Ole Rupert is actually being forced by financial forces to break off News Corp.’s print publishing arm from the rest of his media empire — But, could this bring about an unintended method to their madness at the end of the day (also forced) ?
Splitting News Corp. Means Shoring up – or Shipping Out – Print Ops
News Corp.’s decision to throw its publishing operations under the bus in a division of assets is a shortsighted effort to pacify shareholders disgruntled with a year-long phone-hacking scandal in Britain and declining stock price that could blunt the newspapers’ digital survival.
Is it realistic to expect a pure-play publishing company to do more experimenting with digital business models than it does now? News Corp. Chairman Rupert Murdoch promises the standalone entity will have “a robust net cash position” for potential acquisitions. But where will the investment funds come from?
News Corp. chairman Rupert Murdoch, who has been loath to spin-off his beloved newspaper operations, says the stand-alone entity will have “a robust net cash position” for potential acquisitions.
Nomura Securities analyst Michael Nathanson estimates the publishing business will have $362 million in profit in fiscal 2012 and a value of about $2.6 billion, or 7% of News Corp.’s current market cap. By comparison, News Corporation’s entertainment business will earn $3.1 billion in fiscal 2012 and could be the highest-growth portfolio in media, valued at about $52.5 billion–nearly the same as the existing company.
Barclay’s Anthony DeClemente expects as much as $2 billion of News Corp.’s estimated $11 billion in cash will go with publishing to mitigate $1.5 billion in debt and an estimated $330 million in phone hacking-related legal expenses. Even with double-digit declines in ebitda, BTIG analyst Richard Greenfield expects publishing free cash flow to remain positive in fiscal 2015.
Still, those numbers speak more to getting by than getting on.
The publishing company will not likely seek another $5 billion deal like its purchase of Dow Jones in 2007, which was heavily written down and whose estimated value has deteriorated. But it will need to continuously invest in innovative digital applications and business models to better monetize its unique data and information.
The WSJ, as it is expected to be rebranded, is aggressively making variations of its content available to users through their device of choice to avoid the huge reader exodus spurred by The Times of London‘s hard pay wall tactics.
Wall Street Journal readers can “subscribe” for a few dollars a month to specific news channels through premium sources, such as Water Cooler, the Political Report and the Technology Digest in a unique revenue-sharing arrangement between Dow Jones, aggregator Pulse and Apple, which demands about one-third of money generated from apps on its devices.