The New York Times published this excellent piece
yesterday examining in detail the issue of major media companies
being sold off by investors who are fearful of the digital revolution
spawned by the likes of Google and Yahoo.

To some degree it validates Rupert Murdoch’s claim at the recent AGM
that News Corp’s share price weakness is part of a broader “bear
market” for media stocks over the past year and has nothing to do with
the poison pill or other governance concerns at the company. Check out the 12 months graphs for Time Warner, Viacom, Disney and News Corp for evidence of that.

However, reporters Geraldine Fabrikant and Richard Siklos also repeated
the criticism of News Corp’s “willy nilly” purchases of internet
properties in recent times by Sir Martin Sorell, the global head of
advertising behemoth WPP.

It is interesting that feared US corporate raider Carl Icahn yesterday
successfully bullied
Time Warner into lifting its buyback from $US5
billion to $US12.5 billion. The stock rose 33c to $US17.90 on Wednesday
in response but then fell back 24c to $US17.66 last night, suggesting
investors are looking for more than buybacks to regain the faith.

Time Warner has a market capitalisation of $US81 billion, so even after
the record buyback, News
Corp will still be well shy of claiming the “world’s most valuable
media company” prize as its recent slump has sent its market cap back
below $US50 billion. Compare that with Google’s value of more than
$US100 billion after it powered $US6.57 higher to another record high
of $US385.95 overnight.

Time Warner is also planning to spin off 16% of its cable operation
next year to unlock value, the reverse approach to News Corp which
bought back the 20% of Fox Entertainment that it didn’t own for 356.5
million non-voting shares earlier this year. These were worth $8.34
billion when the offer was first launched but only $6.95 billion on
today’s price of $19.50.

John Malone controls 18% of the votes at News Corp, yet he hasn’t
successful in persuading Rupert to expand his $US3 billion
buyback when the company could easily afford to spend up to $US10 billion.
Maybe that will change at the September quarter earnings release on
November 10, the same day the company faces its angry institutional shareholders in a
Delaware court over the broken poison pill promise.

The damage being caused by the internet to some old world businesses
extends far and wide. Look at the turmoil hitting travel booking
company Flight Centre. The stock plummeted 79c to a six-year low of $10.50 yesterday,
although it recovered 31c to $10.81 this morning as its market
capitalisation snuck back above $1 billion.

Chairman and founder Graham Turner shocked investors at last week’s AGM
when he revealed a 21% decline in first quarter profit to $23 million
with the threat from the internet being the major cause. The stock has
tanked from $14.25 on hearing the gloomy news as more and more people
book their flights online directly through the web.