• by Gavin O'Malley  @mp_gavin, November 4, 2009

Principally due to lower search and advertising revenue, News Corp.'s Digital Media Group saw its earnings decrease by $22 million year-over-year, the company said during its fiscal first-quarter earnings call Wednesday.

"We have not been making our minimum guarantees, so our search revenue will not be what was advertised much earlier," News Corp. head Rupert Murdoch said on the call regarding MySpace's guaranteed search revenue deal with Google. "I think it's quite simple."

Signed in 2006, the search and contextual ad deal involved guaranteed payments totaling $900 million between the first quarter of 2007 and the second quarter of 2010 -- provided that News Corp.'s Digital Media Group (then called Fox Interactive Media) met minimum traffic requirements and guarantees. The deal has accounted to roughly a third of News Corp.'s online revenue from MySpace and some of its smaller sites.

On the call, Murdoch said the failure could cost News Corp. $300 million. "I don't know, but I would think ... I'd be guessing to answer that but ... It'll drop $300 [million]," he said. "It was tied to very high guarantees, which we have not met." News Corp.'s chief operating officer Chase Carey immediately corrected Murdoch, saying the company would likely take a 10% hit, or about $90 million. "It's a $100-million-type thing."

This summer, Google was rumored to be renegotiating the exclusive deal with MySpace. Significantly less than the original $300 million a year, however, Google now values the deal at $50 million to $75 million a year, sources told TechCrunch in May.

Last month, MySpace chief executive Owen Van Natta told the Financial Times that the once-reigning social network is no longer interested in competing with Facebook. Rather, MySpace was positioning itself solely as an online hub for music and entertainment and their respective devotees.

Regarding MySpace, Carey said Wednesday: "It is a work in progress." In reference to News Corp.'s plans to begin charging fees for the bulk of its content, Carey added: "The pay-wall question is not related to MySpace ... They're really two separate initiatives."

Not specifically related to MySpace, Murdoch remarked on the call: "Most of our best profit-makers are things we either started from scratch or bought for peanuts."

Companywide, News Corp.'s net income increased 11% in the fiscal first quarter, thanks to strong performances by its cable-television networks and film business, which managed to offset declines at its newspaper and broadcast-TV divisions.

"Operating income growth was led by gains at our worldwide cable network programming businesses and renewed momentum at our Filmed Entertainment segment, reflecting our strong slate of films at the global box office," Murdoch said in a statement. "The strategic steps we took last year to ensure stability during the downturn have proven successful, with significant cost reductions offsetting much of the revenue declines in our television and newspapers and information services segments."

The company reported net income of $571 million, or 22 cents a share, for its fiscal first quarter ended Sept. 30. A year earlier, net income was $515 million, or 20 cents a share. The year-earlier results also included a $422 million writedown of the company's investment in German TV company Sky Deutschland.