Rupert
Murdoch gave investors at News Corporation’s AGM in New York last
Friday an interesting explanation for the company’s share price
underperformance over the past 12 months. It has been caused by a media
bear market, he said. Let’s review the evidence for that statement.

Since
News (NWS) re-badged itself a US company in early November 2004, its
stock price has fallen nearly 10% in the US, and by more than 12% in
Australia (the difference is largely due to currency movements). In
Australia over the same period, Publishing and Broadcasting Limited has
risen 10% … News’s legal protagonist Seven Network has increased
about a third … smaller Australian media have experienced a veritable
boom, with Rural Press and Village Roadshow up by more than 20%, and
Southern Cross and Prime TV up about 10%. Meanwhile the much-maligned
Fairfax is flat, as is WA Newspapers. No sign of a bear market in
Australian media.

If Murdoch was referring to the US media
market, he is partly right. Viacom has fallen 18% in the past year and
Disney has dropped about 9%. However, Time Warner is up by more than 4%
and major NWS shareholder Liberty Media is flat.

But let’s not
forget that a major rationale given by the company for the change to a
US domicile was to allow better access for US institutions to the
“unparalleled opportunities” provided by NWS. To date, it seems, many
have declined the offer.

Murdoch failed to mention at the AGM
that his shareholders have been experiencing a bear market for not one
year, but for more than seven years. I have calculated that if an
investor had bought $1000 worth of NWS shares in March 1998, the value
of their investment would have grown to $1140 today – including
dividends. The same investor would have been better off putting their
money into a bank account yielding 2% a year.

Out of about 25 Australian blue-chip companies, only three returned
less than NWS over the last seven and half years – Telstra, Village
(not really a blue chip, but an interesting company) and Lend Lease.
But as I have said before, what is unique about NWS is that almost
every broker across two continents failed to notice NWS’s poor
performance. Over the past seven and half years, nearly 100% of the
broking community, nearly 100% of the time, recommended News Corp to
their own clients as a “buy” or “strong buy”!

By
contrast, most brokers at some point questioned what was happening at
Telstra, Village and Lend Lease. Today there are very few “buy”
recommendations on Telstra. To the broking community’s credit, this is
despite the pending selldown by the Federal Government of its majority
share in the company, a selldown that is likely to generate huge
investment banking fees. Village Roadshow has been so disappointing
that almost all brokers have stopped actively covering it. Yet, by my
calculations, a $1000 investment in Village in March 1998 would have
returned only $35 less than NWS.

A more detailed analysis is available on the Eureka Report website (for subscribers only).

Mike
Mangan was a News Corp analyst for 15 years. In Australia he was rated
amongst the Top 3 News Corp and media analysts over much of that period
including 2004.