Date: June 29 2012
Update The break-up of News Corp announced by Rupert Murdoch last night brings News's print media assets back onto a more level playing field with competitors, including Fairfax Media in this country.
News says it will split into two companies, one owning its best television and film industry businesses including Fox film and television and Britain's BskyB, and one owning its publishing assets, including its main Australian newspapers.
The print business is not totally divorced from the faster growing entertainment businesses. The Australian arm, News Ltd, is being entirely folded into it, which means that it will include the Australian arm’s 25 per cent interest in dominant pay TV operator Foxtel, and its 50 per cent stake in Foxtel’s key content provider, Fox Sports.
News has launched a $2 billion bid for James Packer-controlled Consolidated Media Holdings, which owns another 25 per cent of Foxtel and the other half of Fox Sports, and if the bid succeeds, ConsMedia will also be folded into the publishing business, giving the publishing company 50 per cent of Foxtel and day to day management, and 100 per cent of Fox Sports.
News has always presented itself as a multi-piston media engine, but the break up does change the dynamic. There will one very large, pure entertainment broadcasting company, and a much smaller hybrid. As a guide, Publishing accounted for $US8.8 billion of News’s total revenue of $US33.4 billion in 2011, and $US864 million of the group’s total profit of $US4.85 billion. News Ltd contributed revenue of $US5.8bn.
Foxtel and Fox Sports add a higher-growth element to the publishing company, and News says the plan is for it to be launched debt-free.
But it will also own a host of mastheads that have the challenge of shifting their business models from traditional print to digital as the internet transforms the economics of publishing, including The Wall Street Journal, Dow Jones, Harper Collins and The New York Post in America, The Australian, The Herald Sun, The Daily Telegraph and The Courier Mail in Australia, and The Times, The Sun and The Sunday Times in the United Kingdom.
The new business will still be a major media player and a fierce competitor. But it is going to have less balance sheet firepower and less cash flow to bring to bear than News Corp itself has, and will be exposed to the competitive forces that reshaping publishing and print media. In this media market Fairfax Media's position is if anything enhanced, because it has created a stronger digital media news and entertainment presence.
Rupert Murdoch developed News first as a print media company, but the sheer weight of the entertainment assets inside News eventually made the case for a break up compelling.
As things stand, they contribute 75 per cent of News's revenue, and 90 per cent of its earnings, and News's second in charge, chief operating officer Chase Carey, believed the entertainment business would be more highly valued if they were separated from the lower-growth publishing businesses. The rise in News’s share price this week on news of the split shows that Carey was right.
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