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Aug 20, 2014

Exclusive docs show News’ Australian papers dragging down the empire

Leaked documents show a forest of brackets in News Corp’s Australian newspapers, with The Australian particularly in the red. How long can the house that Rupert built sustain such body blows?

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Internal operating accounts for the Australian arm of Rupert Murdoch’s News Corporation show alarming revenue and profit falls across the metropolitan newspapers in fiscal 2013, and widening losses at flagship broadsheet The Australian.

Combined with the sharp earnings drop already reported in 2013-14, and with circulation and advertising revenues continuing to decline, the accounts suggest News Corp’s Australian newspapers, including the national, metro and regional publications, will struggle to break even this financial year.

The confidential operating accounts for News Corp Australia have never been seen by investors and provide a detailed picture of a print business in rapid decline, with swingeing cost-cuts, cover price increases, new digital subscriptions and digital advertising failing to make up for the loss of revenues from advertising and circulation.

Crikey has received a copy of the last weekly financial statements for 2012-13, which provide line-by-line, year-on-year comparisons across the business, from a well-placed source concerned about misrepresentation of the profitability of News Corp’s Australian newspapers.

The accounts raise the question of how long the rest of the News Corp empire can carry the underperforming Australian newspapers business.

The accounts were produced last year just as Murdoch spun off his troubled print media assets worldwide from the profitable Fox film and cable television empire in the United States, in the wake of the UK phone-hacking scandal.

News Corp was spun out on June 28, 2013, from the renamed 21st Century Fox, and houses mastheads including The Wall Street Journal and New York Post in the US, the Times and Sun in the UK, News’ Australian newspapers, plus book publisher Harper Collins, Foxtel and Fox Sports in Australia, and a 62% stake in ASX-listed REA Group, which operates the successful realestate.com.au website.

“The Australian newspapers are dragging on recovering newspaper operations in the US and UK, as well as divisions reporting profit growth, such as book publishing.”

Listed on the NASDAQ and the ASX, News Corporation, valued at $11 billion, goes to considerable lengths to avoid breaking revenue or earnings down by country or masthead, lumping its worldwide newspaper operations plus other businesses together into the “news and information” segment, which accounts for 71% of the group’s total revenue, and only offering finer detail selectively.

Crikey can reveal that, amid a forest of negative brackets, revenue from News Corp’s Australian newspapers fell 14% to $1.9 billion in 2012-13, with circulation revenue dropping 5% and advertising revenue falling 18%, while operating income fell 67% to $94 million.

Within the division, The Australian stands out as the worst performer: revenues dropped 20% from $135 million to 108 million in 2012-13, while operating income fell 41% from a loss of $19 million to a loss of $27 million. After depreciation, the masthead’s operating loss fell to $30 million.

The profit drop in newspapers was only partly offset by growth in other operations like REA Group and Fox Sports, with total operating income falling 38% to $221 million. After income from investments including Foxtel, the group recorded a total profit before interest or tax of $367 million, down 28%.

After a recent visit to celebrate The Australian’s 50th anniversary, Rupert Murdoch tweeted he’d had an “exciting week in Australia with great team digging company out of many holes” but the heavy falls in print have continued if not accelerated through 2013-14. This is confirmed in News Corp’s most recent quarterly earnings update and annual report, showing the Australian newspapers are dragging on recovering newspaper operations in the US and UK, as well as divisions reporting profit growth, such as book publishing.

News reported that earnings before interest tax depreciation and amortisation from Australian newspapers fell by US $67 million in 2013-14, or $73 million — which by Crikey’s estimate represents roughly an 80% fall on the previous year, nearly wiping out the division’s entire operating income. The division dragged heavily on the news and information segment, which reported a 16% drop in EBITDA in 2013-14.

The operating accounts show Melbourne’s Herald Sun was the mainstay of News Corp in Australia, with the weekday paper generating revenues of $250 million in 2012-13, down 13.5% on the year before, and operating income of $35 million, down 41%. Revenue for the Sunday edition fell 17% to $75 million, while operating income fell 31% to $21 million.

Of the major tabloids the weekday edition of News’ monopoly masthead in Brisbane, The Courier-Mail, suffered the steepest falls, with revenue dropping 18% to $158 million while operating income fell 68% to just $17 million. The Sunday Mail revenues fell 15% to $71 million and operating income fell 33% to $20 million.

The weekday edition of Sydney’s Daily Telegraph was another weak performer, with the lowest profit margins at 5%, with revenue dropping 14% to $160 million while operating income fell 65% to just $8 million. The Sunday Telegraph revenues fell 15% to $94 million and operating income fell 53% to $7 million.

At that level Adelaide’s Advertiser‘s weekday editions alone made a much stronger contribution than the Tele in 2012-13, generating revenues of $138 million (down 15%) and operating income of $22 million (down 47%) — without counting the Sunday Mail.

The financial performance of the newspapers has only worsened. In its latest accounts News Corp revealed that overall revenue from the Australian newspapers had fallen by another 18% or US $359 million in 2013-14, compared with the previous year, made up of US $314 million decline in advertising revenue and a US $45 million decline in circulation revenue. Of that, News said US $199 million — a bit over half — reflected the impact of a weaker Australian dollar versus the greenback, which pointed to an 8% decline in revenue in local currency to below $1.8 billion.

On News Corp’s quarterly earnings dial-in chief executive Robert Thomson conceded there were advertising headwinds in in Australia but said there were signs of a turnaround, with “green shoots on the Nullarbor”. In the June 2014 quarter Australian newspapers ad revenue fell 11% in local currency terms, which was a slight improvement on the mid-single-digit falls in the March quarter. SMI data show advertising revenue aggregated across New Corp’s mastheads fell 18% in the first six months of 2014.

Paddy Manning —

Paddy Manning

Crikey business editor

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33 comments

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33 thoughts on “Exclusive docs show News’ Australian papers dragging down the empire

  1. scott balson

    Well, well, well how the worm has turned on the sleazy, unethical News Ltd empire run by a man likened to Adolf Hitler and his lapdog in Australia – one Chris Mitchell.

    I have crossed swords with Mr Mitchell a few times in the past and taken a few heavy blows while he sits behind the financial safety of his team of legal eagles.

    In the late 1990s, as a direct result of my book “Murder by Media” which exposed Murdoch’s media Mafia The Courier-Mail (edited then by Chris Mitchell) lodged a complaint with the DPP when I exposed one Bill D’Arcy, a Labor State MP in QLD, as a pedophile – my source an earlier article published by The Courier-Mail. I am making a PDF of this book “Murder by Media” available free online to Crikey readers at:
    http://www.author.com.au/mbym.pdf

    While the paper was never charged I was arrested for revealing the identity of the pedophile – even though their audience was vastly wider than that of my little online paper. As a result I was jailed and put on bail for 6 months prior to my trail. On the day of my arrest the police fabricated a previous conviction of “Posession of Dangerous Drugs” against me. At my trial I was found not guilty and went on to sue The Courier-Mail and the QLD Gov for a malicious prosecution.

    The whole event was later put into a hour long documentary – which is now available by searching on Youtube at: enemy of the state – scott balson

    The result directly after my being found not guilty was my book “Enemy of the State” – more on this at:
    http://www.gwb.com.au/enemy.htm

    At the same time Mitchell used the paper to tar and feather my good reputation in QLD by referring to me continually as racist and anti-semitic, while refusing to publish my right to reply. Nearly ten years later he took another shot at me – out of the blue – this time in The Australian.

    My complaint to the lapdog Australian Press Council in early 2008 was successful and Mitchell was forced to publish their finding that his article linking me to racists and anti-semitism was baseless and without foundation.
    More at:
    http://gwb.com.au/gwb/news/goss/response.htm

    The only time I have been given the opportunity to publicly air my side of this incredible and personal story of being hounded by Murdoch’s lapdogs was in the mainstream media on the local QLD ABC Radio station in an evening interview with Steve Austin a few years ago.

    The hour long interview can be heard by Googling:
    Scot Balson – Trial by media – ABC Queensland

    In closing these little cowards who hide behind the legal system to abuse and misuse their positions in the mainstream media are, in my humble opinion, the lowest of low forms of life. And yes that includes Chris Mitchell and his ex-wife Deborah Cassrels.

    Scott Balson

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