Rupert Murdoch and his travelling party of spinners and minders are here for two purposes.
The first is to see how the cost cutting is going ahead of the mid-year spin-off of the local arm into the unwanted new News Corporation. The second reason is linked to the first — the News Corp team is trying to twist the arms of brokers and investment analysts into believing that there’s value to be found in the about-to-be-created new News Corporation.
You can see it in the briefings being handed out to selected journalists in the various papers, such as The Australian Financial Review. Lots of talk about value in newspapers and how the presence of Foxtel, Fox Sports and the REA Group gives the new News Corp growth options in the digital world. Maybe. The sales pitch is designed to try and stop shareholders big and small from dumping the company’s shares after the spin-off because of its preponderance of analogue print assets in Australia, Britain and the US.
From what has appeared in print and from talk among brokers, there’s a fear in the Murdoch camp that many investors, especially his big US supporters, don’t want to be found owning a print-skewing company. They want exposure to the Fox Group’s content business based on assets in the US, the UK, Europe and Asia.
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That’s why there’s talk about a “book build” for the spin-off as the managers to the deal try and control the selling of the new News Corp shares, which would depress the share price.
The News team is finding big investors are saying if they want exposure to broadcast content, they will get it with the Fox Group shares and not in the new News Corp. And, if you want newspaper exposure, why buy a company that carries triple exposure to three economies where newspapers are shrinking in Australia, the UK and US? If you want newspaper exposure, look at Gannett in the US (which has TV operations) or The New York Times in the US and limit your newspaper exposure to just one economy. Or if you like Australia, then cashed-up and low-debt Fairfax Media appeals to some brokers for those reasons, rather than the new News Corp, whose Australian arm, News Limited, is now a high-cost, high-staffed operation compared to Fairfax and APN News and Media (which is depressed by its debt and its all-but-broken Irish parent).
It is interesting that the Murdoch group (sans the man himself), is talking to what the market calls “sell” side analysts — that is, people who will handle the marketing of new News Corp shares in and after the spin-off to “buy” side dealers and investors. The sales pitch to those will happen in about six weeks when the final prospectus/SEC filing is available from News Corporation with all the details on finances, balance sheet structure, board and management. That will be a tougher sales campaign.
“The new News Corp’s problem is that despite improvements in the US and Australian economies … the business is essentially print-based.”
One of the big selling points for the new News Corp is the $US2.6 billion in cash that will be left in it after the float. That’s now being touted as the basis for a share buyback right after the spin-off to try and stop the share-price slide. But that would merely waste valuable cash that will be needed, and increase the prospect of asset sales (reports have suggested REA Group might be on the market). So far there’s no sign of any debt estimate, although directors have hinted that the company may set up a line of credit with its banks before the float.
The new News Corp’s problem is that despite improvements in the US and Australian economies (and hopes of something similar happening in the UK this year), the business is essentially print-based, and that is in permanent, secular decline.
US estimates from the Pew Research Center suggest American newspapers lost $US16 dollars of ad revenues last year for every $US1 of additional digital ad and other revenues. That is unsustainable, but there is no way of stopping it. Remember that the huge NY Times is now making more money from circulation than it is from advertising. That fate is approaching for papers in the new News Corp stable.
So treat with a considerable grain of salt stories soon to appear about the attractiveness of the new News Corporation and its virtues and how it is well-placed to ride the recoveries in the US, Australian and perhaps UK economies, and how Foxtel, REA Group and Fox Sports give it a digital edge. I bet all the bumpf from the Murdoch empire won’t talk much (if at all) about the structural changes print is now subject to, and how those won’t go away. Even Foxtel faces similar pressures in coming years from video-streaming services.
Nor will there be any mention made of how the new company and its Australian-born CEO Robert Thomson have chosen a bunch of UK journalists and media executives to be the main managers of this company. Something to watch is the new board’s final composition and whether there will be any directors to represent Australia, which will be the heart of the company.