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News Corp splits in two? « Previous | |Next »
June 28, 2012

News Corp is to be split into its entertainment (film and television businesses) and publishing businesses (ie., the papers in the US, UK and Australia together with Harper Collins, News Corp's book publishing company). These will become two separately listed companies both controlled by the Murdoch family.

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The papers consume far more resources than any returns they can ever hope to offer and they are declining assets. The print division made a small profit last year. According to Amy Chozick in the New York Times:

In the year that ended June 2011, the publishing unit contributed $864 million in operating profit, compared with $4.6 billion in operating profit from entertainment units including the cable channels, the 20th Century Fox studio and Fox Broadcasting
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The newspaper and books division would generate earnings before interest and tax of only $US542 million in fiscal year 2013 (with roughly $US280 million from Australia) valuing that proposed company at between US$4.3 to $US2.3 billion billion. The entertainment division would generate $US5.6 billion over the same year, valuing the company at $58.8 billion.

With the closing of the News of the World, one of its big newspaper earners, and with the continued fall in newspaper circulation and advertising, those small earnings may be expected to disappear. That would leave the money losers particularly exposed: the New York Post, the London Times, the Wall Street Journal, and The Australian. There will be pressure to close the more marginal or unprofitable magazines and newspapers.

There is a long history of companies splitting off under-performing divisions to allow the more lucrative division to grow. News Corporation has evolved into a successful entertainment company with a newspaper problem. The newspapers are mature industries unlikely to yield great profits as the digital revolution progresses. They are vulnerable whilst the entertainment businesses are strong.

The newspapers, once seen as a tool of political and financial influence, have become a liability in both. What's even worse is that the newspaper division is no longer sturdy enough to finance its own digital investment needs.

News Ltd chief Kim Williams whole narrative and strategy was based on the synergies between all of the media----we build all our future consumer platforms – print, online, tablet, mobile, broadcast and social. The ground appears to have pulled out from under that strategy by the New York decision--unless Australia is exempted from the split.

A split of the Australian assets of News Ltd could force the company's newspapers to cut more costs. The newspapers would have to be accountable and they would have to run on their own profit stream. There would be greater pressure to ensure the costs were cut from the traditional print division.

| Posted by Gary Sauer-Thompson at 11:22 AM | | Comments (5)
Comments

Comments

News Ltd celebrating its own expansion in contrast to Fairfax's decline may be shortlived.

Its newspapers will have to be run on declining revenues, whilst the expanding subscription based Foxtel services will go to the entertainment company.

The chickens are coming home to roost from the phone hacking scandal in the UK.

That will mean even bigger cuts to News Ltd's newsrooms than was originally planned as their papers downsize. The profit centre is Foxtel not The Australian.

News Ltd’s newspapers look stranded. They sell three times as many papers as Fairfax Media (on expensive, under-used printing plants), yet have fewer online readers.

Their digital strategy has been unsuccessful and among the first redundancies announced this week were 70 News Digital staff.

The print business is not totally divorced in Australia. The Australian arm's 25 per cent interest in dominant pay TV operator Foxtel is also being placed in the print/publishing unit.

The Australian newspapers still face declining revenues. So the stand-alone publishing side of News Corp will face problems in a period when revenue is declining.

The tabloids will have to subsidize The Australian