It’s going to be a big week for Rupert Murdoch and News Corp next week: there’s the third-quarter and nine-month profit report on Wednesday, a day after the UK government is expected to clear the way for him to buy the 61% of BSkyB he doesn’t own, if he can afford a much higher price.
And he will very likely reveal the impending sale of MySpace for the paltry figure of $US100 million or thereabouts: paltry against total losses and writedowns that are approaching $US2 billion and stand as yet another example of the Murdoch theory of investment and expansion, buy high and sell low.
The profit figures again will confirm what many investors now believe: News Corp is running out of revenue and profit puff and needs the cash and earnings machine that BSKyB has become to keep the dream going.
The US TV, film studio and cable businesses are good earners, but the big revenue and profit surge in the past 18 months is starting to slow. Operations elsewhere, especially in newspapers, are suffering and it’s only the slump in the value of the US dollar will make these declining operations appear to be better performers than they really are. He will be quizzed on the success of the paywall at The Times, doesn’t expect anything; from all reports it’s a dud, and he won’t be too forthcoming on the internet-based paper The Daily, or the success of the various apps for his papers around the world.
But it will be the BSkyB deal that attracts the attention from investors.
Overnight Thursday, BSkyB revealed another very strong quarterly profit report and underlined how weak the 700 p offer ($A11.90 last year, now $A10.60)from News Corp last year is. BSkyB independent directors want a lot more, at least 800 p, but the shares ended about 842 p in London last night and some big shareholders want 900 p. Curiously, the above report in Murdoch’s local paper, The Australian, made no mention of the bid, the argument over price or the impending green light, which has been widely tipped in London newspapers since last weekend.
Earnings before interest, taxes, depreciation and amortisation rose to £344 million ($A530 million) in the March quarter. It added 51,000 net new subscribers in the quarter and now has more than 10 million. BSkyB’s earnings before interest, taxation, depreciation and amortisation (the figure most used in the media) rose 19% to £1.03 billion, on revenues that rose 14% to £4.83 billion.
Free cash flow is running at an annual rate of more than £1 billion (about $A1.5 billion), which is a key valuation metric for pay-TV companies. That’s what Murdoch wants to get his hands on and control 100%.
Last June, News made its 700 p a share offer for the 61% of BSkyB that it doesn’t already own. That values the company at £12.3 billion ($A18.9 billion). The 61% at 700 p a share would cost News £7.8 billion (or about $A11.4 billion, or more than $US12.5 billion). A bid at 800 p a share would cost more than $A13 billion, or well over $US14 billion, which is the currency Murdoch needs to pay in.
Murdoch was very insistent last June when he said that 700 p a share was his top price. If he keeps to that discipline, he won’t get the company.
But shareholder suspicion about Murdoch is always high when he is confronted with a deal he really wants. Investors know he will overpay, as he did for MySpace and a host of other internet failures down the year and of course, as he did for the Dow Jones Company, which at $US6 billion, was his biggest deal before the BSkyB move. Of course he overpaid by about a half on that deal with subsequent write-offs of about $US3 billion.
And while investors and fee merchants salivate over a high price for BSkyB, they will ignore the gorilla in the back of the News Corp office: the continuing and slowly growing phone-hacking scandal at the News Of The World tabloid in London that has already seen News and some of its senior managers (including Rupert Murdoch) exposed for not really knowing what is going on in the business.
That include son James, who was spirited away to New York just before the company’s defence collapsed and it was forced to admit to the extensive hacking of people’s phones. But even that was qualified and the word “sorry” hasn’t been mentioned. Deals with eight people have been made by News’ London arm, but British police say the number of people who had their phones hacked is at least 91 and rising as thousands of records are examined by a growing team of police investigators.
This remains the real problem for Murdoch and the rest of the UK media. Why?
Government approval for the BSkyB buy deal will be conditional on Sky news being separated and financed for several years by News Corp. As with all things conditional involving News Corp and the Murdochs, it always is a question of trust.
The repeated flimsy defences by the Murdochs and News executives of the News Of The World hacking scandal, underlines how mutually exclusive the concept of trust and the Murdochs really are. That’s why the BSkyB deal is more important than the UK government thinks.