Rupert Murdoch’s purchase of The Wall Street Journal was regarded by many as his crowning glory. Whilst his mother Dame Elisabeth has long criticised the racy and intrusive News Corp tabloids, Rupert’s pioneering father Sir Keith would have been most impressed that his son controlled the world’s most prestigious newspaper.

So, there would have been mixed emotions over the weekend as Rupert attended his mother’s enormous 100th birthday celebration.

You see, News Corp shares have now plunged to a low not seen since the mid-1990s. What was once easily the biggest Australian company is now in danger of falling out of the top 10.

And whilst Rupert’s tabloids in London and New York have been leading the charge against Wall Street excess, the Sun King seems to be immune from such criticism.

During a 66-minute conference call on Friday, Rupert faced questions from almost 20 analysts and journalists, yet not one of them asked for details on the extraordinary $US8.4 billion asset write-down — equivalent to 30% of the News Corp balance sheet.

And there were no questions on whether Rupert would be cutting his $US28 million salary or shedding any of the company’s corporate jets.

Back in 2001-02 when News Corp revealed a $12 billion loss, at least a journalist from the ABC was prepared to mention it, eliciting the following response from Rupert:

“It’s not quite as dramatic as it appears on the surface. You know, it’s a paper thing, an unfortunate thing but one which we feel that we can rebuild very well.”

The ever loyal Terry McCrann justified that 2001-02 Gemstar writedown and subsequent loss as follows:

Normally — every time — when you get multi-billion dollar writedowns, they strike directly and more often than not fatally at a company’s core business. Murdoch and normally are two words than don’t go together. In this case, the biggest writedown in Australian corporate history is almost completely irrelevant to the operating earnings. Past and future. Or even the asset strength of the company. Yes, there is an element of real cost in the writeoff. But it mostly relates to boom-time exchanges of similarly overvalued paper.

The 2007-08 effort is a very different beast. Whilst a full breakdown of the $US8.4 billion in write-downs has not yet been revealed, this News Corp filing with the SEC on Friday night: “During the second quarter of fiscal 2009, the Company recorded an impairment charge relating to the Dow Jones goodwill and indefinite-lived intangible assets of $2.8 billion.”

Dow Jones wasn’t a boom time paper swap because it cost News Corp shareholders more than $US5 billion in cold hard cash just 14 months ago.

Any other business leader who admitted to a $4.4 billion write-down so quickly would be thrown out the door, but the News Corp press hasn’t even reported it yet.

The Saturday Herald Sun managed just one story headlined “We’ll be back, says Murdoch” on the massive loss. But readers were given 20 advertising-free pages of tributes to Dame Elisabeth, which was more than the 12 pages dedicated to the bush fires coverage in the Sunday Herald Sun.

Is it too much to ask just for a modicum of proportion in celebrating the proprietor’s mother? For all this talk of philanthropy, it will be interesting to see how much the Murdoch family gives to the various bushfire appeals.

There’s certainly a bit less to go around after the disaster of Dow Jones.


Meanwhile, Glenn Dyer writes:

News Corp has owned up to something it didn’t highlight in Friday morning’s earnings statement: its $US5.6 billion purchase of the Wall Street Journal has been an overpriced disaster, despite the spin from Rupert Murdoch and his various papers. Australian newspapers are bleeding millions of dollars in sales and earnings and are the worst performing papers in the Murdoch empire.

News Corp’s quarterly results on Friday included an $US8.4 billion write-down for its broadcast and newspaper properties, pushing the company into a net loss for the quarter. Of that, $2.8 billion was for Dow Jones, News Corp said in a filing with the US Securities and Exchange Commission on Friday night.

At the same time, the filing revealed that revenues at the News Ltd Australian papers slumped 30% in the second quarter, more than double the 14% fall in the three months to September. Operating income (profits befroe tax) plunged 39% at News in the second quarter. That’s in US dollars. In Australian dollars the drop in operating income was 18%.

The Australian papers were the worst performers in the News Corp paper empire: returns from the UK papers were steady in local currency terms compared to the 18% second quarter slump in Australia.

News paid $US5.6 billion purchase of Dow Jones & Co and the write-down means that had been cut in half. A further $US185 million included in the write-down was for the New York Post, according to some US reports.

That filing was ignored in the News Ltd media this morning, yet it contained expanded levels of detail about the group’s performance, starting with the 50% cut in the value of the Dow Jones Company and therefore the Wall Street Journal.

As a result of this impairment review, the Company recorded a non-cash impairment charge of approximately $8.4 billion in the three and six months ended December 31, 2008. The charge consisted of a write-down of the Company’s indefinite-lived intangibles (primarily FCC licenses) of $4.6 billion, a write-down of $3.6 billion of goodwill and a write-down of Newspapers and Information Services fixed assets of $185 million in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.

During the second quarter of fiscal 2009, the Company recorded an impairment charge relating to the Dow Jones goodwill and indefinite-lived intangible assets of $2.8 billion.

That left $US1.46 billion in goodwill in the books for the Dow Jones company and $US2.37 billion for intangible assets.

News paid $US60 per share for Dow Jones, a 65 % premium to the then market value at the time. Besides the Wall Street Journal, Murdoch picked up the weekly Barron’s, the Factiva online news archive, the website MarketWatch.com and Dow Jones Newswires.

And Dow Jones revealed in a statement on its website that it plans to save an additional $US40 million at Dow Jones in the fiscal year ending in June 2010. That would be on top of $US100 million in costs saving measures already put in place since buying Dow Jones in 2007.

Since News Corp. acquired Dow Jones in December 2007, Dow Jones has identified more than $100 million in annual savings and expects to realize an additional $40 million of annual savings in the fiscal year ending June 2010. The savings have resulted largely from: integrating Dow Jones business within News Corp.; re-engineering and restructuring of certain processes and departments; improving operational effectiveness across the company; and by taking various preemptive actions to address the current challenging market conditions.

The statement said cost-savings measures that Dow Jones has made include outsourcing some jobs, consolidating office space and integrating Dow Jones’ corporate functions with those of News Corp. Employee salaries would be frozen. Dow Jones also said in its statement that it has closed three of its 17 Wall Street Journal production facilities, and is discussing partnerships with other companies for printing and delivering the Journal and Barron’s

The SEC filing contained more information on the performance of the Australian and UK newspaper businesses. The inclusion of the Wall Street Journal helped make the contribution from newspapers look better and softened the impact of the very sharp second quarter downturn in Australia.

For the three and six months ended December 31, 2008, the Australian newspapers’ revenues decreased 30% and 14%, respectively, as compared to the corresponding periods of fiscal 2008, primarily due to lower classified and display advertising revenues and the impact of unfavorable foreign exchange fluctuation.

Operating income decreased 39% and 24% in the three and six months ended December 31, 2008, respectively, as compared to the corresponding periods of fiscal 2008, primarily due to the decreases noted above, higher costs associated with head count reductions and increased other employee related costs.

The Australian newspaper group reported 18% lower second quarter operating income in local currency terms versus the second quarter of fiscal 2008 primarily due to lower classified advertising revenues resulting from declines in the employment and auto sectors and higher costs associated with pension expenses and headcount reductions. Overall advertising revenues were down 4% as compared to a year ago. Circulation revenues were in line with the second quarter of the prior year.

The U.K. newspaper group reported operating income in local currency terms in line with that from a year ago, as the absence of accelerated depreciation on the decommissioned printing presses was offset by 10% lower advertising revenues. Circulation revenues increased slightly during the quarter mainly from price increases.

For the three and six months ended December 31, 2008, the UK newspapers’ revenues decreased 27% and 18%, respectively, as compared to the corresponding periods of fiscal 2008, primarily due to the impact of unfavorable foreign exchange fluctuation and lower classified and display advertising revenues across most titles.

Operating income decreased for the three months ended December 31, 2008 as compared to the corresponding period of fiscal 2008, primarily as a result of unfavorable foreign exchange movements. Excluding the impact of foreign exchange fluctuation, operating income was relatively consistent with the corresponding period of fiscal 2008, as the revenue decreases noted above were partially offset by the absence of depreciation on decommissioned printing presses.

Operating income for the six months ended December 31, 2008 increased as compared to the corresponding period of fiscal 2008, primarily as a result of the absence of depreciation on decommissioned printing presses which more than offset the unfavorable foreign exchange movements and the revenue declines noted above.

Peter Fray

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