Nine Questions as Murdoch Splits the News Corp Baby

“Here now, give me the knife. I’ll do the cutting,” we can almost hear Rupert saying, as News Corp formally looks (“The newsonomics of the News Corp split“) to divide up the bright, ever-happy global entertainment assets from those of the sad, bedraggled newspaper ones.

As the company moves to become two, here are nine questions I’m thinking about as the latest Murdochian drama unfolds:

• Wouldn’t the Wall Street Journal, its Digital Network, and Dow Jones more generally, be better off as a separate standalone company of its own, rather than pooled together with flagging general interest newspapers? The Journal has far more potential to make serious money as the global digital business news economy is becoming real. It’s no longer just about English-language speakers, though there are tens of millions of those who will want business news to feed their work. German-language and Chinese-language sties are proliferating, and the ad and circulaion revenue will follow. The other papers — no matter how high a quality (the Times of London), how spirited (the New York Post) or how central to a country’s coverage (the Australian) — all are winding down as print businesses, and struggling to find digital revenues to support large newsrooms. The Journal doesn’t share much with these other papers — some distribution of the Digital Network — and, with few technology, sales or content synergies could be better situated as a standalone.
• Isn’t the logic of the deal made clearer every day, to Rupert, by the business fortune trajectories of the kinds of businesses he owns? The digital distribution of entertainment is scaling every day, as rights, technologies and audiences all mature. As sports licensing only gets more expensive, the barriers to entry go up. That makes the big, entertainment company a fast grower into the years ahead. Even Rupert sees that the fortunes of his beloved newspapers, save the Journal, are declining far more rapidly than he and other publishers thought was likely. This is a tale of businesses going two opposite directions, and the split notion ratifies that reality.
• Doesn’t the apparent split certify Fox News as an entertainment company? Which it plainly is, and does a hell of a job with, for a significant segment of the audience. It never fit with the WSJ businesses, though they share space.
• What kinds of synergies are possible between the new Newsco and HarperCollins? HarperCollins now sees about 15% of its business in ebooks, as the digital revolution reshapes traditional book publishing. How much can ebook publishing (“The Newsonomics of the Tablet as a Shiny, New Wrapper“) support further money-making off news content. The road is now being laid by numerous publishers and having an in-house ebook publisher could either be a boon, or an obstacle, depending on well the parties can work together.
• How much value might actually be in the new Newsco? Newspaper companies are selling for about a tenth of what they did a decade ago. This collection of assets is not dissimilar from most, with the two kinds of exceptions: 1) On the positive side, the Wall Street Journal businesses offer more value, and potential enhanced cash flow, over time than general interest papers; 2) On the negative side, while all newspapers are challenged by the deep print ad slide, this collection features the Times of London/Sunday Times and New York Post, both of which are losing buckets of money. They are a major drag on profits, which are already meager and only more threatened going forward. That’s why we’re hearing this au courant term: zombie stock. Might the new NewsCo move fairly quickly to jettison moneylosers, reviving the trust idea for the Times of London and seeking buyers for the New York Post?
• Who’s the new CEO of the new Newsco? Lots of good speculation, from the Journal’s Robert Thomson to News Limited’s Kim Williams to new Dow Jones CEO Lex Fenwick. How much does the CEO really matter; wouldn’t Rupert really be running the show, perhaps even more so than previously?
• If you were at the Journal, should you feel better or worse about the sustainability of the institution, at its current size, as you are split off from the mother ship and the cash whale?
• So, if and when, the new Newsco needs funding post division, where is it going to get it? At division, News Corp, with its Goldman and Centerview advisors, will divvy up the $9 billion or so in cash it has, assuming $2 billion has now been committed to the Consolidation Media Holdings pay-TV acquisition in Australia. How much the new Newsco gets at birth will be a major factor in its market worth and the time it has to find its legs in uncertain media terrain. How generous News Corp can be to the Newsco — without opening itself up to shareholder issues — is one number to watch.
• Who gets the News Corp name, the non-news company or the news company?

1. 

   Barry Graubart says:

   June 27, 2012 at 1:15 pm

   Great post, Ken.
   I agree that Dow Jones does not fit with the newspapers, but I wonder if Dow Jones and WSJ really fit together. Wouldn’t it make more sense to carve off Dow Jones and sell it to someone who will focus on the data business?

   The 10th question I’d ask would be: How will this impact The Daily? Will they still be willing to fund losses at what has been an interesting lab experiment? I think that they should – as it can help them figure out the ultimate strategy for the other news businesses – but that’s a lot easier to do when you have the big entertainment business to support it. I’d guess that the DVD license revenue from Avatar in Bulgaria probably covers the annual budget for the Daily.
2. 

   Ken Doctor says:

   June 27, 2012 at 10:08 pm

   Barry: Thanks. Both points are excellent ones. I’d expect we’d see greater alignment of R & D in the new company, which could bode ill for The Daily. It’s been a great R & D project, but one would have to ask what new can be learned in the next year plus. The early learnings are strong, clearly.

   On DJ, it is a small data provider, compared with Thomson Reuters and Bloomberg. That could make the sale of those businesses timely, as the new company focuses and adds to whatever warchest the split provides. We can make that point about DJ’s B2B businesses overall, which throw off no more than $300M in revenue. Yet, the appointment of Lex Fenwick seemed to say B2B is important, and the latest realignment — with Todd Larsen out — raises new questions about how the company will play B2B, or just merge it with B2C.