit plans offer medical and/or life insurance to certain full-time employees and eligible dependents that retire after fulfilling age and service requirements.

•The ~~Filmed~~components ~~Entertainment, which principally consists~~ of ~~the~~net ~~production~~periodic ~~and~~benefit ~~acquisition~~costs ofwere ~~live-action~~as ~~and~~follows: animated motion pictures for distribution and licensing in all formats in all entertainment media primarily in the United States, Canada and Europe, and the production of original television programming in the United States and Canada;

• Television Stations, which principally consists of the operation of 35 full power broadcast television stations, including nine duopolies, in the United States. Of these stations, nine are affiliated with the UPN network and 25 with the FOX network;


	Pension Benefits						Postretirement Benefits
	For the three months ended December 31,
	2004			2003			2004			2003
	(in millions)
Service cost benefits earned during the period	$	9		$	9		$	—		$	2
Interest costs on projected benefit obligation		9			8			2			2
Expected return on plan assets		(10	)		(6	)		—			—
Amortization of deferred losses		3			5			—			1
Other		—			(1	)		(1	)		—

Net periodic benefit costs	$	11		$	15		$	1		$	5


	Pension benefits						Postretirement benefits
	For the six months ended December 31,
	2004			2003			2004			2003
	(in millions)
Service cost benefits earned during the period	$	18		$	18		$	1		$	5
Interest costs on projected benefit obligation		18			16			3			4
Expected return on plan assets		(20	)		(13	)		—			—
Amortization of deferred losses		6			10			1			2
Other		—			(1	)		(3	)		—

Net periodic benefit costs	$	22		$	30		$	2		$	11

•Other ~~Television~~Postretirement ~~Broadcast~~Benefits Amendments ~~Network, which principally consists of the broadcasting of network programming in the United States; and~~

•The ~~Cable~~fiscal ~~Network~~2005 ~~Programming,~~postretirement ~~which~~net ~~principally~~periodic ~~consists~~costs ofreflect ~~the~~plan amendments ~~production~~implemented ~~and~~during ~~licensing~~the ofsecond ~~programming~~quarter ~~distributed~~of ~~through~~fiscal ~~cable television systems and direct broadcast satellite operations in the United States~~2004.

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“the Medicare Act”) was signed into law. The ~~Company’s~~Medicare ~~reportable~~Act introduced a prescription drug benefit under Medicare (Medicare Part D) and a federal subsidy to ~~operating~~sponsors ~~segments~~of ~~have~~retirement ~~been~~health ~~determined~~care inplans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In accordance with FASB Staff Position 106-1, the Company’s ~~internal~~elected ~~management~~to ~~structure~~defer recognizing the effects of the Medicare Act on the accounting for its retirement health care plans in fiscal 2004. In May 2004, ~~which~~the isFASB ~~organized~~issued ~~based~~FASB Staff Position 106-2, providing final guidance on ~~operating~~accounting ~~activities~~for the Medicare Act. ~~The~~FASB Staff Position 106-2 was implemented by the Company ~~evaluates~~in ~~performance~~the first ~~based~~quarter ~~upon~~of ~~several~~fiscal ~~factors,~~2005. The adoption of ~~which~~FASB Staff Position 106-2 did not have a material impact on the ~~primary~~ financial ~~measures~~condition ~~are~~and ~~segment~~results ~~Operating~~of ~~income~~operations ~~and~~of ~~Operating~~the ~~Income~~Company ~~Before~~in ~~Depreciation~~fiscal ~~and~~2005, ~~Amortization~~but reduced the Company’s Accumulated Postretirement Benefit Obligation (“APBO”) by approximately $5 million. The amortization of the $5 million reduction in APBO will reduce our future net postretirement benefit cost.

	For the threemonths endedDecember 31,				For the sixmonths endedDecember 31,
	2003		2002		2003		2002
	(in millions)				(in millions)
Revenues:
Filmed Entertainment	$	1,384	$	1,338	$	2,634	$	2,221
Television Stations		571		593		1,089		1,107
Television Broadcast Network		860		749		1,254		1,173
Cable Network Programming		565		470		1,161		993
Total revenues	$	3,380	$	3,150	$	6,138	$	5,494

Operating Income Before Depreciation and Amortization, defined as operating income (loss) plus depreciation and amortization and the amortization of cable distribution investments, eliminates the variable effect across all business segments of non-cash depreciation and amortization. Depreciation and amortization expense includes the depreciation of property and equipment as well as amortization of finite-lived intangible assets. Amortization of cable distribution investments represents a reduction against revenues over the term of a carriage arrangement and as such it is excluded from Operating Income Before Depreciation and Amortization. Since Operating Income Before Depreciation and Amortization is a non-GAAP measure, it should be considered in addition to, not as a substitute for, operating income (loss), net income (loss), cash flow and other measures of financial performance reported in accordance with GAAP. Operating Income Before Depreciation and Amortization does not reflect cash available to fund requirements and the items excluded from Operating Income Before Depreciation and Amortization, such as depreciation and amortization, are significant components in assessing the Company’s financial performance.

FOX ENTERTAINMENT GROUP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS

Note 89 – Segment Information ~~- continued~~

~~Management~~The ~~believes~~Company ~~that~~manages ~~Operating Income Before Depreciation~~ and ~~Amortization~~reports isits anactivities ~~appropriate~~in ~~measure~~four ~~for evaluating the operating performance of the Company’s~~ business segments.: Operating Income Before Depreciation and Amortization, which is the information reported to and used by the Company’s chief decision maker for the purpose of making decisions about the allocation of resources to segments and assessing their performance, provides management, investors and equity analysts a measure to analyze operating performance of each business segment and enterprise value against historical and competitors’ data, although historical results, including Operating Income Before Depreciation and Amortization, may not be indicative of future results as operating performance is highly contingent on many factors, including customer tastes and preferences.

	For the three monthsended December 31,						For the six monthsended December 31,
	2003			2002			2003			2002
	(in millions)						(in millions)
Operating Income Before Depreciation and Amortization:
Filmed Entertainment	$	275		$	274		$	620		$	392
Television Stations		289			320			526			544
Television Broadcast Network		(128	)		(149	)		(169	)		(152	)
Cable Network Programming		198			132			341			260
Total Operating Income Before Depreciation and Amortization		634			577			1,318			1,044
Amortization of cable distribution investments		(32	)		(32	)		(63	)		(63	)
Depreciation and amortization		(44	)		(45	)		(86	)		(92	)
Total operating income		558			500			1,169			889
Interest expense, net		(15	)		(49	)		(23	)		(95	)
Equity earnings (losses) of affiliates		(2	)		(12	)		5			(10	)
Minority interest in subsidiaries		(1	)		(7	)		(3	)		(16	)
Other, net		(7	)		—			19			—
Income before provision for income taxes		533			432			1,167			768
Provision for income tax expense on a stand-alone basis		(203	)		(149	)		(436	)		(271	)
Net income	$	330		$	283		$	731		$	497

•

Filmed Entertainment, which principally consists of the production and acquisition of live-action and animated motion pictures for distribution and licensing in all formats in all entertainment media worldwide, and the production of original television programming in the United States and Canada.

•

Television Stations, which principally consists of the operation of 35 full power broadcast television stations, including nine duopolies, in the United States. Of these stations, 25 are affiliated with the FOX network, nine with the UPN network and one is an independent station.

•

Television Broadcast Network, which principally consists of the broadcasting of network programming in the United States.

•

Cable Network Programming, which principally consists of the production and licensing of programming distributed through cable television systems and direct broadcast satellite operators in the United States.

The Company’s operating segments have been determined in accordance with the Company’s internal management structure, which is organized based on operating activities. The Company evaluates performance based upon several factors, of which the primary financial measures are segment Operating income and Operating income before depreciation and amortization.


	For the three months ended December 31,				For the six months ended December 31,
	2004		2003		2004		2003
	(in millions)
Revenues:
Filmed Entertainment	$	1,879	$	1,384	$	3,263	$	2,634
Television Stations		571		571		1,085		1,089
Television Broadcast Network		858		860		1,240		1,254
Cable Network Programming		635		565		1,244		1,161

Total revenues	$	3,943	$	3,380	$	6,832	$	6,138

Operating income (loss) before depreciation and amortization, defined as operating income (loss) plus depreciation and amortization and the amortization of cable distribution investments, eliminates the variable effect across all business segments of non-cash depreciation and amortization. Depreciation and amortization expense includes the depreciation of property and equipment, as well as amortization of finite-lived intangible assets. Amortization of cable distribution investments represents a reduction against revenues over the term of a carriage arrangement and as such it is excluded from Operating income (loss) before depreciation and amortization. Operating income (loss) before depreciation and amortization is a non-GAAP measure and it should be considered in addition to, not as a substitute for, operating income (loss), net income (loss), cash flow and other measures of financial performance reported in accordance with GAAP. Operating income (loss) before depreciation and amortization does not reflect cash available to fund requirements and the items excluded from Operating income (loss) before depreciation and amortization, such as depreciation and amortization, are significant components in assessing the Company’s financial performance.

Management believes that Operating income (loss) before depreciation and amortization is an appropriate measure for evaluating the operating performance of the Company’s business segments. Operating income (loss) before depreciation and amortization, which is the information reported to and used by the Company’s chief decision maker for the purpose of making decisions about the allocation of resources to segments and assessing their performance, provides management, investors and equity analysts a measure to analyze operating performance of each business segment and enterprise value against historical and competitors’ data, although historical results, including Operating income (loss) before depreciation and amortization, may not be indicative of future results as operating performance is highly contingent on many factors including customer tastes and preferences.

FOX ENTERTAINMENT GROUP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS

Note 89 – Segment Information - continued

	For the three months ended December 31, 2003
	For the three monthsended December 31,						For the six monthsended December 31,
	OperatingIncome BeforeDepreciationandAmortization			Depreciationandamortization			Amortization ofcable distributioninvestments			Operating income(loss)
	2004			2003			2004			2003
	(in millions)
Filmed Entertainment	$	275		$	(15	)	$	—		$	260
Operating income (loss) before depreciation and amortization:
Television Stations		289			(13	)		—			276
Filmed Entertainment	$	419		$	275		$	725		$	620
Television Broadcast Network		(128	)		(5	)		—			(133	)
Television Stations		290			289			526			526
Cable Network Programming		198			(11	)		(32	)		155
Television Broadcast Network		(152	)		(128	)		(156	)		(169	)
Total	$	634		$	(44	)	$	(32	)	$	558
Cable Network Programming		265			198			471			341
Total operating income before depreciation and amortization		822			634			1,566			1,318
Amortization of cable distribution investments		(28	)		(32	)		(58	)		(63	)
Depreciation and amortization		(42	)		(44	)		(81	)		(86	)
Total operating income		752			558			1,427			1,169
Interest expense, net		(70	)		(15	)		(136	)		(23	)
Equity (losses) earnings of affiliates		(29	)		(2	)		(126	)		5
Other, net		39			(7	)		39			19
Income before provision for income taxes and minority interest in subsidiaries		692			534			1,204			1,170
Provision for income tax expense on a stand-alone basis		(259	)		(203	)		(448	)		(436	)
Minority interest in subsidiaries, net of tax		(2	)		(1	)		(5	)		(3	)
Net income	$	431		$	330		$	751		$	731

	For the three months ended December 31, 2002
	OperatingIncome BeforeDepreciationandAmortization			Depreciationandamortization			Amortization ofcable distributioninvestments			Operating income(loss)
	(in millions)
Filmed Entertainment	$	274		$	(14	)	$	—		$	260
Television Stations		320			(15	)		—			305
Television Broadcast Network		(149	)		(5	)		—			(154	)
Cable Network Programming		132			(11	)		(32	)		89
Total	$	577		$	(45	)	$	(32	)	$	500

Interest expense, net, Equity (losses) earnings of affiliates, Other, net, Provision for income tax expense on a stand-alone basis and Minority interest in subsidiaries, net of tax are not allocated to segments, as they are not under the control of segment management.


	For the three months ended December 31, 2004
	Operating income (loss) before depreciation and amortization			Depreciation and amortization			Amortization of cable distribution investments			Operating income (loss)
	(in millions)
Filmed Entertainment	$	419		$	(13	)	$	—		$	406
Television Stations		290			(12	)		—			278
Television Broadcast Network		(152	)		(7	)		—			(159	)
Cable Network Programming		265			(10	)		(28	)		227

Total	$	822		$	(42	)	$	(28	)	$	752

FOX ENTERTAINMENT GROUP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS

Note 89 – Segment Information - continued

	For the three months ended December 31, 2003
	Operatingincome (loss)beforedepreciationandamortization			Depreciationandamortization			Amortization ofcabledistributioninvestments			Operatingincome(loss)
	(in millions)
Filmed Entertainment	$	275		$	(15	)	$	—		$	260
Television Stations		289			(13	)		—			276
Television Broadcast Network		(128	)		(5	)		—			(133	)
Cable Network Programming		198			(11	)		(32	)		155
Total	$	634		$	(44	)	$	(32	)	$	558
	For the six months ended December 31, 2004
	Operatingincome (loss)beforedepreciationandamortization			Depreciationandamortization			Amortization ofcabledistributioninvestments			Operatingincome(loss)
	(in millions)
Filmed Entertainment	$	725		$	(25	)	$	—		$	700
Television Stations		526			(24	)		—			502
Television Broadcast Network		(156	)		(12	)		—			(168	)
Cable Network Programming		471			(20	)		(58	)		393
Total	$	1,566		$	(81	)	$	(58	)	$	1,427
	For the six months ended December 31, 2003
	OperatingIncome BeforeDepreciationandAmortization			Depreciationandamortization			Amortization ofcable distributioninvestments			Operating income(loss)
	Operatingincome (loss)beforedepreciationandamortization			Depreciationandamortization			Amortization ofcabledistributioninvestments			Operatingincome(loss)
	(in millions)
Filmed Entertainment	$	620		$	(27	)	$	—		$	593
Television Stations		526			(29	)		—			497
Television Broadcast Network		(169	)		(9	)		—			(178	)
Cable Network Programming		341			(21	)		(63	)		257
Total	$	1,318		$	(86	)	$	(63	)	$	1,169

	For the six months ended December 31, 2002
	OperatingIncome BeforeDepreciationandAmortization			Depreciationandamortization			Amortization ofcable distributioninvestments			Operating income(loss)
	(in millions)
Filmed Entertainment	$	392		$	(27	)	$	—		$	365
Television Stations		544			(30	)		—			514
Television Broadcast Network		(152	)		(10	)		—			(162	)
Cable Network Programming		260			(25	)		(63	)		172
Total	$	1,044		$	(92	)	$	(63	)	$	889

Intersegment revenues, generated primarily by the Filmed Entertainment segment, of approximately $137 million and $190 million for the three months ended December 31, 2004 and 2003, respectively, and approximately $305 million and $342 million for the six months ended December 31, 2004 and 2003, respectively, have been eliminated within the Filmed Entertainment segment. Intersegment operating profits, generated primarily by the Filmed Entertainment segment, of approximately $10 million and $12 million for the three months ended December 31, 2004 and 2003, respectively, and approximately $26 million and $32 million for the six months ended December 31, 2004 and 2003 respectively, have been eliminated within the Filmed Entertainment segment.

Intersegment revenues generated primarily by the Filmed Entertainment segment of approximately $190 million and $160 million for the three months ended December 31, 2003 and 2002, respectively, have been eliminated within the Filmed Entertainment segment. Intersegment operating profits generated primarily by the Filmed Entertainment segment of approximately $12 million and $5 million for the three months ended December 31, 2003 and 2002, respectively, have been eliminated within the Filmed Entertainment segment. Intersegment revenues generated primarily by the Filmed Entertainment segment of approximately $342 million and $320 million for the six months ended December 31, 2003 and 2002, respectively, have been eliminated within the Filmed Entertainment segment. Intersegment operating profits generated primarily by the Filmed Entertainment segment of approximately $32 million and $20 million for the six months ended December 31, 2003 and 2002, respectively, have been eliminated within the Filmed Entertainment segment.

Interest expense, net, Equity earnings (losses) of affiliates, Minority interest in subsidiaries, Other, net and Provision for income tax expense on a stand-alone basis are not allocated to segments, as they are not under the control of segment management.

FOX ENTERTAINMENT GROUP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS

Note 89 – Segment Information - continued

	As of December 31,2003		As of June 30, 2003
	AtDecember 31,2004		At June 30,2004
	(in millions)
Total assets:
Filmed Entertainment	$	5,~~082~~449	$	4,~~503~~680
Television Stations		11,~~453~~185		11,~~388~~247
Television Broadcast Network		1,~~450~~530		~~978~~1,064
Cable Network Programming		5,~~077~~007		4,~~870~~863
Investments in equity affiliates		8,~~322~~077		18,~~560~~194
Total assets	$	31,~~384~~248	$	2330,~~299~~048
Goodwill and Intangible assets, net:
Goodwill and Intangible assets:
Filmed Entertainment	$	445	$	445
Television Stations		109,~~049~~994		109,~~050~~994
Television Broadcast Network		—		—
Cable Network Programming		2,~~968~~743		2,~~981~~719
Total goodwill and intangible assets, net	$	13,462	$	13,476
Total goodwill and intangible assets	$	13,182	$	13,158

FOX ENTERTAINMENT GROUP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS

Note 910 – Commitments and Guarantees

~~The~~Commitments Company, News Corporation and certain of News Corporation’s other subsidiaries are guarantors of various debt obligations of News Corporation and certain of its subsidiaries. The principal amount of indebtedness outstanding under such debt instruments as of December 31 and June 30, 2003 was approximately $10 billion. The debt instruments limit the ability of guarantors, including the Company, to subject their properties to liens, and certain of the debt instruments impose limitations on the ability of News Corporation and certain of its subsidiaries, including the Company, to incur indebtedness in certain circumstances. Such debt instruments mature at various times between 2004 and 2096, with a weighted average maturity of over 20 years.

In ~~the~~November ~~case of any event of default under such debt obligations~~2004, the Company ~~will~~entered beinto ~~directly~~a ~~liable~~six-year tofollow-on ~~the~~contract ~~creditors~~with orthe ~~debtholders.~~National ~~News~~Football ~~Corporation~~League ~~has~~commencing ~~agreed~~with ~~to indemnify~~ the ~~Company~~2006 ~~from and against any obligations it may incur by reason of its guarantees of such debt obligations. As of December 31~~season, ~~2003,~~increasing ~~News~~the ~~Corporation~~Company’s ~~was~~commitments ~~in compliance~~ with ~~all~~respect ofto ~~its~~sports ~~debt covenants and had satisfied all financial~~programming ~~ratios~~rights ~~and~~by ~~tests~~approximately ~~and~~$4.3 ~~expects to remain in compliance and satisfy all such ratios and tests~~billion.

~~The~~In ~~Company~~November ~~guaranteed~~2004, ~~sports~~the ~~rights~~Company ~~agreements~~entered into ~~for~~an ~~SportsChannel~~agreement ~~Chicago.~~with ~~SportsChannel Chicago has been notified of~~ the ~~termination,~~Bowl ~~effective~~Championship ~~September~~Series ~~30,~~from ~~2004,~~fiscal of2007 ~~these~~through ~~sports~~fiscal ~~rights agreements and as a result~~2010, as ofincreasing ~~December~~the ~~31,~~Company’s ~~2003,~~commitments ~~the~~with ~~remaining~~respect ~~guarantee~~to ~~has~~sports ~~been~~programming ~~reduced~~rights toby approximately $32330 million ~~and will expire on September 30, 2004~~.

~~Note~~Guarantees ~~10 – Other, net~~

~~For~~The ~~the~~Company, ~~six~~News ~~months~~Corporation ~~ended~~and ~~December~~certain ~~31,~~of ~~2003,~~News ~~Other,~~Corporation’s ~~net~~other ~~consisted~~subsidiaries are guarantors of avarious ~~gain~~debt obligations of ~~$26~~News Corporation ~~million~~and ~~related~~certain toof ~~the~~its ~~settlement~~subsidiaries. ofThe ~~the~~principal ~~Company’s~~amount ~~insurance~~of ~~claim~~indebtedness ~~primarily~~outstanding ~~for its~~under ~~broadcast~~such ~~tower~~debt atinstruments ~~the~~as ~~World~~of ~~Trade~~December ~~Center~~31, inand ~~New~~June ~~York~~30, ~~New~~2004 ~~York~~was approximately $11 billion and a$10 ~~gain~~billion, onrespectively. The debt instruments limit the ~~sale~~ability of guarantors, including the Company’s, ~~interest~~to insubject ~~the~~their ~~SportsChannels~~properties to liens, and certain of $9the ~~million.~~debt ~~These~~instruments ~~gains~~impose ~~were~~limitations ~~offset~~on bythe anability ~~estimated~~of ~~loss~~News Corporation and certain of ~~$16~~its ~~million~~subsidiaries, onincluding the ~~sale~~Company, ofto ~~the~~incur indebtedness ~~Dodgers~~in certain circumstances. ~~(see~~ ~~Note~~Such 6)debt instruments mature at various times between 2005 and 2096, with a weighted average maturity of 20 years.

~~Note~~In 11August –2004, ~~Recent~~News ~~Accounting~~Corporation, ~~Pronouncements~~along with the Company and certain of News Corporation’s other subsidiaries, issued a guarantee for the obligations of Sky Brasil, an equity affiliate of News Corporation, under a $210 million three-year credit agreement with JPMorgan Chase Bank and Citibank NA. In October 2004, News Corporation and DIRECTV announced a series of transactions that will result in the reorganization of the companies’ direct-to-home satellite television platforms in Latin America. As part of these transactions, DIRECTV will acquire News Corporation’s interests in Sky Brasil, the completion of which is subject to regulatory approval, and will assume all of News Corporation’s obligations thereof, including those under the credit agreement guaranteed by the Company at closing. Given the strong financial position of the other guarantors, the Company believes it is highly unlikely it will be required to perform any of the obligations under the guarantee.

In ~~December 2003,~~ the ~~Financial~~case ~~Accounting~~of ~~Standards~~any ~~Board (“FASB”)~~event ~~issued~~of adefault ~~revised~~under ~~FASB~~such ~~Interpretation~~debt ~~No. 46~~obligations, ~~“Consolidation~~the ofCompany ~~Variable~~will ~~Interest~~be ~~Entities,”~~directly ~~(“FIN~~liable ~~46R”).~~to ~~FIN~~the ~~46R~~creditors ~~modifies~~or ~~FIN~~debtholders. 46News toCorporation ~~include~~has ~~(1)~~agreed ato ~~deferral~~indemnify of the ~~effective~~Company ~~date~~from ofand ~~the~~against ~~provisions related to~~any ~~certain~~obligations ~~variable~~it ~~interests,~~may ~~(2)~~incur ~~additional~~by ~~scope~~reason ~~exceptions~~of ~~for~~its ~~certain~~guarantees ~~other variable interests, (3) clarifications on the impact~~ of ~~troubled~~such debt ~~restructurings, and (4) additional guidance on what constitutes a variable interest~~obligations. ~~The~~As ~~adoption~~ of ~~FIN~~ ~~46R is required in the financial statements of public entities that have interests in special purpose entities (“SPE’s”) for periods ending after~~ December 1531, ~~2003.~~2004, ~~Adoption~~News byCorporation ~~public~~was ~~entities~~in ~~that~~compliance ~~have~~with ~~interests in~~ all ~~other types~~ of ~~entities~~its isdebt ~~required~~covenants inand ~~financial~~had ~~statements~~satisfied ~~for~~all ~~periods~~financial ~~ending~~ratios ~~after~~and ~~March~~tests ~~15,~~and ~~2004.~~expects ~~The~~to ~~Company~~remain ~~will adopt the provisions of FIN 46R~~ in compliance ~~the~~and ~~quarter~~satisfy ~~ended~~all ~~March~~such ~~31,~~ratios ~~2004~~and tests.

InNote ~~December~~11 ~~2003,~~- ~~the FASB issued SFAS No. 132 (revised 2003), “Employer’s Disclosures about Pensions and~~ Other ~~Postretirement Benefits~~,” which requires expanded financial statement disclosures for defined benefit plans. The interim disclosure requirements of SFAS No. 132 are effective for interim periods beginning after December 15, 2003. The Company willnet ~~provide the additional required disclosures in the interim financial statements for the quarter ended March 31, 2004.~~

In January 2004, the FASB issued FASB Staff Position (“FSP”) No. FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” This FSP permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 until authoritative guidance on the accounting for the federal subsidy is issued or until certain other events occur. The Company has elected to defer the adoption of this FSP until further guidance is available. Therefore, the APBO and the net periodic postretirement benefit cost does not reflect the impact of the new law.


	For the three months ended December 31,					For the six months ended December 31,
	2004		2003			2004		2003
	(in millions)					(in millions)
Sale of interest in Rogers Sportsnet ^b	$	39	$	—		$	39	$	—
Sale of interest in the SportsChannels ^b		—		—			—		9
World Trade Center Insurance Settlement ^a		—		—			—		26
Loss on the sale of the Dodgers ^b		—		(7	)		—		(16	)

Other, net	$	39	$	(7	)	$	39	$	19

FOOTNOTES

^a	Amount represents a gain related to the settlement of the Company’s insurance claim primarily for its broadcast tower at the World Trade Center in New York.

^b	Refer to Note 7 – Other Acquisitions and Disposals for further details on these transactions.

FOX ENTERTAINMENT GROUP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED ~~CONDENSED~~ FINANCIAL STATEMENTS

Note 12 – Subsequent Events

InOn ~~connection~~January ~~with~~10, ~~the~~2005, ~~sale~~Fox ofAcquisition ~~The~~Corp, ~~Health~~a ~~Network~~direct ~~(“THN”)~~wholly-owned insubsidiary ~~June~~of ~~2001~~News Corporation, made an offer to the ~~Company~~holders ~~retained~~of aClass ~~10%~~A ~~carried~~common ~~interest~~stock inof the ~~newly~~Company to ~~formed~~exchange ~~entity,~~1.90 ~~Discovery~~shares ~~Health~~of ~~Network~~News Corporation’s Class A common stock for each outstanding share of the Company’s Class A common stock validly tendered and not withdrawn in the exchange offer (the “~~Discovery~~Offer”). OnNews ~~December~~Corporation ~~29,~~currently owns ~~2003,~~approximately 82% of the equity and 97% of the voting power of the Company ~~exercised~~through its ~~right~~ownership toof ~~put~~approximately ~~its~~59% 10of the outstanding shares of the Company’s Class A common stock and 100% ~~carried~~of ~~interest~~the outstanding shares of the Company’s Class B common stock. The Offer is subject to ~~Discovery~~the ~~for~~non-waivable condition that at least a majority of the ~~greater~~outstanding shares of ~~$93~~the ~~million~~Company’s orClass ~~fair~~A ~~market~~common ~~value,~~stock asnot ~~determined~~beneficially owned by anNews ~~independent~~Corporation and its subsidiaries and affiliates are ~~third~~validly ~~party~~tendered and not withdrawn in the Offer as well as certain other conditions set forth in the Offer documents. ~~Accordingly~~The Offer will expire on February 22, 2005, unless it is extended by News Corporation. If News Corporation completes the ~~value~~Offer, it intends to effect a “short form” merger of the ~~interest~~Company ~~has~~with and into Fox Acquisition Corp shortly thereafter. Each share of the Company’s Class A common stock not ~~yet~~acquired ~~been~~in ~~determined~~the Offer, other than the shares owned by News Corporation, would be converted in the “short form” merger into 1.90 shares of News Corporation’s Class A common stock.

The Company’s Board of Directors formed a Special Committee which, on January 24, 2005, requested that the Company’s stockholders take no action and not tender their Class A shares with respect to the Offer at the current time and instead defer making a determination whether to accept or reject the Offer until the Special Committee has advised the Company’s stockholders of the Special Committee’s position or recommendation, if any, with respect to the Offer.

Certain Legal Proceedings

On January 10, 2005, the Company received complaints relating to a number of purported class actions filed in Court of Chancery in the State of Delaware. The complaints generally allege, among other things, that News Corporation and the members of the Company’s board of directors have breached fiduciary duties owed to the public stockholders of the Company, including as a result of News Corporation offering to acquire shares of the Company’s Class A common stock at an unfair price and at a time that disadvantages the Company’s stockholders. The complaints generally seek, declaratory and injunctive relief and damages in an unspecified amount. The Company believes that these claims are without merit and intends to vigorously contest the allegations.

The Company is currently aware of seventeen purported class action complaints that have been filed in the Court of Chancery of the State of Delaware challenging the Offer. The Delaware complaints are captioned: Allen v. News Corp., et al., No. 979-N; Mascarenhas v. Fox Entm’t. Group, et al., No. 980-N; Shemesh v. Fox Entm’t. Group, et al., No. 981-N; Striffler v. FEG Holdings, et al., No. 982-N; Howard Vogel Ret. Plan v. Powers, et al., No. 984-N; Doniger v. News Corp., et al., No. 985-N; Engle v. Murdoch, et al., No. 986-N; Shrank v. Murdoch, et al., No. 988-N; Blackman v. Fox Entm’t. Group, et al., No. 991-N; Fishbone v. News Corp., et al., No. 994-N; Kennel v. News Corp., et al., No. 995-N; Millner v. News Corp., et al., No. 996-N; Pipefitters Locals v. Fox Entm’t. Group, et al., No. 1003-N; Molinari v. News Corp., et al., C.A. No. 1018-N; Seaview Services v. Fox Entertainment, et al., C.A. No. 1026-N; Teachers’ Retirement System of Louisiana v. Powers, et al., C.A. No. 1033-N; and New Jersey Building Laborers’ Pension Fund v. Powers, et al., C.A. No. 1034. The Shrank action, No. 988-N, was voluntarily dismissed on January 19, 2005. The Company is also currently aware of two purported class action complaints raising substantially similar claims that have been filed in the Supreme Court of the State of New York, County of New York. The New York complaints are captioned: Shrank v. Murdoch, et al., Index No. 600114/2005; and Green Meadows Ptr. v. Fox Entertainment, et al., No. 100706/2005. On January 21, 2005, certain plaintiffs in the Delaware lawsuits filed a motion that seeks to consolidate the Delaware actions. In addition, News Corporation has filed motions to dismiss and to stay discovery, and the plaintiffs have filed a motion for expedited proceedings. On February 3, 2005, the Court of Chancery denied News Corporation’s motion to stay discovery, and granted the plaintiffs’ motion for expedited discovery and motion to consolidate.

All of the complaints generally allege, among other things, that News Corporation and the members of the Company’s board of directors purportedly breached fiduciary duties owed to the public stockholders of the Company in connection with the Offer by: (1) offering to acquire their shares at an unfair price; (2) offering to acquire their shares at a time that disadvantages the public stockholders; (3) having the Company appoint directors who are neither independent nor disinterested to a special committee created to consider the Offer; and (4) failing to adequately disclose information material to the Offer, including disclosure with respect to the Company’s 2005 budget.

As for relief, the plaintiffs seek, among other things: (1) an order that the complaints are properly maintainable as a class action; (2) a declaration that defendants have breached their fiduciary duties and other duties to the plaintiffs and other members of the purported class; (3) injunctive relief; (4) unspecified monetary damages; (5) attorneys’ fees, costs and expenses; and (6) such other and further relief as the Court may deem just and proper. The Company believes that these claims are without merit and intends to vigorously contest these allegations.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This document contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words “expect,” “estimate,” “anticipate,” “predict,” “believe” and similar expressions and variations thereof are intended to identify forward-looking statements. These statements appear in a number of places in this document and include statements regarding the intent, belief or current expectations of the Fox Entertainment Group, Inc., its directors or its officers with respect to, among other things, trends affecting the Company’s financial condition or results of operations. The readers of this document are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Those risks and uncertainties are discussed under the heading “Risk Factors,” in the Company’s Registration Statement on Form S-3 (SEC file no. 333-85978) as declared effective by the Securities and Exchange Commission on April 10, 2002, as well as the information set forth below. The Company does not ordinarily make projections of its future operating results and undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Readers should carefully review other documents filed by the Company with the Securities and Exchange Commission. This section should be read in conjunction with the unaudited consolidated ~~condensed~~ financial statements of the Company and related notes set forth elsewhere herein.

~~Overview~~RECENT ofDEVELOPMENTS ~~our Business~~

~~The~~On ~~following~~January ~~discussion~~10, ~~and~~2005, ~~analysis~~Fox Acquisition Corp, a direct wholly-owned subsidiary of News Corporation, made an offer to the ~~Fox~~holders ~~Entertainment~~of ~~Group,~~Class ~~Inc~~A common stock of the Company to exchange 1.90 shares of the News Coporation’s Class A common stock for each outstanding share of the Company’s Class A common stock validly tendered and not withdrawn in the exchange offer (the “~~Company~~Offer”). ~~financial~~News ~~condition~~Corporation currently owns approximately 82% of the equity and ~~results~~97% of ~~operations~~the ~~should~~voting bepower ~~read in~~of ~~conjunction~~the ~~with~~Company through its ownership of approximately 59% of the ~~Unaudited~~outstanding ~~Consolidated~~shares ~~Condensed~~of ~~Financial~~the ~~Statements~~Company’s Class A common stock and 100% of the ~~related~~outstanding ~~Notes~~shares ~~thereto~~of ~~included~~the ~~elsewhere~~Company’s ~~herein~~Class B common stock. The Offer is subject to the non-waivable condition that at least a majority of the outstanding shares of the Company’s Class A common stock not beneficially owned by News Corporation and its subsidiaries and affiliates are validly tendered and not withdrawn in the Offer as well as certain other conditions set forth in the Offer documents. The Offer will expire on February 22, 2005, unless it is extended by News Corporation. If News Corporation completes the Offer, it intends to effect a “short ~~diversified~~form” ~~entertainment~~merger ~~company~~of ~~which~~the ~~manages~~Company with and ~~reports~~into ~~its~~Fox ~~businesses~~Acquisition Corp shortly thereafter. Each share of the Company’s Class A common stock not acquired in ~~four~~the ~~segments:~~Offer, other than the shares owned by News Corporation, would be converted in the “short form” merger into 1.90 shares of News Corporation’s Class A common stock.

•The ~~Filmed~~Company’s ~~Entertainment,~~Board of Directors formed a Special Committee which, ~~principally~~on ~~consists~~January of24, 2005, requested that the ~~production~~Company’s ~~and~~stockholders ~~acquisition~~take ofno ~~live-~~action and ~~animated~~not ~~motion~~tender ~~pictures~~their ~~for~~Class ~~distribution~~A shares with respect to the Offer at the current time and ~~licensing~~instead indefer ~~all~~making ~~formats~~a indetermination ~~all~~whether ~~entertainment~~to ~~media~~accept ~~primarily~~or inreject the ~~United~~Offer ~~States,~~until ~~Canada~~the ~~and~~Special ~~Europe,~~Committee ~~and~~has advised the ~~production~~Company’s stockholders of ~~original~~the ~~television~~Special ~~programming~~Committee’s inposition ~~the~~or ~~United~~recommendation, ~~States~~if ~~and~~any, ~~Canada;~~with respect to the Offer.

•Class ~~Television~~action ~~Stations,~~complaints ~~which~~have ~~principally~~been ~~consists~~filed ofin the ~~operation~~Court of Chancery 35of ~~full~~the ~~power~~State ~~broadcast~~of ~~television~~Delaware ~~stations,~~challenging ~~including nine duopolies, in~~ the ~~United States~~Offer. Of(See ~~these~~Part ~~stations,~~II. ~~nine~~Item ~~are~~1 ~~affiliated~~Legal ~~with~~Proceedings) ~~the UPN network and 25 with the FOX network;~~

•INTRODUCTION ~~Television Broadcast Network, which principally consists of the broadcasting of network programming in the United States; and~~

•Management’s discussion ~~Cable~~and ~~Network~~analysis ~~Programming,~~of ~~which~~financial ~~principally~~condition ~~consists~~and results of ~~the~~operations ~~production~~(“MD&A”) ~~and~~is ~~licensing~~intended ofto ~~programming~~help ~~distributed~~provide ~~through~~an ~~cable~~understanding ~~television~~of ~~systems~~the ~~and~~Fox ~~direct~~Entertainment ~~broadcast~~Group, ~~satellite~~Inc.’s (the “~~DBS~~Company”) ~~operators~~financial condition, changes in financial ~~the~~condition ~~United~~and ~~States~~results of operations. MD&A is organized as follows:

~~Feature~~• ~~film and~~Overview ~~television production and distribution are speculative businesses because the revenues derived from the production and distribution~~ of aour ~~feature~~Business ~~film~~- orThis ~~television~~section ~~series~~provides ~~depend primarily upon their acceptance by the public, which is difficult to predict. The commercial success of~~ a ~~feature~~general ~~film~~description ~~or television series also depends upon the quality and acceptance~~ of ~~other competing films and television series released into~~ the ~~marketplace~~Company’s ~~at or near the same time~~businesses, ~~the~~as ~~availability~~well ~~of alternative~~as ~~forms~~recent ofdevelopments ~~entertainment~~that ~~and~~have ~~leisure~~occurred ~~time~~during ~~activities,~~fiscal ~~general~~2005 ~~economic~~that ~~conditions and other tangible and intangible factors, all of which can change and cannot be predicted with certainty. Further,~~ the ~~theatrical~~Company ~~success~~believes ~~of a feature film and the audience ratings for a television series~~ are ~~generally~~important ~~key factors~~ in ~~generating~~understanding ~~revenues~~the ~~from~~results ~~other~~of ~~distribution~~operations ~~channels, such as home entertainment~~ and ~~premium~~financial ~~pay~~condition ~~television~~or ~~with respect~~ to ~~feature~~disclose ~~films~~known ~~and~~future ~~syndication with respect to television series~~trends. The home entertainment market, more specifically DVDs, has emerged as a significant revenue stream in our Filmed Entertainment segment. In fiscal 2003, the Company’s DVD revenues rose approximately 40% over fiscal 2002 revenues to more than $1 billion.

~~Our~~• ~~television~~Results ~~broadcast network is dependent upon the maintenance~~ of ~~affiliation~~Operations ~~agreements with third~~-~~party~~ ~~owned~~This ~~television~~section ~~stations,~~provides ~~and~~an ~~there~~analysis ~~can~~of bethe noCompany’s ~~assurance~~results ~~that~~of ~~such~~operations ~~affiliation~~for ~~agreements~~the ~~will~~three bemonths ~~renewed~~and insix ~~the~~months ~~future~~ended onDecember ~~terms~~31, ~~acceptable~~2004 toand us2003. ~~The~~This ~~loss~~analysis ofis apresented ~~significant number~~on ofboth ~~such~~a ~~affiliation~~consolidated ~~arrangements~~and ~~could~~a ~~reduce~~segment ~~the~~basis. ~~distribution~~In ~~of the Fox Broadcasting Company (“FOX”)~~addition, ~~thereby~~a ~~adversely~~brief ~~affecting~~description ~~our~~is ~~ability~~provided toof ~~sell~~significant ~~national~~transactions ~~advertising time. Similarly, our cable networks maintain affiliation~~ and ~~carriage~~events ~~arrangements~~ that ~~enable~~have ~~them~~an toimpact ~~reach~~on athe ~~large~~comparability ~~percentage~~ of ~~cable~~the ~~and~~results ~~DBS~~being ~~households across~~ analyzed.

~~the~~• ~~United~~Liquidity ~~States.~~and ~~The~~Capital ~~loss~~Resources of- aThis ~~significant~~section ~~number~~provides an analysis of ~~these~~the ~~arrangements~~Company’s orcash flows for the ~~loss~~six ofmonths ~~carriage~~ended onDecember ~~basic~~31, ~~programming~~2004 ~~tiers~~and ~~could~~2003. ~~reduce~~Included in the ~~distribution~~discussion of ~~our~~ ~~cable~~outstanding ~~networks,~~debt ~~thereby~~is ~~adversely~~a ~~affecting~~discussion ~~such~~of ~~networks’~~the ~~revenues~~amount ~~from~~of ~~subscriber~~financial ~~fees~~capacity available to fund the Company’s future commitments and ~~advertising~~obligations, ~~sales.~~as well as a discussion of other financing arrangements.

~~The~~OVERVIEW ~~Company~~OF ~~derives~~OUR ~~substantial~~BUSINESS revenues from the sale of advertising time on our television broadcast network, television stations and cable networks. Expenditures by advertisers tend to be cyclical, reflecting overall economic conditions as well as budgeting and buying patterns. A decline in the economic prospects of advertisers or the economy in general could alter current or prospective advertisers’ spending priorities. This could cause our revenues and operating results to decline significantly in any given period.

~~Program~~The ~~ratings for the Television Broadcasting Network and Cable Network Programming segments are factors that are weighed when deciding on the advertising rates and affiliate rates that the~~ Company ~~receives.~~is ~~Poor ratings can lead to~~ a ~~reduction~~diversified inentertainment ~~pricing and advertising spending. At the Television Broadcast Network segment~~company, ~~excluding~~which ~~sports,~~manages ~~FOX’s~~and ~~ratings~~reports ~~were down for the first six months of fiscal year 2004 as compared to the first six months of fiscal 2003. The Company is focused on improving~~ its ~~programming lineup to maintain its share of the advertising market. The Company anticipates that American Idol 3 and My Big Fat Obnoxious~~businesses ~~Fiancé will improve ratings~~ in ~~the~~four ~~third~~segments: ~~quarter of fiscal 2004.~~

~~The~~• ~~sports~~Filmed ~~rights~~Entertainment, ~~contracts~~which ~~between~~principally ~~the~~consists ~~Company,~~of on the ~~one~~production ~~hand,~~ and ~~various~~acquisition ~~professional~~of ~~sports~~live-action ~~leagues~~ and ~~teams,~~animated onmotion ~~the~~pictures ~~other,~~for ~~have~~distribution ~~varying duration~~ and ~~renewal~~licensing ~~terms.~~in Asall ~~these~~formats ~~contracts~~in ~~expire,~~all weentertainment ~~may~~media ~~seek renewals on commercial terms. However~~worldwide, ~~third~~and ~~parties may outbid~~ the ~~current~~production ~~rights~~of ~~holders for such rights contracts. In addition, professional sports leagues or teams may create their own networks, or the renewal costs could substantially exceed the~~ original ~~contract~~television cost. The loss of rights could impact the extent of the sports coverage offered by us and our affiliates, as it relates to FOX and Fox Sports Net, and could adversely affect our advertising revenues. In addition, our results could be adversely affected if escalations in sports programming ~~rights costs are unmatched by increases~~ in ~~advertising rates and, in~~ the ~~case~~United ofStates ~~cable~~and ~~networks, subscriber fees~~Canada.

~~Sources~~• Television Stations, which principally consists of ~~Revenue~~the operation of 35 full power broadcast television stations, including nine duopolies, in the United States. Of these stations, 25 are affiliated with the FOX network, nine with the UPN network and one is an independent station.

~~Filmed~~• ~~Entertainment.~~Television ~~The~~Broadcast ~~Filmed Entertainment segment derives revenue from theatrical distribution~~Network, ~~home~~which ~~entertainment~~principally ~~sales~~consists ~~and distribution through pay-per-view, pay television services and broadcast television. The revenues and operating results~~ of the ~~Filmed~~broadcasting ~~Entertainment segment are significantly affected by the timing~~ of the Company’s theatrical, home entertainment releases, the number of its original and returning television series that are aired by television networks and the number of its television series on off-network ~~syndication.~~programming ~~Theatrical release dates are determined by several factors, including timing of vacation and holiday periods and competition~~ in the ~~marketplace.~~ ~~Each~~United ~~motion picture is a separate and distinct product, and its financial success depends upon many factors, including public acceptance~~States.

~~Television~~• ~~Stations~~Cable ~~and Television Broadcast~~ Network. ~~The~~Programming, ~~two~~which ~~reportable television segments derive their revenues~~ principally ~~from~~consists ~~the sale~~ of ~~advertising~~the ~~time. Generally,~~production ~~advertising time is sold to national advertisers by FOX~~ and tolicensing ~~national~~of ~~“spot”~~programming ~~and~~distributed ~~local~~through ~~advertisers~~cable bytelevision ~~the~~systems ~~Company’s group of 35 owned~~ and ~~operated~~direct ~~full power television~~ broadcast ~~stations~~satellite (“~~O&Os~~DBS”) inoperators ~~their respective markets. The sale of advertising time is affected by viewer demographics, program ratings and general market conditions. Adverse changes~~ in the ~~general~~United ~~market conditions for advertising may affect revenues~~States.

~~Cable~~Filmed ~~Network~~Entertainment Programming. The Cable Network Programming segment derives revenues from monthly affiliate fees received from cable television systems and DBS operators based on the number of subscribers, net of the amortization of cable distribution investments, as well as from the sale of advertising time. Monthly affiliate fees are dependent on maintenance of carriage arrangements with cable television systems and DBS operators. The sale of advertising time is affected by viewer demographics, program ratings and general market conditions. Adverse changes in general market conditions for advertising may affect revenues.

The Filmed Entertainment segment derives revenue from theatrical distribution, home entertainment sales and distribution through pay-per-view, pay television services and broadcast television. The revenues and operating results of the Filmed Entertainment segment are significantly affected by the timing of the Company’s theatrical and home entertainment releases, the number of its original and returning television series that are aired by television networks and the number of its television series in off-network syndication. Theatrical release dates are determined by several factors, including timing of vacation and holiday periods and competition in the marketplace.

Operating costs incurred by the Filmed Entertainment segment include exploitation costs, primarily prints and advertising; the amortization of capitalized production, overhead and interest costs; and participations and talent residuals. Selling, general and administrative expenses include salaries, employee benefits, rent and other routine overhead.

Feature film and television production and distribution are speculative businesses since the revenues derived from the production and distribution of a feature film or television series depend primarily upon their acceptance by the public, which is difficult to predict. The commercial success of a feature film or television series also depends upon the quality and acceptance of other competing films and television series released into the marketplace at or near the same time, the availability of alternative forms of entertainment and leisure time activities, general economic conditions and other tangible and intangible factors, all of which can change and cannot be predicted with certainty. Further, the theatrical success of a feature film and the audience ratings for a television series are generally key factors in generating revenues from other distribution channels, such as home entertainment and premium pay television, with respect to feature films, and syndication, with respect to television series. The home entertainment market, more specifically DVDs, has emerged as the fastest growing revenue stream in the filmed entertainment industry.

Piracy continues to be a significant issue for the filmed entertainment industry, especially from online file sharing, which has expanded from music to movies and television programming due to changes in technology. The Company has taken, and will continue to take, a variety of actions to combat piracy, both individually and together with industry associations. To the extent that piracy in the filmed entertainment industry continues or increases, our revenues in this segment may be materially adversely impacted.

~~Components~~Television ofStations, ~~Expenses~~Television Broadcast Network and Cable Network Programming

~~Filmed~~The ~~Entertainment~~two reportable television segments derive revenues principally from the sale of advertising time. ~~Operating~~Generally, ~~costs~~advertising ~~incurred~~time is sold to national advertisers by the ~~Filmed~~Fox ~~Entertainment~~Broadcasting ~~segment~~Company ~~include~~(“FOX”) ~~exploitation~~and ~~costs,~~to ~~primarily~~national ~~prints~~“spot” and ~~advertising;~~local advertisers by the Company’s group of 35 owned and operated full power ~~amortization~~television broadcast stations (“O&Os”) in their respective markets. The Cable Network Programming segment also derives a portion of ~~capitalized~~its ~~production,~~revenues ~~overhead~~from national and ~~interest~~local ~~costs;~~advertising ~~and~~sales. ~~participations~~The sale of advertising time is affected by viewer demographics, program ratings, major sporting events, major political elections and ~~talent~~general ~~residuals~~market conditions. ~~Selling,~~Adverse changes in the general market conditions for advertising may affect revenues and ~~administrative~~operating ~~expenses~~results. ~~include~~Expenditures ~~salaries~~by advertisers tend to be cyclical, ~~employee~~reflecting ~~benefits~~overall economic conditions, ~~rent~~as well as buying patterns. A decline in the economic prospects of advertisers or the economy in general could alter current or prospective advertisers’ spending priorities. This could cause our revenues and ~~other~~operating ~~routine~~results ~~overhead~~to decline significantly in any given period, or in specific markets.

~~Television~~Rating ~~Stations,~~points ~~Television~~for ~~Broadcast~~the ~~Network~~two reportable television segments and Cable Network Programming. segment are factors that are also weighed when deciding on the advertising rates ~~Operating~~and ~~expenses~~the renegotiation of affiliate rates that the ~~two~~Company ~~reportable~~receives. ~~television~~Poor ~~segments~~ratings can lead to a reduction in pricing and advertising spending. During the ~~Cable~~first ~~Network~~half ~~Programming~~fiscal ~~segment~~2005, ~~include~~FOX’s ~~expenses~~prime ~~related~~time toratings ~~acquiring~~were ~~programming~~lower ~~and~~than ~~rights~~the tocorresponding ~~programming~~period of fiscal 2004. ~~Operating~~The ~~expenses~~Company ~~also~~is ~~typically~~focused ~~include~~on ~~production~~improving ~~and~~its ~~technical expenses~~programming ~~related~~lineup to ~~operating~~maintain ~~the~~its ~~technical~~share ~~facilities~~ of the ~~broadcaster~~advertising ormarket. ~~cable~~The ~~network.~~Company ~~Selling,~~has ~~general~~a ~~and~~strong ~~administrative~~prime ~~expenses~~time ~~include~~lineup ~~all~~for ~~promotional~~the ~~expenses~~second ~~related~~half toof ~~improving~~fiscal 2005 including the ~~market~~return ~~visibility~~of 24 and American ~~awareness~~Idol, ofwhich we believe will improve ratings. At the ~~broadcaster~~Cable ~~or cable~~Network ~~network~~Programming segment, we continue to launch new and ~~sales~~original ~~commissions~~programming ~~paid~~and continue to ~~the~~examine ~~in-house~~opportunities ~~sales~~to ~~force~~launch ~~involved~~new inFox ~~the~~channels. ~~sale~~The ofCompany ~~advertising~~has asannounced ~~well~~the launch asof ~~salaries,~~a ~~employee~~new ~~benefits,~~reality ~~rent~~cable ~~and~~channel ~~other~~to ~~routine~~begin ~~overhead~~broadcast in fiscal 2005.

~~Depreciation~~In April ~~and~~2004, ~~Amortization~~Nielsen ~~Expense~~Media Research (“Nielsen”) began to transition the existing local television ratings system to the use of Local People Meters (“LPMs”) in certain large markets. ~~Depreciation~~This ~~and~~transition ~~amortization~~to ~~expense~~LPMs ~~includes~~has adversely impacted the ~~depreciation~~ratings of ~~property~~the O&Os in the markets where the transition has occurred. The fiscal 2004 transition adversely impacted the revenue of the Television Stations segment by less than 1% and ~~equipment,~~the ~~as well~~Company asanticipates ~~amortization~~revenue of ~~finite-lived~~the ~~intangible~~Television ~~assets~~Stations segment could be adversely impacted by less than 5% in fiscal 2005.

~~Use~~The Cable Network Programming segment derives a majority of ~~Operating Income~~its ~~Before~~revenues ~~Depreciation~~from monthly affiliate fees received from cable television systems and ~~Amortization~~DBS operators based on the number of its subscribers, net of the amortization of cable distribution investments (capitalized fees paid to a cable operator or DBS operator to facilitate the launch of a cable network).

~~Operating~~We ~~Income~~are ~~Before Depreciation~~dependent ~~and~~upon ~~Amortization,~~the ~~defined~~maintenance asof ~~operating~~affiliation ~~income~~agreements ~~(loss)~~with ~~plus~~third ~~depreciation~~party ~~and~~owned ~~amortization~~television ~~and the amortization of cable distribution investments~~stations, ~~eliminates~~and ~~the~~there ~~variable~~can ~~effect~~be ~~across~~no ~~all~~assurance ~~business~~that ~~segments~~these ofaffiliation ~~non-cash~~agreements ~~depreciation~~will ~~and amortization.~~be ~~Depreciation~~renewed ~~and~~in ~~amortization expense includes~~ the ~~depreciation~~future ofon ~~property~~terms acceptable ~~and~~to ~~equipment~~us. asThe ~~well~~loss ~~as amortization~~ of ~~finite-lived~~a ~~intangible~~significant ~~assets.~~number ~~Amortization~~ of ~~cable~~these ~~distribution~~affiliation ~~investments~~arrangements ~~represents~~could areduce ~~reduction against revenues over~~ the ~~term~~distribution of aFOX ~~carriage~~thereby ~~arrangement~~adversely ~~and~~affecting asour ~~such~~ability itto issell ~~excluded~~national ~~from~~advertising ~~Operating~~time. ~~Income~~Similarly, ~~Before~~our ~~Depreciation~~cable ~~and~~networks ~~Amortization.~~maintain ~~Since~~affiliation and ~~Operating~~carriage ~~Income~~arrangements ~~Before~~that ~~Depreciation~~enable ~~and~~them ~~Amortization~~to isreach a ~~non-GAAP~~large ~~measure,~~percentage itof ~~should~~cable beand ~~considered~~direct inbroadcast ~~addition~~satellite ~~to, not~~households asacross athe ~~substitute~~United ~~for,~~States. ~~operating~~The ~~income (~~loss), ~~net~~of ~~income~~a ~~(loss),~~significant ~~cash~~number ~~flow and other measures~~ of ~~financial~~these ~~performance~~arrangements ~~reported~~or inthe ~~accordance~~loss ~~with~~of ~~generally~~carriage ~~accepted~~on ~~accounting~~basic ~~principles~~programming tiers ~~(“GAAP”).~~could ~~Operating~~reduce ~~Income~~the ~~Before~~distribution ~~Depreciation and~~of ~~Amortization~~our ~~does~~cable ~~not~~networks, ~~reflect~~which ~~cash~~may ~~available~~also toadversely ~~fund~~affect ~~requirements~~such ~~and~~networks’ ~~the~~revenues ~~items excluded~~ from ~~Operating~~subscriber ~~Income~~fees ~~Before Depreciation~~ and ~~Amortization,~~ability ~~such~~to assell ~~depreciation~~national and ~~amortization,~~local ~~are~~advertising ~~significant components in assessing the Company’s financial performance~~time.

~~Management~~The ~~believes~~most ~~that~~significant ~~Operating Income~~operating ~~Before~~expenses ~~Depreciation~~of ~~and~~the ~~Amortization~~two isreportable antelevision ~~appropriate~~segments ~~measure~~and ~~for evaluating~~ the Cable ~~operating~~Network ~~performance~~Programming ofsegment ~~the~~are ~~Company’s~~expenses ~~business~~related ~~segments.~~to ~~Operating~~acquiring ~~Income~~programming ~~Before Depreciation~~ and ~~Amortization,~~the ~~which~~production isand ~~the~~technical ~~information~~expenses ~~reported~~related to ~~and used~~operating by the ~~Company’s~~technical ~~chief~~facilities ~~decision~~of ~~maker for~~ the ~~purpose~~broadcaster ofor ~~making~~cable ~~decisions~~network. ~~about~~Other ~~the~~expenses ~~allocation~~include ofpromotional ~~resources~~expenses related to ~~segments~~improving ~~and~~the ~~assessing~~market ~~their~~visibility ~~performance, provides management, investors~~ and ~~equity~~awareness ~~analysts a measure to analyze operating performance~~ of ~~each~~the ~~business~~broadcaster ~~segment~~or ~~and~~cable ~~enterprise~~network ~~value against historical~~ and ~~competitors’~~sales ~~data,~~commissions ~~although~~paid ~~historical~~to ~~results,~~the ~~including~~in-house ~~Operating~~advertising ~~Income~~sales ~~Before~~force ~~Depreciation~~as ~~and~~well ~~Amortization, may not be indicative of future results~~ as ~~operating~~ ~~performance~~salaries, isemployee ~~highly contingent on many factors~~benefits, ~~including~~rent ~~customer~~and ~~tastes~~other ~~and~~routine ~~preferences~~overhead.

~~The~~Sports ~~following~~programming ~~comparative~~rights ~~discussion~~contracts ofbetween the ~~results~~Company, on the one hand, and various professional sports leagues and teams, on the other, have varying duration and renewal terms. As these contracts expire, we may seek renewals on commercial terms. However, third parties may outbid the current rights holders for such rights contracts. In addition, professional sports leagues or teams may create their own networks or the renewal costs could substantially exceed the original contract cost. The loss of ~~operations~~rights could impact the extent of the ~~Company~~sports ~~includes~~coverage offered by FOX, its ~~among~~affiliates, ~~other~~and ~~factors~~our regional sports networks (“RSNs”), anand ~~analysis~~could ofadversely ~~changes~~affect our advertising and affiliate revenues. Conversely, if we are able to renew these contracts, our results could be adversely affected if escalations in sports ~~business~~programming ~~segment~~rights ~~Operating~~costs ~~Income~~are ~~Before~~unmatched ~~Depreciation~~by increases in advertising rates and, ~~Amortization~~in the case of cable networks, subscriber fees.

The Company has several multi-year sports rights agreements, including contracts with the National Football League (“NFL”) through fiscal 2012, contracts with the National Association of Stock Car Auto Racing (“NASCAR”) through fiscal 2013 and a

~~Results~~ contract with Major League Baseball (“MLB”) through fiscal 2007. These contracts provide the Company with the broadcast rights to certain national sporting events during their respective terms. The NASCAR contract contains certain early termination clauses that are exercisable by NASCAR. The costs of ~~Operations—Three~~these ~~months~~sports ~~ended~~contracts ~~December~~are ~~31,~~charged ~~2003~~to ~~versus~~expense ~~Three~~based ~~months~~on ~~ended~~the ~~December~~ratio ~~31,~~of ~~2002~~each period’s operating profits to estimated total remaining operating profit of the contract.

The ~~following~~profitability ~~table~~of ~~sets~~these ~~forth~~long-term national sports contracts as discussed above is based on the Company’s ~~operating~~best ~~results,~~estimates ~~by segment~~at December 31, ~~for~~2004 of directly attributable revenues and costs; such estimates may change in the ~~three~~future, ~~months~~and such ~~ended~~changes may be significant. Should revenues decline from estimates applied at December 31, ~~2003~~2004, a loss will be recorded. Should revenues improve as compared to estimated revenues, the ~~three~~Company ~~months~~will ~~ended~~have ~~December~~a 31positive operating profit, ~~2002~~which will be recognized over the estimated remaining contract term.

	For the three months ended December 31,
	2003			2002			Change			% Change
	(in millions, except % change)
Revenues (1):
Filmed Entertainment	$	1,384		$	1,338		$	46		3	%
Television Stations		571			593			(22	)	(4	)%
Television Broadcast Network		860			749			111		15	%
Cable Network Programming		565			470			95		20	%
Total revenues	$	3,380		$	3,150		$	230		7	%
Operating income (loss):
Filmed Entertainment	$	260		$	260		$	—		—
Television Stations		276			305			(29	)	(10	)%
Television Broadcast Network		(133	)		(154	)		21		14	%
Cable Network Programming		155			89			66		74	%
Total operating income (loss)		558			500			58		12	%
Interest expense, net		(15	)		(49	)		34		69	%
Equity earnings (losses) of affiliates		(2	)		(12	)		10		83	%
Minority interest in subsidiaries		(1	)		(7	)		6		86	%
Other, net		(7	)		—			(7	)	**
Income before provision for income taxes		533			432			101		23	%
Provision for income tax expense on a stand-alone basis		(203	)		(149	)		(54	)	(36	)%
Net income	$	330		$	283		$	47		17	%
Other data:
Operating Income Before Depreciation and Amortization (2):
Filmed Entertainment	$	275		$	274		$	1		—
Television Stations		289			320			(31	)	(10	)%
Television Broadcast Network		(128	)		(149	)		21		14	%
Cable Network Programming		198			132			66		50	%
Total Operating Income Before Depreciation and Amortization	$	634		$	577		$	57		10	%

In general, the television broadcasting and multichannel video programming and distribution industries in the United States are highly regulated by federal laws and regulations issued and administered by various federal agencies, including the Federal Communications Commission (“FCC”). The FCC generally regulates, among other things, the ownership of media (including ownership by non-U.S. citizens), broadcast and multichannel video programming and technical operations of broadcast and satellite licensees. Further, the United States Congress and the FCC currently have under consideration, and may in the future adopt, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect the operations and ownership of our U.S. media properties.

While the Company seeks to ensure compliance with federal indecency laws and related FCC regulations, the definition of “indecency” is subject to interpretation and there can be no assurance that the Company will not broadcast programming that is ultimately determined by the FCC to violate the prohibition against indecency. Such programming could subject the Company to regulatory review or investigation, fines, adverse publicity or other sanctions including the loss of station licenses.

RESULTS OF OPERATIONS

Use of Operating income (loss) before depreciation and amortization

Operating income (loss) before depreciation and amortization, defined as operating income (loss) plus depreciation and amortization and the amortization of cable distribution investments, eliminates the variable effect across all business segments of non-cash depreciation and amortization. Depreciation and amortization expense includes the depreciation of property and equipment, as well as amortization of finite-lived intangible assets. Amortization of cable distribution investments represents a reduction against revenues over the term of a carriage arrangement and as such it is excluded from Operating income (loss) before depreciation and amortization. Operating income (loss) before depreciation and amortization is a non-GAAP measure and it should be considered in addition to, not as a substitute for, operating income (loss), net income (loss), cash flow and other measures of financial performance reported in accordance with generally accepted accounting principles (“GAAP”). Operating income (loss) before depreciation and amortization does not reflect cash available to fund requirements and the items excluded from Operating income (loss) before depreciation and amortization, such as depreciation and amortization, are significant components in assessing the Company’s financial performance.

The following comparative discussion of the results of operations of the Company includes, among other factors, an analysis of changes in business segment Operating income (loss) before depreciation and amortization.

Results of Operations—Three months ended December 31, 2004 versus Three months ended December 31, 2003

The following table sets forth the Company’s operating results, by segment, for the three months ended December 31, 2004 as compared to the three months ended December 31, 2003.


	For the three months ended December 31,
	2004			2003			Change			% Change
	(in millions)
Revenues⁽¹⁾:
Filmed Entertainment	$	1,879		$	1,384		$	495		36	%
Television Stations		571			571			—		—
Television Broadcast Network		858			860			(2	)	—
Cable Network Programming		635			565			70		12	%

Total revenues	$	3,943		$	3,380		$	563		17	%

Operating income (loss):
Filmed Entertainment	$	406		$	260		$	146		56	%
Television Stations		278			276			2		1	%
Television Broadcast Network		(159	)		(133	)		(26	)	(20	)%
Cable Network Programming		227			155			72		46	%

Total operating income		752			558			194		35	%

Interest expense, net		(70	)		(15	)		(55	)	*	*
Equity losses of affiliates		(29	)		(2	)		(27	)	*	*
Other, net		39			(7	)		46		*	*

Income before provision for income taxes and minority interest in subsidiaries		692			534			158		30	%
Provision for income tax expense on a stand-alone basis		(259	)		(203	)		(56	)	(28	)%
Minority interest in subsidiaries		(2	)		(1	)		(1	)	(100	)%

Net income	$	431		$	330		$	101		31	%

Other data:
Operating income (loss) before depreciation and amortization ⁽²⁾:
Filmed Entertainment	$	419		$	275		$	144		52	%
Television Stations		290			289			1		—
Television Broadcast Network		(152	)		(128	)		(24	)	(19	)%
Cable Network Programming		265			198			67		34	%

Total operating income before depreciation and amortization	$	822		$	634		$	188		30	%

**	not meaningful

FOOTNOTES:

(1)	The Company classifies the amortization of cable distribution investments against revenue in accordance with Emerging Issues Task Force No. 01-09, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products),” as detailed in the following table:

	For the three monthsended December 31,
	2003			2002
	2004			2003
	(in millions)
Gross Revenues	$	3,412		$	3,182
Revenues before amortization of cable distribution investments	$	3,971		$	3,412
Amortization of cable distribution investments		(3228	)		(32	)
Revenues	$	3,~~380~~943		$	3,~~150~~380

(2) Operating Income Before Depreciation and Amortization, defined as operating income (loss) plus depreciation and amortization and the amortization of cable distribution investments, eliminates the variable effect across all business segments of non-cash depreciation and amortization. Depreciation and amortization expense includes depreciation of property and equipment as well as the amortization of finite-lived intangible assets. Amortization of cable distribution investments represents a reduction against revenues over the term of a carriage arrangement and as such it is excluded from Operating Income Before Depreciation and Amortization. Since Operating Income Before Depreciation and Amortization is a non-GAAP measure, it should be considered in addition to, not as a substitute for, operating income (loss), net income (loss), cash flow and other measures of the financial performance prepared in accordance with GAAP and presented in the consolidated condensed financial statements included elsewhere in this filing. The following is a reconciliation of Operating income (loss) to Operating Income Before Depreciation and Amortization by segment:

	For the three months ended December 31, 2003
	OperatingIncome BeforeDepreciationandAmortization			Depreciationandamortization			Amortization ofcable distributioninvestments			Operating income(loss)
	(in millions)
Filmed Entertainment	$	275		$	(15	)	$	—		$	260
Television Stations		289			(13	)		—			276
Television Broadcast Network		(128	)		(5	)		—			(133	)
Cable Network Programming		198			(11	)		(32	)		155
Total	$	634		$	(44	)	$	(32	)	$	558

	For the three months ended December 31, 2002
	OperatingIncome BeforeDepreciationandAmortization			Depreciationandamortization			Amortization ofcable distributioninvestments			Operating income(loss)
	(in millions)
Filmed Entertainment	$	274		$	(14	)	$	—		$	260
Television Stations		320			(15	)		—			305
Television Broadcast Network		(149	)		(5	)		—			(154	)
Cable Network Programming		132			(11	)		(32	)		89
Total	$	577		$	(45	)	$	(32	)	$	500

Overview of Results of Operations. For the quarter ended December 31, 2003, the Company’s revenues increased $230 million from $3,150 million in the second quarter of fiscal 2003 to $3,380 million. This 7% increase was primarily due to revenue increases at the Television Broadcast Network and Cable Network Programming segments. Operating expenses increased approximately 8% for the quarter ended December 31, 2003 due to increased worldwide home entertainment manufacturing and marketing costs at the Filmed Entertainment segment, increased programming costs for Major League Baseball (“MLB”) at the Television Broadcast Network segment and higher average rights fees and more professional events at the Cable Network Programming segment. Selling, general and administrative expenses decreased approximately 6% as compared to the quarter ended December 31, 2002 due to the recovery of approximately $15 million of certain receivable claims against the Adelphia Communications Corporation (“Adelphia”). As a result of the bankruptcy of Adelphia, these receivables were written off in the fourth quarter of fiscal 2002. Depreciation and amortization expense was consistent with the corresponding period of the prior year. For the quarter ended December 31, 2003, Operating income and Operating Income Before Depreciation and Amortization increased $58 million to $558 million and $57 million to $634 million, respectively, from the corresponding period of the prior year. These increases were due to increased results at the Television Broadcast Network and Cable Network Programming segments.

~~Equity~~(2) ~~losses~~Operating ofincome ~~affiliates~~(loss) ofbefore $2depreciation ~~million~~and ~~for~~amortization, defined as operating income (loss) plus depreciation and amortization and the ~~quarter~~amortization ~~ended~~of ~~December~~cable 31distribution investments, ~~2003~~eliminates ~~improved~~the ~~$10~~variable ~~million~~effect ~~from~~across ~~losses~~all business segments of ~~$12 million~~non-cash ~~from~~depreciation and amortization. Depreciation and amortization expense includes depreciation of property and equipment, as well as the ~~corresponding~~amortization ~~period~~of finite-lived intangible assets. Amortization of cable distribution investments represents a reduction against revenues over the ~~prior~~term ~~year~~of a carriage arrangement and as such it is excluded from Operating income before depreciation and amortization. ~~Improved~~Operating ~~results~~income at(loss) ~~National~~before ~~Geographic~~depreciation ~~Channel~~and –amortization ~~Domestic~~is a non-GAAP measure and ~~Fox’s~~it ~~international~~should ~~channels~~be ~~contributed~~considered in addition to, not as a substitute for, operating income (loss), net income (loss), cash flow and other measures of the financial performance prepared in accordance with GAAP and presented in the consolidated financial statements included elsewhere in this ~~change~~filing. The following is a reconciliation of Operating income (loss) before depreciation and amortization to Operating income (loss) by segment:

Net income for the quarter ended December 31, 2003 was $330 million ($0.36 per share), an improvement of $47 million from $283 million ($0.32 per share) for the corresponding period of the prior year. This improvement was due to the increased operating results noted above for the quarter ended December 31, 2003 as compared to the corresponding period of the prior year.


	For the three months ended December 31, 2004
	Operating income (loss) before depreciation and amortization			Depreciation and amortization			Amortization of cable distribution investments			Operating income (loss)
	(in millions)
Filmed Entertainment	$	419		$	(13	)	$	—		$	406
Television Stations		290			(12	)		—			278
Television Broadcast Network		(152	)		(7	)		—			(159	)
Cable Network Programming		265			(10	)		(28	)		227

Total	$	822		$	(42	)	$	(28	)	$	752


	For the three months ended December 31, 2003
	Operating income (loss) before depreciation and amortization			Depreciation and amortization			Amortization of cable distribution investments			Operating income (loss)
	(in millions)
Filmed Entertainment	$	275		$	(15	)	$	—		$	260
Television Stations		289			(13	)		—			276
Television Broadcast Network		(128	)		(5	)		—			(133	)
Cable Network Programming		198			(11	)		(32	)		155

Total	$	634		$	(44	)	$	(32	)	$	558

Filmed Entertainment. For the three months ended December 31, 2003, revenues at the Filmed Entertainment segment increased from $1,338 million for the second quarter of fiscal 2003 to $1,384 million, or 3%. This increase was primarily due to higher home entertainment revenues including the strong worldwide performances of X-2: X-Men United and The Simpsons, the strong international performance of 24, and the domestic performances of League of Extraordinary Gentlemen, 28 Days Later, Family Guy and Buffy the Vampire Slayer. The corresponding period of the prior year included the worldwide home entertainment performance of Ice Age. In addition, there was improved performance from various library titles on DVD as compared to the corresponding period of the prior year. The current quarter including marketing costs related to domestic theatrical releases including Cheaper by the Dozen, Stuck on You and Master and Commander: The Far Side of the World. The corresponding period of the prior year included the releases of Drumline, Brown Sugar, Transporter, and Solaris. For the quarter ended December 31, 2003, the Filmed Entertainment segment reported Operating income of $260 million, which was consistent with the corresponding period of the prior year. Operating Income Before Depreciation and Amortization increased from $274 million for the second quarter of fiscal 2003 to $275 million for the quarter ended December 31, 2003. Higher home entertainment marketing and manufacturing costs directly related to the revenue increases noted above and an increase in marketing costs associated with the increase in second quarter widely distributed theatrical releases offset the revenue increases noted above.

Television Stations. For the three months ended December 31, 2003, the Television Stations segment’s revenues decreased to $571 million from $593 million in the corresponding period of the prior year. Total television advertising spending in the 26 markets of the Company’s O&O’s declined an estimated 7% versus the prior year primarily due to non-recurring political advertisements as compared to the second quarter of fiscal 2003. The Company’s O&Os revenues decreased $22 million or 4% due to fewer political advertisements, which were partially offset by increased revenues received from the automotive and financial institution categories. The Company’s O&Os generated gains in market share for the quarter primarily due to strong sales for the MLB post season. For the three months ended December 31, 2003, the Television Stations segment reported Operating income of $276 million, which was a decrease of $29 million, or 10% from the corresponding period of the prior year. Operating Income Before Depreciation and Amortization decreased by $31 million to $289 million from $320 million. These decreases are due to the revenue decreases noted above.

Television Broadcast Network. For the three months ended December 31, 2003, the Television Broadcast Network’s revenues increased $111 million to $860 million from $749 million from the corresponding period of the prior year. This 15% increase was primarily due to an increased number of games televised and improved performance of the MLB post season. The MLB post season experienced strong ratings and pricing due to the participation of the Boston Red Sox in the American League Championship Series and the Chicago Cubs in the National League Championship Series. Also contributing to the increase in advertising revenue was higher pricing for National Football League (“NFL”) broadcasts. Operating losses for the Television Broadcast Network segment improved $21 million to a loss of $133 million from a loss of $154 million from the corresponding period of the prior year. Operating Income Before Depreciation and Amortization improved $21 million to a loss of $128 million from a loss of $149 million from the corresponding period of the prior year. The improvement in operating losses was driven by the revenue increases noted above partially offset by higher programming costs for the MLB and NFL, and the timing of promotional expenses for the launch of the fall prime time series.

Cable Network Programming. Total revenues for the Cable Network Programming segment increased by $95 million or approximately 20% from $470 million to $565 million for the three months ended December 31, 2003. This increase reflects improved results across all of the Cable Network Programming channels. Revenues from Fox News Channel (“Fox News”), FX Network (“FX”), Speed Channel (“Speed”) and the majority-owned regional sports networks (“RSNs”) increased 22%, 17%, 27%, and 15%, respectively, from the corresponding period of the prior year.

AtOverview. ~~Fox~~For ~~News~~the three months ended December 31, ~~advertising~~2004, the Company’s revenues increased 28$563 million from $3,380 million for the three months ended December 31, 2003 to $3,943 million. This 17% increase was primarily due to revenue increases at the Filmed Entertainment and Cable Network Programming segments. Operating expenses increased approximately ~~national~~13% ~~pricing~~for the three months ended December 31, ~~partially~~2004 ~~offset~~primarily bydue ~~lower~~to ~~national advertising~~higher ~~sell-out~~film amortization and increased home entertainment marketing costs at the Filmed Entertainment segment. ~~Affiliate~~Selling, ~~revenue~~general ~~also~~and ~~increased~~administrative byexpenses 3increased approximately 17% from the corresponding period of fiscal 2004 primarily due to anemployee ~~increase~~costs in ~~subscribers~~support ~~versus~~of our growing businesses and the partial recovery in the corresponding period of ~~the~~fiscal ~~prior~~2004 ~~year,~~of ~~which~~approximately ~~was~~$15 ~~partially~~million ~~offset~~of bycertain receivable aclaims 7%against ~~increase~~Adelphia inCommunications ~~amortization~~Corporation of(“Adelphia”) ~~cable~~which ~~distribution~~were ~~investments~~previously written off. At For the three months ended December 31, ~~2003~~2004, ~~Fox~~Operating ~~News~~income ~~reached~~(loss) ~~approximately~~and 85Operating income (loss) before depreciation and amortization increased $194 million ~~Nielsen~~to ~~households,~~$752 anmillion ~~increase~~and of$188 4%million ~~over~~to $822 million, respectively, from the corresponding period of fiscal 2004. These increases were primarily due to the ~~prior~~improved ~~year~~results at the Filmed Entertainment and Cable Network Programming segments noted above, as well as the absence of losses due to the sale of the Los Angeles Dodgers (“Dodgers”) in February 2004.

AtEquity ~~FX,~~losses ~~advertising~~of ~~revenues~~affiliates ~~increased~~of ~~31%~~$29 ~~from~~million ~~the~~for ~~corresponding period of~~ the ~~prior~~three ~~year~~months ~~due~~ended toDecember ~~higher~~31, ~~ratings~~2004 ~~and~~increased ~~improved~~$27 ~~pricing~~million ~~and~~from ~~sell-out.~~losses ~~Affiliate~~of ~~revenues increased~~$2 7%million ~~from~~in the corresponding period of fiscal ~~the~~2004. ~~prior~~This ~~year, reflecting an~~ increase inwas ~~subscribers~~primarily ~~and~~due ~~average~~to ~~per~~losses ~~subscriber~~from ~~rates~~the asinclusion ~~well~~of asthe aCompany’s 3%share ~~decrease~~of inthe ~~amortization~~results of ~~cable~~The ~~distribution~~DIRECTV ~~investments~~Group, Inc. ~~As of December 31~~(“DIRECTV”), ~~2003,~~which FXwas ~~reached approximately~~acquired 83on ~~million~~December ~~Nielsen households~~22, a2003. 4%These ~~increase~~losses ~~over~~were ~~the~~partially ~~corresponding~~offset ~~period~~by improved ofresults ~~the~~at ~~prior~~Regional ~~year~~Programming Partners (“RPP”).

AtNet income for the ~~RSNs~~three months ended December 31, ~~advertising~~2004 ~~revenues~~was ~~increased~~$431 ~~19%~~million ~~primarily~~($0.44 ~~due~~per toshare), ~~more~~an ~~National~~increase ~~Hockey~~of ~~League~~$101 million from $330 million (~~“NHL”~~$0.36 per share) ~~and~~in ~~National~~the ~~Basketball~~corresponding ~~Association~~period ~~(“NBA”)~~of ~~events~~fiscal ~~related~~2004. toThis ~~new~~increase ~~sports~~was ~~rights~~due ~~agreements~~to ~~and~~increased operating results ~~improved~~noted ~~news~~above. ~~and~~Additionally, ~~collegiate~~the ~~advertising~~Company’s ~~sales.~~weighted ~~Affiliate~~average ~~revenues~~shares outstanding for the three months ended December 31, 2004 increased ~~14%~~to ~~over~~974 million shares from 905 million shares for the ~~prior~~corresponding ~~year~~period of fiscal 2004 primarily ~~from~~due anto ~~increase~~the issuance inof ~~DBS~~74 ~~subscribers~~million ~~and~~shares ~~higher~~in ~~average~~connection ~~per~~with ~~subscriber~~the ~~rates~~DIRECTV transaction.

The Cable Network Programming segment reported Operating income of $155 million, an increase of $66 million from the corresponding period of the prior year. Operating Income Before Depreciation and Amortization increased $66 million to $198 million from $132 million from the corresponding period of the prior year. These improvements were primarily driven by the revenue increases noted above as well as the recovery of approximately $15 million of certain receivable claims against Adelphia. As a result of the bankruptcy of Adelphia, these receivables were written off in the fourth quarter of fiscal 2002. Partially offsetting these improvements were higher expenses for talent and programming enhancements at Fox News, increased programming costs at Speed, and higher average rights fees and more professional events at the RSNs.

Interest expense, net. Interest expense, net decreased $34 million for the three months ended December 31, 2003 from $49 million to $15 million primarily due to a reduction in average amounts Due to affiliates of News Corporation resulting from repayments.

Equity earnings (losses) of affiliates. The Company’s share of National Geographic Channel-Domestic’s loss was $5 million for the three months ended December 31, 2003, as compared to a loss of $7 million in the corresponding period of the prior year. Affiliate and advertising revenues increased due to a significant growth in distribution. As of December 31, 2003, National Geographic Channel-Domestic reached approximately 47 million Nielsen households, a 27% increase over the corresponding period of the prior year. Partially offsetting these improvements were higher programming and marketing costs from a continued investment in improved programming. The Company’s share of its international channels improved $5 million for the three months ended December 31, 2003 primarily due to revenue growth and lower sports programming costs in Latin America.

Minority interest in subsidiaries. Minority interest in subsidiaries decreased $6 million from an expense of $7 million for the three months ended December 31, 2002 to an expense of $1 million for the three months ended December 31, 2003 due to the Company’s acquisition of substantially all of the outstanding equity of New Millennium II held by third parties. (See Liquidity and Capital Resources.)

Other, net. Other, net was a loss of $7 million for the quarter ended December 31, 2003, due to an estimated loss of $16 million on the sale of the Los Angeles Dodgers (“Dodgers”), which was partially offset by a $9 million gain on the sale of the Company’s interests in the SportsChannels.

Income tax on a stand-alone basis. The effective tax rate for the second quarter of fiscal 2004 was 38.1% as compared to the effective tax rate of 34.5% from the corresponding period of the prior year. The effective tax rate for the second quarter of fiscal 2004 was higher than the U.S. statutory rate principally because of the effect of increased state income taxes.

~~Results~~Filmed ofEntertainment. ~~Operations—Six~~For the three months ended December 31, ~~2003~~2004, ~~versus~~revenues ~~Six~~at the Filmed Entertainment segment increased from $1,384 million to $1,879 million, or 36% primarily due to higher worldwide home entertainment revenues of film and television titles. Film titles include the successful theatrical releases of Day After Tomorrow, Garfield, Dodgeball and I, Robot, and improved performances from various library titles on DVD, compared to the corresponding period of fiscal 2004. Television titles contributing to this increase include 24, The Simpsons, and Family Guy. The Company’s DVD revenues rose approximately 60% for the three months ended December 31, ~~2002~~2004 over the corresponding period of fiscal 2004, with 81% and 19% of DVD revenues generated from the sale and distribution of film titles and television titles, respectively. In addition, there was an increase in worldwide pay television revenue led by the domestic pay TV performances of Cheaper By The Dozen and Master and Commander: The Far Side of the World. The current quarter domestic releases included Sideways, Kinsey, Taxi, Flight of the Phoenix and Fat Albert. The corresponding period of fiscal 2004 included Cheaper by the Dozen, Stuck on You and Master and Commander: The Far Side of the World.

~~The~~For ~~following~~the ~~table~~quarter ~~sets~~ended ~~forth~~December 31, 2004, the ~~Company’s~~Filmed ~~operating~~Entertainment ~~results~~segment reported Operating income of $406 million, ~~by segment~~an increase of $146 million, or 56%, from the corresponding period of fiscal 2004. Operating income before depreciation and amortization increased from $275 million for ~~six~~the ~~months~~quarter ended December 31, 2003 asto ~~compared~~$419 million. These improvements were due to the ~~six~~revenue ~~months~~increases ~~ended~~noted ~~December~~above 31partially offset by increased home entertainment marketing and manufacturing costs, ~~2002~~amortization of production and participation costs directly associated with the increase in revenues noted above and the disappointing result of Flight of the Phoenix.

	For the six months ended December 31,
	2003			2002			Change			% Change
	(in millions, except % change)
Revenues (1):
Filmed Entertainment	$	2,634		$	2,221		$	413		19	%
Television Stations		1,089			1,107			(18	)	(2	)%
Television Broadcast Network		1,254			1,173			81		7	%
Cable Network Programming		1,161			993			168		17	%
Total revenues	$	6,138		$	5,494		$	644		12	%
Operating income (loss):
Filmed Entertainment	$	593		$	365		$	228		62	%
Television Stations		497			514			(17	)	(3	)%
Television Broadcast Network		(178	)		(162	)		(16	)	(10	)%
Cable Network Programming		257			172			85		49	%
Total operating income (loss)		1,169			889			280		31	%
Interest expense, net		(23	)		(95	)		72		76	%
Equity earnings (losses) of affiliates		5			(10	)		15		150	%
Minority interest in subsidiaries		(3	)		(16	)		13		81	%
Other, net		19			—			19		**
Income before provision for income taxes		1,167			768			399		52	%
Provision for income tax expense on a stand-alone basis		(436	)		(271	)		(165	)	(61	)%
Net income	$	731		$	497		$	234		47	%
Other data:
Operating Income Before Depreciation and Amortization (2):
Filmed Entertainment	$	620		$	392		$	228		58	%
Television Stations		526			544			(18	)	(3	)%
Television Broadcast Network		(169	)		(152	)		(17	)	(11	)%
Cable Network Programming		341			260			81		31	%
Total Operating Income Before Depreciation and Amortization	$	1,318		$	1,044		$	274		26	%

Television Stations. For the three months ended December 31, 2004, the Television Stations segment’s revenues were consistent with the corresponding period of fiscal 2004. The advertising market improved over the corresponding period of fiscal 2004 due to heavy political spending related to the Presidential election. Overall, the Company’s O&Os estimated market share for the second quarter was 1.5% percentage points less than the corresponding period of fiscal 2004 due to disappointing ratings for FOX prime time and heavy political spending. Generally, an increase in local political spending contributes to a decrease in the O&O’s market share as the O&O’s proportional share of local political advertising has historically been lower than local stations affiliated with other major networks. For the three months ended December 31, 2004, the Television Stations segment generated Operating income of $278 million, which was $2 million higher than the corresponding period of fiscal 2004. This increase is primarily due to lower program amortization as a result of expired syndicated product that was partially offset by higher marketing costs for the November sweeps and higher news costs due to expansions of local news in several markets. Operating income before depreciation and amortization increased by $1 million to $290 million.

**Television ~~not~~Broadcast ~~meaningful~~Network. For the three months ended December 31, 2004, the Television Broadcast Network’s revenues decreased $2 million to $858 million from $860 million in the corresponding period of fiscal 2004. This decrease was primarily due to a 12% decrease in prime time ratings, partially offset by an increase in NFL revenue due to higher pricing for advertising units. Operating losses for the Television Broadcast Network segment increased $26 million to a loss of $159 million and Operating losses before depreciation and amortization increased $24 million to $152 million compared to the corresponding period of fiscal 2004. The increase in operating losses was driven by revenue decreases noted above and higher prime time programming costs due primarily to an increase in license fees for returning series and the cancellation of certain new shows which was partially offset by improved sports programming performance.

~~FOOTNOTES:~~Cable Network Programming. Total revenues for the Cable Network Programming segment increased by $70 million or approximately 12% from $565 million to $635 million for the three months ended December 31, 2004. Fox News Channel’s (“Fox News”), the FX Network’s (“FX”) and the RSNs’ revenues increased 22%, 16%, and 4%, respectively, from the corresponding period of fiscal 2004, partially offset by the absence of revenues from the Dodgers, which was sold in February 2004.

~~(1)~~At ~~The~~Fox ~~Company~~News, ~~classifies~~advertising revenues increased 25% from the ~~amortization~~corresponding period of ~~cable~~fiscal ~~distribution~~2004 ~~investments~~primarily ~~against~~due ~~revenue~~to an increase in ~~accordance~~advertising ~~with~~sales ~~Emerging~~driven ~~Issues~~by ~~Task~~higher ~~Force~~national Nopricing. ~~01-09~~Affiliate revenue increased 15%, ~~“Accounting~~which can ~~for~~be ~~Consideration~~attributed ~~Given~~to byan aincrease ~~Vendor~~in tosubscribers afrom ~~Customer~~the ~~(Including~~corresponding aperiod ~~Reseller~~of fiscal 2004. As of ~~the~~December ~~Vendor’s~~31, ~~Products)~~2004,” asFox ~~detailed~~News inreached approximately 87 million Nielsen households, a 2% increase over the ~~following~~corresponding ~~table:~~period of fiscal 2004.

	For the six monthsended December 31,
	2003			2002
	(in millions)
Gross Revenues	$	6,201		$	5,557
Amortization of cable distribution investments		(63	)		(63	)
Revenues	$	6,138		$	5,494

At FX, advertising revenues increased 19% over the corresponding period of fiscal 2004 due to higher ratings and improved pricing. Affiliate revenues increased 13% over the corresponding period of fiscal 2004, reflecting an increase in subscribers and average rates per subscriber. As of December 31, 2004, FX reached approximately 85 million Nielsen households, a 3% increase over the corresponding period of fiscal 2004.

~~(2)~~At ~~Operating Income Before Depreciation and Amortization, defined as operating income (loss) plus depreciation and amortization and~~ the ~~amortization of cable distribution investments~~RSNs, ~~eliminates~~affiliate ~~the~~revenues ~~variable~~increased ~~effect~~7% ~~across~~over ~~all business segments of non-cash depreciation and amortization. Depreciation and amortization expense includes depreciation of property and equipment as well as~~ the ~~amortization~~corresponding ofperiod ~~finite-lived intangible assets. Amortization~~ of ~~cable~~fiscal ~~distribution~~2004 ~~investments~~primarily ~~represents~~due ato ~~reduction~~an ~~against~~increase ~~revenues~~in subscribers ~~over the term of a carriage arrangement~~ and ashigher ~~such~~average itrates isper ~~excluded from Operating Income Before Depreciation and Amortization~~subscriber. ~~Since~~This ~~Operating~~improvement ~~Income~~was ~~Before~~partially ~~Depreciation~~offset ~~and~~by ~~Amortization is~~ a ~~non-GAAP~~10% ~~measure,~~decrease ~~it should be considered~~ in ~~addition~~advertising ~~to,~~revenues ~~not~~from asthe aabsence ~~substitute~~of ~~for,~~National ~~operating~~Hockey ~~income~~League (~~loss~~“NHL”), ~~net~~telecasts ~~income (loss), cash flow and other measures of the financial performance prepared~~ in ~~accordance with GAAP and presented in~~ the ~~consolidated~~current ~~condensed~~period ~~financial~~as ~~statements included elsewhere in this filing. The following is~~ a ~~reconciliation~~result of ~~Operating~~the lockout. ~~income (loss) to Operating Income Before Depreciation and Amortization by segment:~~

	For the six months ended December 31, 2003
	OperatingIncome BeforeDepreciationandAmortization			Depreciationandamortization			Amortization ofcabledistributioninvestments			Operating income(loss)
	(in millions)
Filmed Entertainment	$	620		$	(27	)	$	—		$	593
Television Stations		526			(29	)		—			497
Television Broadcast Network		(169	)		(9	)		—			(178	)
Cable Network Programming		341			(21	)		(63	)		257
Total	$	1,318		$	(86	)	$	(63	)	$	1,169
	For the six months ended December 31, 2002
	OperatingIncome BeforeDepreciationandAmortization			Depreciationandamortization			Amortization ofcabledistributioninvestments			Operating income(loss)
	(in millions)
Filmed Entertainment	$	392		$	(27	)	$	—		$	365
Television Stations		544			(30	)		—			514
Television Broadcast Network		(152	)		(10	)		—			(162	)
Cable Network Programming		260			(25	)		(63	)		172
Total	$	1,044		$	(92	)	$	(63	)	$	889

The Cable Network Programming segment reported Operating income of $227 million, an increase of $72 million from the corresponding period of fiscal 2004. These improvements were primarily driven by the revenue increases noted above as well as lower programming costs at the RSNs due to the NHL lockout. Partially offsetting these improvements were higher programming expenses for movies at FX, increased program expenses due to political coverage at Fox News and the partial recovery in the corresponding period of fiscal 2004 of approximately $15 million of certain receivable claims against Adelphia which were previously written off. Operating income before depreciation and amortization increased $67 million to $265 million from $198 million in the corresponding period of fiscal 2004.

~~Overview~~Interest ofexpense, ~~Results of Operations~~net. ~~For~~Interest ~~six months ended December 31~~expense, ~~2003,~~net ~~the Company’s revenues~~ increased $~~644~~55 million ~~from~~to $~~5,494~~ 70 million for the ~~six~~three months ended December 31, ~~2002~~2004 tofrom $~~6,138~~15 million. ~~This 12% increase was primarily~~ due to ~~revenue increases~~an atincrease the Filmed Entertainment and Cable Network Programming segments. Operating expenses increased approximately 10% for the six months ended December 31, 2003 due to increased home entertainment manufacturing and marketing costs at the Filmed Entertainment segment and increased sports programming costs for the MLB at the Television Broadcast Network segment. These increases were offset by a decrease in ~~theatrical~~interest ~~releasing~~on ~~costs at~~ the ~~Filmed~~notes ~~Entertainment~~issued ~~segment. Selling, general and administrative expenses decreased approximately 4% as compared~~ to ~~the~~News ~~six~~Corporation ~~months~~upon ~~ended~~receipt ~~December 31, 2002 due to the recovery~~ of ~~approximately $15 million of certain receivable claims against Adelphia. As a result of~~ the ~~bankruptcy~~DIRECTV ~~of Adelphia,~~investment ~~these receivables were written off~~ in ~~the~~connection ~~fourth~~with ~~quarter of fiscal 2002. Depreciation and amortization expense decreased $6 million from~~ the ~~corresponding~~DIRECTV ~~period of the prior year~~acquisition. For the six months ended December 31, 2003, Operating income and Operating Income Before Depreciation and Amortization increased $280 million to $1,169 million and $274 million to $1,318 million, respectively, from the corresponding period of the prior year. These increases were due to higher results at the Filmed Entertainment and Cable Network Programming segments.

Equity losses of affiliates. Equity losses of affiliates of $29 million for the three months ended December 31, 2004 increased $27 million from losses of $2 million in the corresponding period of fiscal 2004. This increase was primarily due to losses from the inclusion of the Company’s share of the results of DIRECTV, which was acquired on December 22, 2003. These losses were partially offset by increased results at RPP.

The Company’s share of DIRECTV’s losses for the three months ended December 31, 2004 was $77 million and includes the amortization of certain finite-lived intangibles. These results reflect the Company’s allocation of the fair value of DIRECTV’s assets and liabilities as of December 22, 2003 and, as required, excludes certain items that were recognized by DIRECTV as income and expense within its results.

The Company’s share of RPP income increased primarily due to lower programming costs resulting from higher charges in the corresponding period of fiscal 2004 for player and management changes at Madison Square Garden’s professional teams division and lower costs in the second quarter of fiscal 2005 due to the termination of its professional team rights at the Chicago RSN effective September 2004.

Other, net. For the three months ended December 31, 2004, Other, net included a gain of $39 million related to the sale of the Company’s investment in Rogers Sportsnet. For the three months ended December 31, 2003, there was an additional estimated loss of $7 million recognized on the sale of the Dodgers with the total loss on the sale estimated to be $16 million.

Provision for income tax on a stand-alone basis. The effective tax rate for the second quarter of fiscal 2005 is 37.5% as compared to the second quarter of fiscal 2004 effective tax rate of 38.0%. The difference between the statutory federal income tax rate and the effective tax rates, for both periods, is primarily the result of state income taxes.

~~Equity~~Results ~~earnings~~ of ~~affiliates~~Operations—Six ofmonths $5ended ~~million~~December ~~for~~31, ~~the~~2004 ~~six~~versus Six months ended December 31, 2003 ~~improved $15 million from a loss~~ ~~of $10 million from the corresponding period of the prior year. This improvement was primarily related to improved results at National Geographic Channel-Domestic and Fox’s international channels.~~

~~Net~~The ~~income~~following ~~for~~table ~~the~~sets ~~six~~forth ~~months ended December 31, 2003 was $731 million ($0.81 per share), an improvement of $234 million from $497 million ($0.58 per share) from~~ the ~~corresponding~~Company’s ~~period of the prior year. This improvement was due to the increased~~ operating results, by ~~noted~~segment, ~~above~~ for the six months ended December 31, ~~2003~~2004 as compared to the ~~corresponding~~ ~~period~~six ofmonths ~~the~~ended ~~prior~~December ~~year~~31, 2003.

Filmed Entertainment. For the six months ended December 31, 2003, revenues at the Filmed Entertainment segment increased from $2,221 million to $2,634 million, or 19%. This increase was primarily due to higher worldwide home entertainment revenues reflecting the strong worldwide performances of X-2: X-Men United, Daredevil, The Simpsons, Phone Booth and 24, and improved performance from various library titles on DVD as compared to the corresponding period of the prior year. Prior year home entertainment titles included the success of Ice Age, Shallow Hal, Like Mike, and Behind Enemy Lines. In addition, a new syndication agreement for M*A*S*H and increased domestic pay television and international free television revenues, due to a stronger film lineup and more feature films available, contributed higher revenues. Worldwide theatrical revenues decreased primarily due to fewer theatrical releases as compared to the corresponding period of the prior year. Current year theatrical releases included Cheaper By the Dozen, Master & Commander: The Far Side of the World, Stuck on You, and League of Extraordinary Gentlemen. Prior year theatrical releases included Drumline, Transporter, Brown Sugar, Road to Perdition, Like Mike, One Hour Photo, Banger Sisters, and Minority Report. For the six months ended December 31, 2003, the Filmed Entertainment segment reported Operating income of $593 million as compared to $365 million in the corresponding period of the prior year. Operating Income Before Depreciation and Amortization increased from $392 million to $620 million as compared to the corresponding period of the prior year. These improvements were due to the revenue increases noted above and reduced theatrical marketing costs associated with fewer theatrical releases in the first six months of fiscal 2004, partially offset by increased home entertainment marketing and manufacturing costs directly associated with the increase in worldwide home entertainment revenues.


	For the six months ended December 31,
	2004			2003			Change			% Change
	(in millions)
Revenues⁽¹⁾:
Filmed Entertainment	$	3,263		$	2,634		$	629		24	%
Television Stations		1,085			1,089			(4	)	—
Television Broadcast Network		1,240			1,254			(14	)	(1	)%
Cable Network Programming		1,244			1,161			83		7	%

Total revenues	$	6,832		$	6,138		$	694		11	%

Operating income (loss):
Filmed Entertainment	$	700		$	593		$	107		18	%
Television Stations		502			497			5		1	%
Television Broadcast Network		(168	)		(178	)		10		6	%
Cable Network Programming		393			257			136		53	%

Total operating income		1,427			1,169			258		22	%

Interest expense, net		(136	)		(23	)		(113	)	*	*
Equity (losses) earnings of affiliates		(126	)		5			(131	)	*	*
Other, net		39			19			20		*	*

Income before provision for income taxes and minority interest in subsidiaries		1,204			1,170			34		3	%
Provision for income tax expense on a stand-alone basis		(448	)		(436	)		(12	)	(3	)%
Minority interest in subsidiaries		(5	)		(3	)		(2	)	(67	)%

Net income	$	751		$	731		$	20		3	%

Other data:
Operating income (losses) before depreciation and amortization⁽²⁾:
Filmed Entertainment	$	725		$	620		$	105		17	%
Television Stations		526			526			—		—
Television Broadcast Network		(156	)		(169	)		13		8	%
Cable Network Programming		471			341			130		38	%

Total operating income before depreciation and amortization	$	1,566		$	1,318		$	248		19	%

~~Television~~** Stations. For the six months ended December 31, 2003, the Television Stations segment’s revenues decreased to $1,089 million from $1,107 million from the corresponding period of the prior year. Total television advertising spending in the 26 markets of the Company’s O&O’s declined an estimated 4% versus the prior year primarily due to non-recurring political advertisements as compared to the corresponding period of the prior year. The Television Stations segments’ revenues decreased $18 million due to fewer political advertisements, which were partially offset by increased revenues received from the automotive and financial institutions categories. The decrease of the overall advertising market, the Company’s strong sales for the MLB regular and post seasons as well as the telecast of the Emmy Awards, which were not telecast on FOX in the prior year contributed to the Company’s O&Os generating record market share. These increases were partially offset by the non-renewal of the local Boston Red Sox broadcasts in the Boston market and the finale of American Idol, which was telecast on FOX in the corresponding period of the prior year. For the six months ended December 31, 2003, the Television Stations segment reported operating income of $497 million, a decrease of $17 million from the corresponding period of the prior year. Operating Income Before Depreciation and Amortization decreased by $18 million to $526 million from $544 million. These decreases were due to the revenue decreases noted above. meaningful

~~Television~~FOOTNOTES: Broadcast Network. For the six months ended December 31, 2003, the Television Broadcast Network’s revenues increased $81 million to $1,254 million from $1,173 million from the corresponding period of the prior year. This 7% increase was primarily due to an increased number of games televised and improved performance of the MLB post season. The MLB post season experienced strong ratings and pricing due to the participation of the Boston Red Sox in the American League Championship Series and the Chicago Cubs in the National League Championship Series. Also contributing to the increase in advertising revenue were the telecast of the Emmy Awards, which were not telecast on FOX in the prior year, and higher pricing for NFL broadcasts. Offsetting these increases were ratings decreases for prime time programming due primarily to the absence of American Idol, which was telecast in the corresponding period of the prior year. Operating losses for the Television Broadcast Network segment increased $16 million to a loss of $178 million and Operating Income Before Depreciation and Amortization increased $17 million to a loss of $169 million compared to the corresponding period of the prior year. Increased sports programming costs primarily for the MLB as well as the NFL and higher prime time programming costs offset the revenue gains noted above.

(1)	The Company classifies the amortization of cable distribution investments against revenue in accordance with Emerging Issues Task Force No. 01-09, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products),” as detailed in the following table:


	For the six months ended December 31,
	2004			2003
	(in millions)
Revenues before amortization of cable distribution investments	$	6,890		$	6,201
Amortization of cable distribution investments		(58	)		(63	)

Revenues	$	6,832		$	6,138

~~Cable~~(2) ~~Network~~Operating ~~Programming.~~income ~~Total~~(loss) ~~revenues~~before ~~for~~depreciation ~~the~~and ~~Cable~~amortization, ~~Network~~defined ~~Programming~~as ~~segment~~operating ~~increased~~income ~~by $168~~(loss) ~~million~~plus ordepreciation ~~approximately~~and ~~17%~~amortization ~~from~~and ~~$993~~the ~~million~~amortization toof ~~$1,161~~cable ~~million~~distribution ~~for~~investments, eliminates the ~~six~~variable ~~months~~effect ~~ended~~across ~~December~~all ~~31,~~business ~~2003.~~segments ~~This~~of ~~increase~~non-cash ~~reflects~~depreciation ~~improved~~and ~~results~~amortization. ~~across~~Depreciation ~~all~~and amortization expense includes depreciation of property and equipment as well as the ~~Cable~~amortization ~~Network~~of ~~Programming~~finite-lived ~~channels~~intangible assets. ~~Revenues~~Amortization of cable distribution investments represents a reduction against revenues over the term of a carriage arrangement and as such it is excluded from ~~Fox~~Operating ~~News,~~income ~~FX,~~(loss) ~~Speed~~before depreciation and ~~the RSNs~~amortization. ~~increased~~Since ~~24%~~Operating income (loss) before depreciation and amortization is a non-GAAP measure, ~~10%~~it should be considered in addition to, ~~28%~~not as a substitute for, ~~and~~operating ~~14%~~income (loss), ~~respectively~~net income (loss), ~~from~~cash flow and other measures of the ~~prior~~financial ~~year~~performance prepared in accordance with GAAP and presented in the consolidated condensed financial statements included elsewhere in this filing. The following is a reconciliation of Operating income (loss) to Operating income (loss) before depreciation and amortization by segment:

At Fox News, advertising revenues increased 31% due to an increase in national pricing. Affiliate revenue increased 3%, due to an increase in subscribers versus the corresponding period of prior year, partially offset by a 6% increase in amortization of cable distribution investments. As of December 31, 2003, Fox News reached approximately 85 million Nielsen households, an increase of 4% over the corresponding period of the prior year.


	For the six months ended December 31, 2004
	Operating income (loss) before depreciation and amortization			Depreciation and amortization			Amortization of cable distribution investments			Operating income (loss)
	(in millions)
Filmed Entertainment	$	725		$	(25	)	$	—		$	700
Television Stations		526			(24	)		—			502
Television Broadcast Network		(156	)		(12	)		—			(168	)
Cable Network Programming		471			(20	)		(58	)		393

Total	$	1,566		$	(81	)	$	(58	)	$	1,427


	For the six months ended December 31, 2003
	Operating income (loss) before depreciation and amortization			Depreciation and amortization			Amortization of cable distribution investments			Operating income (loss)
	(in millions)
Filmed Entertainment	$	620		$	(27	)	$	—		$	593
Television Stations		526			(29	)		—			497
Television Broadcast Network		(169	)		(9	)		—			(178	)
Cable Network Programming		341			(21	)		(63	)		257

Total	$	1,318		$	(86	)	$	(63	)	$	1,169

At FX, advertising revenues increased 14% from the corresponding period of the prior year due to higher ratings and improved pricing. Affiliate revenues increased 8% from the corresponding period of the prior year, reflecting an increase in subscribers and average per subscriber rates. As of December 31, 2003, FX reached approximately 83 million Nielsen households, a 4% increase over the corresponding period of the prior year.

At the RSNs, affiliate revenues increased 14% over the corresponding period of the prior year primarily from an increase in DBS subscribers and higher average per subscriber rates. Advertising revenues increased 13% primarily due to higher pricing per game for MLB telecasts resulting from an improved sports advertising market, more NHL and NBA events related to new sports rights agreements and improved news and collegiate advertising sales.

The Cable Network Programming segment reported Operating income of $257 million, an increase of $85 million from the corresponding period of the prior year. Operating Income Before Depreciation and Amortization increased $81 million to $341 million from $260 million from the corresponding period of the prior year. These improvements were primarily driven by the revenue increases noted above as well as the recovery of approximately $15 million of certain receivable claims against Adelphia. As a result of the bankruptcy of Adelphia, these receivables were written off in the fourth quarter of fiscal 2002. Partially offsetting these improvements were higher average rights fees for professional events and an increased number of games at the RSNs, higher expenses for talent and programming enhancements at Fox News, and higher programming costs at FX and Speed.

Interest expense, net. Interest expense, net decreased $72 million for the six months ended December 31, 2003 from $95 million to $23 million primarily due to a reduction in average amounts Due to affiliates of News Corporation resulting from repayments.

Equity earnings (losses) of affiliates. The Company’s share of National Geographic Channel-Domestic’s loss was $7 million for the six months ended December 31, 2003, as compared to a loss of $13 million in the corresponding period of the prior year. Affiliate and advertising revenues increased due to a significant growth in distribution. As of December 31, 2003, National Geographic Channel-Domestic reached approximately 47 million Nielsen households, a 27% increase over the corresponding period of the prior year. Partially offsetting these improvements were higher programming and marketing costs from a continued investment in improved programming. The Company’s share of its international channels improved $7 million for the six months ended December 31, 2003

primarily due to revenue growth and lower sports programming costs in Latin America.

Minority interest in subsidiaries. Minority interest in subsidiaries decreased $13 million from an expense of $16 million for the six months ended December 31, 2002 to an expense of $3 million for the for the six months ended December 31, 2003 due to the Company’s acquisition of substantially all of the outstanding equity of New Millennium II held by third parties. (See Liquidity and Capital Resources.)

Other, net. Other, net was a gain of $19 million for the six months ended December 31, 2003 due to a gain of $9 million on the sale of the Company’s interests in the SportsChannels as well as a gain of $26 million related to the settlement of the Company’s insurance claim primarily for its broadcast tower at the World Trade Center in New York, New York. These gains were partially offset by an estimated loss of $16 million on the sale of the Dodgers.

~~Income~~Overview ~~tax~~of onResults aof ~~stand-alone basis~~Operations. ~~The~~For ~~effective~~the ~~tax~~six ~~rate~~months ended December 31, 2004, the Company’s revenues increased $694 million from $6,138 million for the ~~second~~six ~~quarter~~months ofended ~~fiscal~~December ~~2004~~31, 2003 to $6,832 million. This 11% increase was 37primarily due to revenue increases at the Filmed Entertainment and Cable Network Programming segments.4 Operating expenses increased approximately 9% for the six months ended December 31, 2004 due primarily to higher film amortization and increased marketing and manufacturing costs at the Filmed Entertainment segment. Selling, general and administrative asexpenses ~~compared~~increased approximately 9% from the corresponding period of fiscal 2004 primarily due to employee costs in support of our growing businesses and the ~~effective~~partial ~~tax~~recovery ~~rate~~in the corresponding period of 35fiscal 2004 of approximately $15 million of certain receivable claims against Adelphia which were previously written off.3 Depreciation and amortization expense decreased 6% from the corresponding period of fiscal 2004 primarily due to the ~~prior~~sale ~~year~~of the Dodgers in February 2004. ~~The~~For ~~effective~~the ~~tax~~six months ~~rate~~ended ~~for~~December 31, 2004, Operating income and Operating income before depreciation and amortization increased $258 million to $1,427 million and $248 million to $1,566 million, respectively, from the ~~second~~corresponding ~~quarter~~period of fiscal 2004. ~~was~~These increases ~~higher~~were ~~than~~primarily due to improved results at the ~~U.S.~~Cable ~~statutory~~Network ~~rate~~Programming ~~principally~~and ~~because~~Filmed Entertainment segments noted above, as well as the absence of losses due to the ~~effect~~sale of ~~increased~~the ~~state income~~Dodgers ~~taxes~~in February 2004.

~~Liquidity~~Equity ~~and~~losses ~~Capital~~of ~~Resources~~affiliates of $126 million for the six months ended December 31, 2004 declined $131 million from earnings of $5 million from the corresponding period of fiscal 2004. This decline was primarily due to losses from the inclusion of the Company’s share of the results of DIRECTV, which was acquired on December 22, 2003. These losses were partially offset by improved results at RPP.

~~The Company’s principal sources of cash are internally generated funds, various film~~Net ~~financing~~income ~~alternatives~~for ~~and~~the ~~borrowings~~six ~~from~~months ~~The~~ended ~~News Corporation Limited (“News Corporation”) and its subsidiaries. As of~~ December 31, ~~2003,~~2004 ~~News~~was ~~Corporation~~$751 ~~had~~million ~~consolidated cash and cash equivalents of~~ ($20.577 ~~billion,~~per ~~excluding the cash of the Company~~share), ~~and~~an aimprovement ~~revolving credit facility~~ of $~~1.75~~20 ~~billion.~~million ~~We believe that cash~~ from ~~operations,~~$731 ~~proceeds~~million ~~from~~($0.81 ~~the~~per ~~sale~~share) ~~of certain assets and the funds available~~ from ~~News Corporation will be adequate for~~ the ~~Company~~corresponding toperiod ~~conduct~~of ~~its~~fiscal ~~operations~~2004. ~~The~~ ~~Company’s~~This ~~internally~~improvement ~~generated~~was ~~funds~~due ~~are~~to ~~highly dependent upon~~ the ~~state~~increased ofoperating results ~~the~~noted ~~advertising~~above, ~~market~~partially ~~and~~offset ~~public~~by ~~acceptance~~increased ofinterest ~~film~~expense and ~~television~~increased ~~products.~~equity ~~Any~~losses ~~significant~~as ~~decline~~compared into the ~~advertising~~corresponding ~~market~~period ~~or the performance~~ of ~~its~~fiscal ~~films could adversely impact the Company’s cash flows from operations~~2004.

~~The~~Filmed Entertainment. For the six months ended December 31, 2004, revenues at the Filmed Entertainment segment increased from $2,634 million to ~~principal~~$3,263 ~~uses~~million, or 24%. This increase was primarily due to higher worldwide home entertainment revenues from film and television titles and worldwide theatrical revenues. Higher home entertainment revenues for film titles reflect the strong worldwide performances of ~~cash~~the ~~that~~successful ~~affect~~theatrical releases of Day After Tomorrow, Garfield, Dodgeball and I, Robot, and improved performances from various library titles on DVD as compared to the corresponding period of fiscal 2004. In addition, the home entertainment release of the Star Wars Trilogy and the distribution of the Passion of the Christ also contributed to the increase in home entertainment revenues. Television titles contributing to this increase include 24 and The Simpsons. The Company’s ~~liquidity~~DVD ~~position~~revenues ~~include~~rose approximately 47% for the ~~following:~~six ~~investments~~months inended December 31, 2004 over the ~~production~~corresponding period of fiscal 2004, with 81% and ~~distribution~~19% of ~~new~~DVD ~~feature~~revenues ~~films~~generated from the sale and distribution of film titles and television ~~programs~~titles, ~~the~~respectively. ~~acquisition~~The oftheatrical revenue increase was driven by several strong theatrical releases, including I, Robot and ~~payments~~Alien ~~under~~vs. ~~programming~~Predator, ~~rights~~as ~~for~~well as continued worldwide ~~entertainment~~contributions ~~programming~~from fiscal 2004 releases Dodgeball, Garfield and ~~sporting~~Day ~~events~~After Tomorrow. The corresponding period of fiscal 2004 included the theatrical releases League of Extraordinary Gentlemen, ~~operational~~Cheaper ~~expenditures~~by the Dozen, ~~interest~~Master and Commander: ~~income~~The ~~tax~~Far ~~payments~~Side of the World and 28 Days Later. Offsetting these revenue increases were decreased domestic syndication revenues due to fewer television series being available in the syndicated/cable marketplace as compared to the corresponding period of fiscal 2004.

~~Sources~~For the six months ended December 31, 2004, the Filmed Entertainment segment reported Operating income of $700 million as compared to $593 million in the corresponding period of fiscal 2004. Operating income before depreciation and ~~uses~~amortization increased from $620 million to $725 million as compared to the corresponding period of ~~cash~~fiscal 2004. These improvements were due to the revenue increases noted above, partially offset by increased marketing and manufacturing costs, amortization of production and participation costs directly associated with the increase in revenues noted above and the disappointing result of Flight of the Phoenix.

~~Net~~Television ~~cash~~Stations. ~~used in~~For ~~operating activities during~~ the six months ended December 31, ~~2003~~2004, ~~were~~the ~~$80~~Television ~~million~~Stations assegment’s ~~compared~~revenues todecreased ~~net cash provided of~~ $~~158~~4 million ~~for~~from the corresponding period of ~~the~~fiscal ~~prior~~2004 ~~year~~to $1,085 million. The ~~Company~~advertising ~~traditionally~~market ~~experiences~~improved ~~higher~~over ~~uses of cash during~~ the ~~first~~corresponding ~~half~~period of ~~the~~ fiscal ~~year~~2004 asdue ~~compared~~ to ~~the~~heavy ~~second~~political ~~half~~spending ofand the ~~fiscal~~Summer ~~year~~Olympics. ~~This~~Overall, ~~use~~the ofCompany’s ~~cash~~O&Os isestimated ~~primarily~~market ~~driven~~share for bythe ~~higher~~six ~~accounts~~months ~~receivable~~ended ~~due~~December to31, ~~the~~2004 ~~timing~~was of1.7% ~~home~~percentage ~~entertainment~~points ~~releases~~less ~~and~~than ~~higher~~the ~~filmed~~corresponding ~~entertainment~~period ~~and~~of ~~television programming~~fiscal ~~costs~~2004 due to ~~higher~~the ~~sports~~telecast ~~rights~~of ~~payments. Considering these facts, during~~ the ~~six~~Summer ~~months~~Olympics ~~ended~~on ~~December~~a ~~31,~~different ~~2003~~network, ~~the~~disappointing ~~Company~~ratings ~~made~~for ~~higher~~Fox ~~NFL~~prime ~~rights~~time ~~payments,~~and ~~higher~~heavy ~~pension~~political spending. ~~contributions~~Generally, ~~and~~an ~~higher~~increase ~~income~~in ~~tax~~local ~~payments~~political asspending ~~compared~~contributes to ~~the~~ ~~corresponding~~a ~~period~~decrease ofin the ~~prior~~O&O’s ~~year.~~market Inshare ~~addition,~~as the ~~Company~~O&O’s ~~had~~proportional ~~only~~share ~~one~~of ~~major~~local ~~home~~political ~~entertainment~~advertising ~~release~~has inhistorically ~~December~~been ~~2003,~~lower ~~X-2:~~than ~~X-Men~~local ~~United,~~stations affiliated aswith ~~compared~~other tomajor ~~two~~networks. inFor the six months ended December ~~2002~~31, ~~Star~~2004, ~~Wars~~the ~~Episode~~Television IIStations ~~and~~segment ~~Ice~~generated ~~Age,~~Operating ~~which resulted~~income inof ~~less~~$502 ~~cash~~million, ~~used~~which towas ~~finance~~$5 ~~accounts~~million, ~~receivables.~~or 1%

Net cash used in investing activities for the six months ended December 31, 2003 and 2002 were $158 million and $580 million, respectively. The current period included cash used for payments for cable distribution investments and funding of the investments in National Sports Partners (“NSP”) and Regency Television, as well as costs incurred related to the Hughes acquisition. The corresponding period of the prior year included the cash used for the acquisition of WPWR.

Net cash provided by financing activities for the six months ended December 31, 2003 and 2002 were $207 million and $436 million, respectively. The change in financing activities is primarily due to advances from affiliates of News Corporation. In the corresponding period of the prior year, the Company redeemed all of the outstanding 9 3/4% Senior Discount Notes due 2007 and all of the outstanding 8 7/8% Senior Notes due 2007 in the amount of $947 million. In addition, in December 2002, the Company sold 50 million shares of Class A Common Stock for $1.2 billion in proceeds, which the Company then used to reduce obligations due to affiliates of News Corporation. In a non-cash transaction, the Company issued two notes to News Corporation in connection with the Hughes transaction (see description below).

Under a tax sharing agreement between the Company and News Corporation (“Tax Sharing Agreement”), the Company is included in the consolidated tax return of News Corporation. Amounts paid in accordance with the Tax Sharing Agreement, which are included in Due to affiliates of News Corporation, were $277 million and $35 million during the six months ended December 31, 2003 and 2002, respectively. The higher payment for the six months ended December 31, 2003 is primarily due to the timing of payments in the corresponding period of the prior year and a significant increase in pre-tax income in the current year.

Issuances of Stock

On December 22, 2003, News Corporation acquired a 34% interest in Hughes Electronics Corporation (“Hughes”) for total consideration of approximately $6.8 billion. General Motors Corporation (“GM”) sold its 19.8% interest in Hughes to News Corporation in exchange for approximately $3.1 billion in cash, and 28.6 million American Depositary Shares, each representing four News Corporation preferred limited voting ordinary shares (“News Corporation Preferred ADSs”), valued at approximately $800 million. News Corporation acquired 14.2% of Hughes from the former GM Class H common stockholders in exchange

~~for~~higher ~~approximately~~than ~~102.1 million News Corporation Preferred ADSs valued at $2.9 billion. Immediately following~~ the ~~acquisition,~~corresponding ~~News~~period ~~Corporation transferred its entire 34% interest in Hughes to the Company in exchange for two promissory notes totaling $4.5 billion and approximately 74.5 million shares~~ of ~~the~~fiscal ~~Company’s Class A common stock valued at $2~~2004.3 ~~billion~~This ~~(the~~increase ~~“Exchange”).~~is ~~One~~due ~~of the promissory notes the Company issued~~ to ~~News~~lower ~~Corporation~~program isamortization inas ~~the amount of $2 billion, bears interest at~~ a ~~rate~~result of ~~LIBOR~~expired ~~plus~~syndicated ~~1% per annum, and matures on June 30, 2009~~product. The expense ~~other~~savings ~~promissory~~were ~~note~~partially ~~the~~offset ~~Company~~by ~~issued~~higher tonews ~~News~~costs ~~Corporation~~due isto inexpansion ~~the amount~~ of ~~$2.5~~local ~~billion,~~news ~~bears~~in ~~interest~~several atmarkets ~~8% per annum,~~ and ~~has~~higher amarketing ~~maturity~~costs ~~date~~due ofto ~~June 30, 2009, which can be extended at~~ the ~~Company’s~~launch ~~option for not more than two successive one-year periods. The issuance~~ of ~~approximately~~new ~~74.5~~fall ~~million~~programs ~~shares of~~and ~~Class A common stock to News Corporation increased its equity interest in~~ the ~~Company~~November ~~from approximately 80~~sweeps.6% toOperating ~~approximately~~income ~~82%~~before ~~while~~depreciation its voting power remained at approximately 97%. For financial reporting purposes, in accordance with Emerging Issues Task Force No. 90-5, “Exchange of Ownership Interests between Entities under Common Control,” the Company recognized the Exchange based upon the acquired basis of News Corporation and ~~issued equity to News Corporation at~~ ~~that~~amortization ~~value.~~was ~~The~~consistent ~~Company is accounting for its interest in Hughes in accordance~~ with ~~Accounting~~the ~~Principles~~corresponding ~~Board~~period ~~Opinion No. 18, “The Equity Method~~ of ~~Accounting~~fiscal ~~for Investments in Common Stock~~2004.”

~~Debt~~Television ~~Instruments~~Broadcast Network. For the six months ended December 31, ~~Guarantees~~2004, Television Broadcast Network segments’ revenues decreased $14 million to $1,240 million from $1,254 million from the corresponding period of fiscal 2004. This decrease was primarily due to a 12% decrease in prime time ratings and ~~Related~~the ~~covenants~~absence of the Emmy Awards in fiscal 2005 which was telecast on FOX in the corresponding period of fiscal 2004. These decreases were partially offset by a higher number of advertising units sold during prime time and higher pricing for the advertising units and an increase in NFL revenue due to higher pricing for advertising units. Operating losses for the Television Broadcast Network segment improved $10 million to $168 million and Operating losses before depreciation and amortization improved $13 million to $156 million compared to the corresponding period of fiscal 2004. This increase was driven by improved sports programming performance and lower advertising costs offset by the non-recurrence of the Emmy Awards which was broadcast in fiscal 2004.

~~Intercompany~~Cable ~~Financing~~Network Programming. Total revenues for the Cable Network Programming segment increased by $83 million or 7% from $1,161 million to $1,244 million for the six months ended December 31, 2004. Fox News’, FX’s and the RSNs’ revenues increased 21%, 17% and 7%, respectively, over the corresponding period of fiscal 2004, partially offset by the absence of revenues from the Dodgers, which was sold in February 2004.

~~The~~At ~~Company~~Fox isNews, ~~funded~~advertising ~~primarily~~revenues byincreased ~~cash~~26% ~~generated~~ from ~~operations~~the ~~and~~corresponding byperiod ~~loans from other affiliates~~ of ~~News~~fiscal 2004 ~~Corporation.~~due ~~Interest~~to ~~on outstanding~~increased ~~intercompany~~advertising ~~balances~~sales, ~~has~~which ~~been~~was ~~charged~~driven atprimarily ~~commercial~~by ~~market~~increased ~~rates~~national ~~not~~pricing. toAffiliate ~~exceed~~revenue ~~News~~increased ~~Corporation’s~~by ~~average~~14%, ~~cost~~which ofwas ~~borrowing~~attributed asto ~~set~~an ~~forth~~increase in ~~the~~subscribers ~~Master~~from ~~Intercompany Agreement between~~ the ~~Company~~corresponding ~~and~~period ~~News~~of ~~Corporation~~fiscal 2004. ~~For~~As ~~the~~of ~~year~~December ~~ended June 30~~31, ~~2003~~2004, ~~the~~Fox ~~intercompany~~News ~~interest~~reached ~~rate~~approximately ~~was~~87 ~~8%.~~million ~~The~~Nielsen ~~Company~~households, ~~anticipates~~a ~~that~~2% ~~cash~~increase ~~from~~over ~~foreseeable~~fiscal ~~future operations and borrowings from News Corporation will be sufficient to meet its working capital requirements~~2004.

~~Public~~At ~~Debt~~FX, advertising revenues increased 22% from the corresponding period of fiscal 2004 due to higher ratings and improved pricing. Affiliate revenues increased 12% over the corresponding period of fiscal 2004, reflecting an increase in subscribers and average rates per subscriber. As of December 31, 2004, FX reached approximately 85 million Nielsen households, a 3% increase over the corresponding period of fiscal 2004.

InAt ~~June 2002,~~ the ~~Company and its subsidiary~~RSNs, ~~Fox~~affiliate ~~Sports~~revenues ~~Networks,~~increased ~~LLC,~~11% ~~(“Fox~~over ~~Sports~~the ~~Networks”)~~corresponding ~~irrevocably~~period ~~called~~of ~~for~~fiscal ~~redemption~~2004 ~~all~~primarily offrom ~~the~~an ~~outstanding~~increase 9in ~~3/4%~~subscribers ~~Senior~~and ~~Discount~~higher ~~Notes~~average ~~due~~rates ~~2007~~per ~~and~~subscriber. ~~all~~This ofimprovement ~~the~~was ~~outstanding~~partially 8offset ~~7/8~~by a 5% ~~Senior~~decrease ~~Notes~~in ~~due~~advertising ~~2007~~revenues ~~(collectively,~~from the ~~“Notes”).~~absence ~~The~~of ~~Notes~~NHL ~~were~~telecasts ~~fully redeemed~~ in the ~~amount~~current ofperiod ~~$942~~as ~~million~~a ~~in August~~result ~~2002.~~of the lockout.

~~New~~The ~~Millennium~~Cable IINetwork Programming segment reported Operating income of $393 million, an increase of $136 million from the corresponding period of fiscal 2004. This improvement was primarily driven by the revenue increases noted above as well as the absence of losses due to the sale of the Dodgers, lower programming costs at the RSNs primarily due to the NHL lockout and lower programming costs at FX due in part to costs associated with the fiscal 2004 cancellation of Lucky and The Orlando Jones Show. Partially offsetting these improvements were increased programming costs for political coverage at Fox News and the partial recovery in the corresponding period of fiscal 2004 of approximately $15 million of certain receivable claims against Adelphia which were previously written off. Operating income before depreciation and amortization increased $130 million to $471 million from $341 million in the corresponding period of fiscal 2004.

InInterest ~~September 2003~~expense, ~~the Company purchased substantially all of the outstanding equity of Tintagel Investors L~~net.~~L.C.~~ ~~(“Tintagel”), the entity that held the Preferred~~ Interest ~~in New Millennium II (“NM2”)~~expense, ~~for~~net increased $~~25.5~~113 million ~~plus~~for ~~accrued and unpaid Preferred Payments in~~ the ~~amount~~six ofmonths ~~approximately~~ended ~~$106,000.~~December ~~As a result of the acquisition of this equity interest~~31, ~~the~~2004 ~~Company~~from ~~has~~$23 ~~consolidated~~million ~~the~~to ~~assets and liabilities of Tintagel for accounting purposes and all Preferred Interests and Preferred Payments in NM2 have been eliminated. The outstanding NM2 Preferred Interest of~~ $~~762~~136 million atdue to ~~June~~an ~~30,~~increase ~~2003 was included~~ in ~~Minority~~ interest ~~in subsidiaries~~ on the ~~consolidated~~notes ~~balance~~issued ~~sheet~~to ofNews ~~the~~Corporation ~~Company~~upon ~~and~~receipt ~~the related Preferred Payments were included in Minority interest in subsidiaries in the consolidated statement~~ of ~~operations. Tintagel’s outstanding indebtedness of $798 million at December 31, 2003 is included in Borrowings on~~ the ~~unaudited~~DIRECTV ~~consolidated~~investment ~~condensed balance sheet and the corresponding interest is included~~ in ~~Interest~~connection ~~expense, net~~with in the ~~unaudited~~DIRECTV ~~consolidated condensed statement of operations~~acquisition. ~~Tintagel continues to be a separate legal entity from the Company with separate assets and liabilities.~~

~~The~~Equity ~~Company~~earnings ~~funds~~(losses) ~~the~~of ~~distribution~~affiliates. Equity losses of ~~motion~~affiliates ~~pictures~~of by$126 ~~borrowing~~million ~~under~~for ~~commercial~~the ~~paper~~six ~~facilities~~months inended anDecember ~~aggregate~~31, ~~amount~~2004 ofdeclined up$131 tomillion from earnings of $~~824.~~5 million ~~supported~~from bythe acorresponding ~~bank~~period ~~back-up~~of ~~liquidity~~the ~~facility~~fiscal in2004. This decline was primarily due to losses from the ~~same~~inclusion ~~amount~~of (the ~~“Facility”)~~Company’s share of the results of DIRECTV, which was acquired on December 22, 2003. These losses were partially offset by increased earnings at RPP.

~~Advances~~The Company’s share of DIRECTV’s losses for ~~each~~the ~~new~~six ~~film~~months ~~are~~ended ~~amortized~~December ~~over~~31, a2004 ~~nine-quarter~~was ~~amortization~~$176 ~~schedule.~~million ~~Advances~~and ~~made~~includes inthe ~~respect~~Company’s share of ~~films~~DIRECTV’s ~~transferred~~increased ~~during~~loss from its sale of PanAmSat resulting from a reduction in the ~~last~~sales ~~year~~proceeds, the Company’s portion of the ~~transfer~~SPACEWAY ~~term~~program ~~are~~impairment ~~amortized~~and ~~over~~the ~~six~~amortization ~~quarters~~of certain finite-lived intangibles. ~~Interest~~These on results reflect the ~~Facility~~Company’s isallocation ~~due~~of ~~monthly~~the fair value of DIRECTV’s assets and isliabilities ~~calculated~~as of December 22, 2003 and, as arequired, ~~blended~~excludes ~~rate~~certain ofitems ~~the~~that ~~commercial~~were ~~paper/back-up~~recognized ~~facility~~by ~~rate~~DIRECTV as income and expense within its results.

If the Company fails to make an interest or principal payment or if News Corporation’s public debt rating falls below investment grade then $425 million of the total principal outstanding becomes due immediately and no further draw downs may be made. The balance of the facility would be payable to the extent of future gross receipts from films that had been financed under the facility.

~~NM2,~~The ifCompany’s ~~not~~share ~~extended,~~of ~~will~~the ~~not~~RPP ~~allow~~income ~~any~~increased ~~new~~primarily ~~borrowings~~due ~~after~~to ~~June~~lower ~~26,~~programming ~~2005~~costs resulting from higher charges in the corresponding period of fiscal 2004 for player and ~~any~~management ~~amounts~~changes ~~outstanding~~at ~~will~~Madison beSquare ~~amortized~~Garden’s ~~over~~professional teams division and lower costs during the six ~~quarters~~months ended December 31, 2004 due to the termination of its professional team rights at the Chicago RSN effective September 2004.

~~Guarantees~~Other, net. Other, net was a gain of $39 million for the six months ended December 31, 2004 due to the sale of the Company’s investment in Rogers Sportsnet. There was a gain of $19 million for the six months ended December 31, 2003 due to a gain of $9 million on the sale of the Company’s interests in the SportsChannels as well as a gain of $26 million related to the settlement of the Company’s insurance claim primarily for its broadcast tower at the World Trade Center in New York, New York. These gains were partially offset by an estimated loss of $16 million on the sale of the Dodgers.

~~The~~Provision ~~Company,~~for ~~News~~income ~~Corporation~~tax ~~and~~on ~~certain~~a ofstand-alone ~~News Corporation’s other subsidiaries are guarantors of various debt obligations of News Corporation and certain of its subsidiaries~~basis. The ~~principal~~effective ~~amount~~tax ofrate ~~indebtedness~~for ~~outstanding~~the ~~under~~six ~~such~~months ~~debt~~ended ~~instruments as of~~ December 31 ~~and June 30~~, ~~2003~~2004 ~~was~~is ~~approximately $10 billion~~37.2% ~~The~~as ~~debt~~compared ~~instruments~~to ~~limit~~37.3% ~~the~~for ~~ability of guarantors,~~the ~~including~~corresponding ~~the~~period ~~Company, to subject their properties to liens, and certain~~ of ~~the~~fiscal ~~debt~~2004. ~~instruments~~The ~~impose~~difference ~~limitations~~between on the ~~ability~~statutory offederal ~~News~~income ~~Corporation~~tax rate and ~~certain~~the ofeffective ~~its~~income ~~subsidiaries,~~tax ~~including the Company~~rates, tofor ~~incur~~both ~~indebtedness in certain circumstances. Such debt instruments mature at various times between 2004 and 2096~~periods, ~~with~~is aprimarily ~~weighted~~the ~~average~~result ~~maturity~~ of ~~over~~state 20income ~~years~~taxes.

In the case of any event of default under such debt obligations, the Company will be directly liable to the creditors or debtholders. News Corporation has agreed to indemnify the Company from and against any obligations it may incur by reason of its guarantees of such debt obligations. As of December 31, 2003, News Corporation was in compliance with all of its debt covenants and had satisfied all financial ratios and tests and expects to remain in compliance and satisfy all such ratios and tests.

The Company guaranteed sports rights agreements for SportsChannel Chicago. SportsChannel Chicago has been notified of the termination, effective September 30, 2004, of these sports rights agreements and as a result, as of December 31, 2003, the remaining guarantee has been reduced to approximately $32 million and will expire on September 30, 2004.

Ratings of News Corporation Public Debt

During December 2003, Fitch Ratings assigned News Corporation a BBB- senior unsecured debt rating. Fitch assigned this rating class because of News Corporation’s stronger financial performance and capital structure. Fitch describes News Corporation’s ratings outlook as positive. At December 31, 2003, News Corporation’s debt ratings from Moody’s (Ba 1 for subordinated notes and Baa 3 for senior unsecured notes) and Standard & Poors (BBB-) for the debt guaranteed by the Company and others were within the investment grade scale.

Cash Management and Financing

Pursuant to the Master Intercompany Agreement, the Company may utilize the worldwide treasury and cash management function, including the use of bank overdraft facilities, of News Corporation and its subsidiaries, subject to certain limitations. In addition, the Company’s cash balances are available to News Corporation and its subsidiaries. From November 11, 1998, interest on outstanding intercompany balances has been charged at commercial market rates not exceeding News Corporation’s average cost of borrowing as set forth in the Master Intercompany Agreement. At June 30, 2003, the intercompany interest rate approximated 8%. The Company and News Corporation further agreed that intercompany cash balances shall be payable on June 30, 2008, or such later date as the Company and News Corporation agree.

Recent Accounting Pronouncements

In December 2003, the Financial Accounting Standards Board (“FASB”) issued a revised FASB Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities,” (“FIN 46R”). FIN 46R modifies FIN 46 to include (1) a deferral of the effective date of the provisions related to certain variable interests, (2) additional scope exceptions for certain other variable interests, (3) clarifications on the impact of troubled debt restructurings, and (4) additional guidance on what constitutes a variable interest. The adoption of FIN 46R is required in the financial statements of public entities that have interests in special purpose entities (“SPE’s”) for periods ending after December 15, 2003. Adoption by public entities that have interests in all other types of entities is required in financial statements for periods ending after March 15, 2004. The Company will adopt the provisions of FIN 46R in the quarter ended March 31, 2004.

In December 2003, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 132 (revised 2003), “Employer’s Disclosures about Pensions and Other Postretirement Benefits,” which requires expanded financial statement disclosures for defined benefit plans. The interim disclosure requirements of SFAS No. 132 are effective for interim periods beginning after December 15, 2003. The Company will provide the additional required disclosures in the interim financial statements for the quarter ended March 31, 2004.

InLIQUIDITY ~~January~~AND ~~2004,~~CAPITAL ~~the~~RESOURCES FASB issued FASB Staff Position (“FSP”) No. FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” This FSP permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 until authoritative guidance on the accounting for the federal subsidy is issued or until certain other events occur. The Company has elected to defer the adoption of this FSP until further guidance is available. Therefore, the APBO and the net periodic postretirement benefit cost does not reflect the impact of the new law.

Current Financial Condition

At December 31, 2004, the Company had $4,724 million and $153 million of amounts due to affiliates of News Corporation and borrowings from the Company’s film production financing facility, respectively, as well as $161 million of cash and cash equivalents and $18.8 billion of shareholders’ equity.

The Company’s principal sources of cash are internally generated funds and borrowings from News Corporation and its subsidiaries. As of December 31, 2004, News Corporation had consolidated cash and cash equivalents of approximately $5.0 billion, excluding the cash of the Company, and a revolving credit facility of $1.75 billion. We believe that cash from operations and the funds available from News Corporation will be adequate for the Company to conduct its operations. The Company’s internally generated funds are highly dependent upon the state of the advertising market and public acceptance of film and television products. Any significant decline in the advertising market or the performance of its films could adversely impact its cash flows from operations.

The principal uses of cash that affect the Company’s liquidity position include the following: investments in the production and distribution of new feature films and television programs, the acquisition of and payments under programming rights for entertainment programming and sporting events, operational expenditures, interest and income tax payments.

Sources and Uses of Cash

Net cash provided by (used in) operating activities for the six months ended December 31, 2004 and 2003 is as follows (in millions):


*For the six months ended December 31,*	*2004*		*2003*
Net cash provided by (used in) operating activities	$	172	$	(80	)

The increase in net cash provided by operating activities reflects higher cash collections primarily from the increased sale of home entertainment product and increased cash receipts from fiscal 2004 theatrical releases, including Day After Tomorrow, Dodgeball and Garfield, at the Filmed Entertainment segment during the six months ended December 31, 2004. This increase was offset by higher sports rights payments, higher film participation payments, higher interest payments, higher tax payments and higher pension contributions. The higher sports rights payments reflect contractually scheduled increases on the Company’s national sports contracts as well as the renewal of several sports teams’ local rights agreements. Increased interest payments are directly attributed to the notes issued in December 2003 for the acquisition of DIRECTV. Amounts paid in accordance with the tax sharing agreement between the Company and News Corporation were $292 million and $277 million during the six months ended December 31, 2004 and 2003, respectively. The Company made pension contributions of approximately $49 million during the six months ended December 31, 2004 as compared to $25 million in the corresponding period of fiscal 2004.

Net cash used in investing activities for the six months ended December 31, 2004 and 2003 is as follows (in millions):


*For the six months ended December 31,*	*2004*			*2003*
Cash flows used in investing activities:
Acquisitions, net of cash acquired	$	(23	)	$	(5	)
Investments in and acquisition of interests in equity affiliates		(33	)		(73	)
Other investments		(26	)		(30	)
Purchases of property and equipment, net of acquisitions		(62	)		(50	)
Expenses related to sale of business		(12	)		—
Proceeds from sale of investments in equity affiliates		43			—
Disposals of property and equipment		2			—

Net cash used in investing activities	$	(111	)	$	(158	)

Acquisitions, net of cash acquired represents the acquisition of an international cable channel during the six months ended December 31, 2004. There were no significant acquisitions during the corresponding period of fiscal 2004. During the six months ended December 31, 2004, the Company made payments for cable distribution investments and funded its investments in Regency Television and National Sports Partners. Proceeds from the sale of investments include proceeds from the sale of the Company’s investment in Rogers Sportsnet and the sale of an international joint venture. Expenses related to sale of business are contractual payments made in connection with the sale of the Dodgers. There were no significant asset sales in the corresponding period of fiscal 2004.

Net cash (used in) provided by financing activities for the six months ended December 31, 2004 and 2003 is as follows (in millions):


*For the six months ended December 31,*	*2004*			*2003*
Cash flows (used in) provided by financing activities:
Borrowings	$	—		$	338
Repayment of borrowings		(507	)		(276	)
Advances from affiliates of News Corporation, net		488			170
Other		(3	)		(25	)

Net cash (used in) provided by financing activities	$	(22	)	$	207

Repayment of borrowings includes principal repayments made for the New Millennium II financing for the production of films. (See Note 5 – Borrowings to the unaudited consolidated financial statements)

Commitments

In November 2004, the Company entered into a six-year follow-on contract with the National Football League commencing with the 2006 season, increasing the Company’s commitments with respect to sports programming rights by approximately $4.3 billion.

In November 2004, the Company entered into an agreement with the Bowl Championship Series from fiscal 2007 through fiscal 2010, increasing the Company’s commitments with respect to sports programming rights by approximately $330 million.

Contingencies

The Company is party to several purchase and sale arrangements, which become exercisable over the next ten years by the Company or the counter-party to the agreement. Total contingent receipts/payments under these agreements (including cash and stock) have not been included in the Company’s financial statements. In fiscal 2005, one arrangement is exercisable, which would not have a material impact on the Company’s financial statements. In fiscal 2006, the 40% equity interest in RPP, which is owned by the Company’s majority owned subsidiary, can be purchased by a subsidiary of Cablevision Systems Corporation (“Cablevision”) and Cablevision can, independently, put to the Company’s majority owned subsidiary their equity interest in both National Sports Partners and National Advertising Partners in accordance with the terms of the respective partnership agreement. If Cablevision does not elect to purchase the Company’s equity interest in RPP, the Company can put to Cablevision its equity interest.

Debt Instruments, Guarantees and Related covenants

Intercompany Financing - The Company is funded primarily by cash generated from operations and by loans from other affiliates of News Corporation. Interest on outstanding intercompany balances has been charged at commercial market rates not to exceed News Corporation’s average cost of borrowing as set forth in the Master Intercompany Agreement between the Company and News Corporation. For the three months ended December 31, 2004, the weighted average intercompany interest rate was 8%. The Company anticipates that operating cash flows and borrowings from News Corporation will be sufficient to meet its working capital requirements. In addition to the agreed upon intercompany interest rate and in connection with the DIRECTV acquisition, the Company issued two promissory notes to News Corporation totaling $4.5 billion. One promissory note is in the amount of $2 billion and bears interest at a rate of LIBOR plus 1% per annum. The other promissory note is in the amount of $2.5 billion and bears interest at 8% per annum.

Film Production Financing – Considering the competitive environment and costs associated with film production, film studios, including the Company, constantly evaluate the risks and rewards of film production. Various strategies are used to balance risk with capital needs, including, among other methods, co-production, contingent profit participations, acquisition of distribution rights only and insurance. Historically, the Company has funded its film production by borrowing under a commercial paper facility (the “Facility”) but is presently funding film production through operating cash flows or through borrowings from News Corporation. In May 2004, the Company ended the transfer term under the New Millennium II Agreement and will no longer draw any borrowings under the Facility. In accordance with the terms of the termination, the Company will repay the $153 million currently outstanding.

Ratings of News Corporation Public Debt

The table below summarizes News Corporation’s credit ratings as of December 31, 2004.


Rating Agency	Senior Debt	Outlook
Moody’s	Baa 3	Positive
S&P	BBB-	Positive

Guarantees

The Company, News Corporation and certain of News Corporation’s other subsidiaries are guarantors of various debt obligations of News Corporation and certain of its subsidiaries. The principal amount of indebtedness outstanding under such debt instruments as of December 31, and June 30, 2004 was approximately $11 billion and $10 billion, respectively. The debt instruments limit the ability of guarantors, including the Company, to subject their properties to liens, and certain of the debt instruments impose limitations on the ability of News Corporation and certain of its subsidiaries, including the Company, to incur indebtedness in certain circumstances. Such debt instruments mature at various times between 2005 and 2096, with a weighted average maturity of 20 years.

In August 2004, the Company, along with News Corporation and certain of News Corporation’s other subsidiaries, issued a guarantee for the obligations of Sky Brasil, an equity affiliate of News Corporation, under a $210 million three-year credit agreement with JPMorgan Chase Bank and Citibank NA. In October 2004, News Corporation and DIRECTV announced a series of transactions that will result in the reorganization of the companies’ direct-to-home satellite television platforms in Latin America. As a part of these transactions, DIRECTV will acquire News Corporation’s interests in Sky Brasil, the completion of which is subject to regulatory approval, and will assume all of News Corporation’s obligations thereof, including those under the credit agreement guaranteed by the Company at closing. The completion of certain of these transactions is subject to regulatory approvals and other conditions. Given the strong financial position of the other guarantors, the Company believes it is highly unlikely it will be required to perform any of the obligations under the guarantee.

In the case of any event of default under such debt obligations, the Company will be directly liable to the creditors or debtholders. News Corporation has agreed to indemnify the Company from and against any obligations it may incur by reason of its guarantees of such debt obligations. As of December 31, 2004, News Corporation was in compliance with all of its debt covenants and had satisfied all financial ratios and tests and expects to remain in compliance and satisfy all such ratios and tests.

Cash Management and Financing

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

The Company is exposed to the impact of foreign currency fluctuations and utilizes derivative instruments in a limited manner to modify its exposure to foreign exchange rate movements. The Company’s policy is to enter into derivative and other financial instruments only to the extent considered necessary to meet its business objectives. The Company does not enter into these transactions for speculative purposes.

Foreign Exchange Rate Risk

The Company uses foreign exchange forward contracts and options principally to ~~minimize~~hedge ~~its limited~~the ~~exposure~~costs toof ~~exchange~~producing ~~rate~~films ~~movements~~abroad. The ~~foreign~~Company ~~exchange~~hedges ~~contracts~~its ~~have~~anticipated ~~principally~~foreign ~~been~~currency ~~used~~exposures related to ~~hedge~~filmed ~~the~~entertainment production costs over the life of ~~producing~~the ~~films~~production ~~abroad~~(the ~~and~~“hedging ~~are~~period”). ~~principally~~To ~~denominated~~hedge inthis exposure the ~~Czech~~Company ~~Koruna,~~uses foreign ~~the~~exchange ~~South~~contracts ~~African~~that ~~Rand,~~generally ~~the~~have ~~British~~maturities ~~Pound~~of ~~Sterling,~~1 ~~the Moroccan~~week ~~Dirham~~to ~~and~~9 months providing continuing coverage throughout the ~~Euro~~hedging period. The Company designates forward contracts and options used to hedge future production costs as cash flow hedges. At December 31, 2004, the Company had no foreign exchange forward contracts outstanding.

At December 31, 2003, the notional amount of financial instruments with exposure to foreign currency risk was approximately $51 million and the net unrealized gain was approximately $3 million. The potential loss in fair value for such financial instruments from a 10% adverse change in quoted foreign currency exchange rates would be approximately $6 million. Consistent with the nature of the economic hedge provided by such foreign exchange contracts, such gains or losses largely would be offset by corresponding decreases or increases, respectively, in the U.S. Dollar value of future foreign currency obligations.

ITEM 4. CONTROLS AND PROCEDURES

The Company’s Chairman and Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange ~~Act of 1934) as of the end of the period covered by this quarterly report and, based on this evaluation, have concluded that the disclosure controls and procedures~~ ~~are effective.~~

~~There~~Act ~~have~~of ~~been~~1934) noas ~~changes~~of in the ~~Company’s~~end ~~internal control~~of ~~over financial reporting that occurred during~~ the ~~Company’s~~period ~~first~~covered ~~fiscal~~by ~~quarter~~this ~~that~~quarterly ~~has~~report ~~materially affected~~and, orbased ison ~~reasonably~~this ~~likely~~evaluation, tohave ~~materially~~concluded ~~affect,~~that the ~~Company’s~~disclosure ~~internal~~controls ~~control~~and procedures ~~over~~are ~~financial reporting~~effective.

There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s second fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. Other Information

ITEM 1. LEGAL PROCEEDINGS

~~Not~~Following ~~Applicable~~the end of the period covered by the report, on January 10, 2005, the Company received complaints relating to a number of purported class actions filed in Court of Chancery in the State of Delaware. The complaints generally allege, among other things, that News Corporation and the members of the Company’s board of directors have breached fiduciary duties owed to the public stockholders of the Company, including as a result of News Corporation offering to acquire shares of the Company’s Class A common stock at an unfair price and at a time that disadvantages the Company’s stockholders. The complaints generally seek, declaratory and injunctive relief and damages in an unspecified amount. The Company believes that these claims are without merit and intends to vigorously contest the allegations.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not Applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On November 2516, ~~2003~~2004, the Company held its annual meeting of stockholders. At this meeting, the Board of Directors was elected and the appointment of Ernst & Young LLP as independent accountants of the Company for the fiscal year ended June 30, ~~2004~~2005 was ratified. Votes for the election of directors of the Company were as follows: for K. Rupert Murdoch, 5,~~743~~813,~~957~~628,~~016~~165 votes for and 5964,~~772~~677,~~347~~452 votes against; for Peter Chernin, 5,~~743~~814,~~942~~584,~~146~~798 votes for and 5963,~~787~~720,~~217~~819 votes against; for Lachlan K. Murdoch, 5,~~746~~813,~~682~~628,~~485~~165 votes for and 5764,~~046~~677,~~878~~452 votes against; for David F. DeVoe, 5,~~746~~815,~~751~~989,~~065~~932 votes for and ~~56,978,298 votes against; for Arthur M. Siskind,~~ 5,746,719,423 votes for and 57,009,940 votes against; for Christos M. Cotsakos, 5,791,302,209 votes for and 12,427,154 votes against; for Thomas W. Jones, 5,792,450,996 votes for and 11,278,367 votes against; and for Peter J. Powers, 5,792,430,082 votes for and 11,299,281 votes against. There were 5,799,896,329 votes in favor of the appointment of Ernst & Young LLP as the independent public accountants of the Company with 3,810,962 votes against, and 22,072 abstentions.

62,315,685 votes against; for Arthur M. Siskind, 5,817,387,577 votes for and 60,918,040 votes against; for Christos M. Cotsakos, 5,869,788,015 votes for and 8,517,602 votes against; and for Peter J. Powers, 5,871,039,260 votes for and 7,266,357 votes against. There were 5,875,743,372 votes in favor of the appointment of Ernst & Young LLP as the independent public accountants of the Company with 2,549,900 votes against, and 12,345 abstentions.

ITEM 5. OTHER INFORMATION

Not Applicable

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.1		Director Compensation Summary Sheet *
31.1		Certification of the Chairman and Chief Executive Officer pursuant to SEC Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2		Certification of the Senior Executive Vice President and Chief Financial Officer pursuant to SEC Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1		Certification of the Chairman and Chief Executive Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
32.2		Certification of the Senior Executive Vice President and Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

*	Filed herewith

(b) Reports on Form 8-K.

The following current reports on Form 8-K were filed by the Company during the Company’s second fiscal quarter:

(i) Current Report on Form 8-K of the registrant ~~filed~~furnished November 53, ~~2003~~2004 relating to the earnings announcement by Fox Entertainment Group, Inc. of its financial results for the ~~First~~period ~~Quarter~~ ended September 30, ~~2003~~2004.

(ii) Current Report on Form 8-K of the registrant filed December 22, 2003 relating to the announcement by The News Corporation Limited, General Motors Corporation and Hughes Electronics Corporation of the receipt of regulatory clearance from the Federal Communication Commission for the purchase of a 34% interest in Hughes Electronics Corporation.

(iii) Current Report on Form 8-K of the registrant filed December 29, 2003 relating to the announcement of The News Corporation Limited of its acquisition of a 34% interest in Hughes Electronics Corporation and the transfer of that interest to the Company.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: February 11, 2004		FOX ENTERTAINMENT GROUP, INC.
Date: February 4, 2005	FOX ENTERTAINMENT GROUP, INC.
	By:	/s/ David F. DeVoe	~~By:~~	~~/S/ DAVID F. DEVOE~~
		David F. DeVoe	~~David F. DeVoe~~
		Senior Executive Vice President and Chief Financial Officer	~~Senior Executive Vice President and Chief Financial Officer~~

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Filing Compare · FOX ENTERTAINMENT GROUP INC