Murdoch’s plan to divide seen as a path to conquer

Marc Sidwell
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THE Sky’s the limit once again for News Corporation. It took the first step in what looks like a bold new strategy to acquire the remaining 61 per cent of BSkyB yesterday. The media giant confirmed that it is “considering a restructuring to separate its business into two distinct publicly traded companies” – understood to mean the separation of publishing from its film and television arms. Although the Murdochs are likely to retain control of both companies, the split would help to protect the entertainment arm from Ofcom’s investigation into whether the phone hacking scandal means News Corp is not “fit and proper” to own broadcast licences. Better yet, with its controversial newspapers at arm’s length, the new entertainment firm could find BSkyB an easier buy.

A BSkyB purchase, or even a merger, would revive the company’s plan to unify its European broadcast assets under the Sky umbrella, a long-term strategy frustrated by the recent scandals. But the bump to the global content provider’s share price yesterday was also an admission of the declining importance of publishing to Rupert Murdoch’s newspaper-founded empire.

The division would not be an equal one. In recent years, publishing has accounted for only about 25 per cent of News Corporation’s revenues – and just 18 per cent of operating income in 2011. Back in 2001, it was 33 per cent of revenues and 50 per cent of operating income. The headings in Rupert Murdoch’s 2011 letter to stockholders tell their own story: Strong Television Performance; Fast Growing Cable Channels; Growth on Pay-TV Platforms; Headwinds in Publishing. As the annual report spells out: “The company believes that competition from new media formats and sources and shifting consumer preferences will continue to pose challenges for the publishing segment’s businesses.” The rapid growth that investors want to see is all in film and TV, making publishing effectively a drag on the media group’s performance.

Still, the overall numbers for publishing don’t look catastrophic. As a segment of News Corp it made $865m (£554.5m) in 2011 off revenues of $8.826bn. Higher advertising and circulation revenues at The Wall Street Journal were apparently a significant contributor. In 2011, News Corp’s print and digital circulation revenues rose 12 per cent year-on-year, and its print and digital advertising revenues rose 11 per cent. Its book publishing division HarperCollins has also done well from ebooks and bestsellers like Wolf Hall.

But not all parts of News Corp’s publishing segment are equal, especially in Britain. The Times and Sunday Times haven’t made money for years. Times Newspaper Limited has been shrinking its annual loss recently, but it still stood at £11.6m for the year to July 2011. If the Times is cut loose from its entertainment sugar daddy, it will be interesting to see how long it survives in its current form. News Corp’s Australian newspaper arm, News Limited, last week announced a restructuring that could cost over 1,000 jobs, with east coast operations slashed from 19 to five. News Corp shares may be heading skyward, but the publishing cast-off it leaves behind may need to take a very unsentimental approach to some of the world’s oldest newspapers.

Marc Sidwell is City A.M.’s managing editor.