Murdoch considers News Corp split: what does it mean?

Jun 26, 2012

Hiving off the newspapers from the profitable film and TV business would please shareholders and stop the rot

Justin Sullivan

IS RUPERT MURDOCH finally bowing to pressure from corporate shareholders in News Corp to hive off the mega-profitable film and TV business from the more problematic publishing arm, home of the Times, the Sun and the New York Post newspapers?

A report in the Wall Street Journal - another Murdoch paper which would be affected by such a split - quotes sources "familiar with the situation" who have sketched out a plan whereby the 20th Century Fox film studio, the Fox broadcast network and Fox News channel would become a new entertainment company.

The rest of News Corporation's assets, including all the newspapers, the publishing house HarperCollins and Murdoch's fledgling education business, would be grouped into a publishing arm. The Murdoch family, who effectively control News Corp through their 40 per cent voting stake, would likely retain control of both new companies.

Such a split would be welcomed by American investors, who have long felt that the "slow-growing" publishing arm was holding back the intensely profitable entertainment side. The TV and film assets brought in three-quarters of News Corp's $25.34bn in revenue in the first nine months of the current fiscal year, and 90 per cent of the profits.

There has also been growing unease that ongoing investigations in the UK into the activities of the now defunct News of the World and the Sun could impact on the parent company. James Murdoch, the former boss of News International, the London arm of News Corp, had to resign from his job and step down from the board of broadcaster BSkyB following criticism of his role.

Chase Carey, the chief operating officer of News Corp, revealed earlier this year that the company's management team had suggested hiving off  the newspapers, but that no decision had yet been made. Rupert Murdoch is quoted by sources in the WSJ as having been initially opposed to such a move, but is believed to be coming round to it.

So what could it mean for the Murdoch empire?

Sell-off of the British newspapers
While many media analysts note that Rupert Murdoch has a romantic attachment to his British newspapers - the News of the World and the Sun were once supremely profitable, with the daily bringing in £1m a week in profits in the 1980s - if he gave in to the economic realities of the situation he could hope to profit from their sale.

Fellow press baron Richard Desmond told the BBC in 2010 that he had £1bn to spend and would like to add the Sun to his collection of papers that includes the Daily Express and Star. The Times and Sunday Times could also conceivably be sold to a private equity company.

New focus on education
Murdoch has quietly been moving into the potentially lucrative sector of education, buying an educational technology firm called Wireless Generation for $360m in 2010 and cultivating links with politicians such as the British Education Secretary Michael Gove, himself a former Murdoch journalist.

With the American education market valued by the 81-year-old mogul as a "$500bn sector in the US alone that is waiting desperately to be transformed by big breakthroughs", Murdoch could use the technological advances developed by his other businesses - the use of paywalls to protect content, for example - to focus on this area.

A chance to resurrect the BSkyB bid
With the Murdoch family remaining in control of all of the News Corp divisions, but with a firewall in place to protect the entertainment arm from the more scurrilous activities of its newspapers, the company would be well-placed to avoid any repercussions that the hacking scandal in the UK may unleash.

It would also allow the entertainment arm of News Corp to continue with its stalled bid for the whole of BSkyB, a company so lucrative it generated £939m of profits in the nine months to the end of March 2012. Political and business opposition to News International's bid forced it to be shelved in the wake of the closure of the News of the World last year.

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