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Aug 20, 2014

Exclusive docs show News’ Australian papers dragging down the empire

Leaked documents show a forest of brackets in News Corp’s Australian newspapers, with The Australian particularly in the red. How long can the house that Rupert built sustain such body blows?

Paddy Manning

Crikey business editor

Internal operating accounts for the Australian arm of Rupert Murdoch’s News Corporation show alarming revenue and profit falls across the metropolitan newspapers in fiscal 2013, and widening losses at flagship broadsheet The Australian.

Combined with the sharp earnings drop already reported in 2013-14, and with circulation and advertising revenues continuing to decline, the accounts suggest News Corp’s Australian newspapers, including the national, metro and regional publications, will struggle to break even this financial year.

The confidential operating accounts for News Corp Australia have never been seen by investors and provide a detailed picture of a print business in rapid decline, with swingeing cost-cuts, cover price increases, new digital subscriptions and digital advertising failing to make up for the loss of revenues from advertising and circulation.

Crikey has received a copy of the last weekly financial statements for 2012-13, which provide line-by-line, year-on-year comparisons across the business, from a well-placed source concerned about misrepresentation of the profitability of News Corp’s Australian newspapers.

The accounts raise the question of how long the rest of the News Corp empire can carry the underperforming Australian newspapers business.

The accounts were produced last year just as Murdoch spun off his troubled print media assets worldwide from the profitable Fox film and cable television empire in the United States, in the wake of the UK phone-hacking scandal.

News Corp was spun out on June 28, 2013, from the renamed 21st Century Fox, and houses mastheads including The Wall Street Journal and New York Post in the US, the Times and Sun in the UK, News’ Australian newspapers, plus book publisher Harper Collins, Foxtel and Fox Sports in Australia, and a 62% stake in ASX-listed REA Group, which operates the successful realestate.com.au website.

“The Australian newspapers are dragging on recovering newspaper operations in the US and UK, as well as divisions reporting profit growth, such as book publishing.”

Listed on the NASDAQ and the ASX, News Corporation, valued at $11 billion, goes to considerable lengths to avoid breaking revenue or earnings down by country or masthead, lumping its worldwide newspaper operations plus other businesses together into the “news and information” segment, which accounts for 71% of the group’s total revenue, and only offering finer detail selectively.

Crikey can reveal that, amid a forest of negative brackets, revenue from News Corp’s Australian newspapers fell 14% to $1.9 billion in 2012-13, with circulation revenue dropping 5% and advertising revenue falling 18%, while operating income fell 67% to $94 million.

Within the division, The Australian stands out as the worst performer: revenues dropped 20% from $135 million to 108 million in 2012-13, while operating income fell 41% from a loss of $19 million to a loss of $27 million. After depreciation, the masthead’s operating loss fell to $30 million.

The profit drop in newspapers was only partly offset by growth in other operations like REA Group and Fox Sports, with total operating income falling 38% to $221 million. After income from investments including Foxtel, the group recorded a total profit before interest or tax of $367 million, down 28%.

After a recent visit to celebrate The Australian’s 50th anniversary, Rupert Murdoch tweeted he’d had an “exciting week in Australia with great team digging company out of many holes” but the heavy falls in print have continued if not accelerated through 2013-14. This is confirmed in News Corp’s most recent quarterly earnings update and annual report, showing the Australian newspapers are dragging on recovering newspaper operations in the US and UK, as well as divisions reporting profit growth, such as book publishing.

News reported that earnings before interest tax depreciation and amortisation from Australian newspapers fell by US $67 million in 2013-14, or $73 million — which by Crikey’s estimate represents roughly an 80% fall on the previous year, nearly wiping out the division’s entire operating income. The division dragged heavily on the news and information segment, which reported a 16% drop in EBITDA in 2013-14.

The operating accounts show Melbourne’s Herald Sun was the mainstay of News Corp in Australia, with the weekday paper generating revenues of $250 million in 2012-13, down 13.5% on the year before, and operating income of $35 million, down 41%. Revenue for the Sunday edition fell 17% to $75 million, while operating income fell 31% to $21 million.

Of the major tabloids the weekday edition of News’ monopoly masthead in Brisbane, The Courier-Mail, suffered the steepest falls, with revenue dropping 18% to $158 million while operating income fell 68% to just $17 million. The Sunday Mail revenues fell 15% to $71 million and operating income fell 33% to $20 million.

The weekday edition of Sydney’s Daily Telegraph was another weak performer, with the lowest profit margins at 5%, with revenue dropping 14% to $160 million while operating income fell 65% to just $8 million. The Sunday Telegraph revenues fell 15% to $94 million and operating income fell 53% to $7 million.

At that level Adelaide’s Advertiser‘s weekday editions alone made a much stronger contribution than the Tele in 2012-13, generating revenues of $138 million (down 15%) and operating income of $22 million (down 47%) — without counting the Sunday Mail.

The financial performance of the newspapers has only worsened. In its latest accounts News Corp revealed that overall revenue from the Australian newspapers had fallen by another 18% or US $359 million in 2013-14, compared with the previous year, made up of US $314 million decline in advertising revenue and a US $45 million decline in circulation revenue. Of that, News said US $199 million — a bit over half — reflected the impact of a weaker Australian dollar versus the greenback, which pointed to an 8% decline in revenue in local currency to below $1.8 billion.

On News Corp’s quarterly earnings dial-in chief executive Robert Thomson conceded there were advertising headwinds in in Australia but said there were signs of a turnaround, with “green shoots on the Nullarbor”. In the June 2014 quarter Australian newspapers ad revenue fell 11% in local currency terms, which was a slight improvement on the mid-single-digit falls in the March quarter. SMI data show advertising revenue aggregated across New Corp’s mastheads fell 18% in the first six months of 2014.

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33 comments

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33 thoughts on “Exclusive docs show News’ Australian papers dragging down the empire

  1. paddy

    Fascinating stuff.
    Made even more deliciously ironic, by the fact that while Crikey spills the beans on Murdoch’s earnings, it steadfastly refuses to reveal it’s own subscription/earnings figures.

    (hint) We subscribers would love to know. 🙂

  2. JohnB

    Is this news or News?

    Holes this large can only be hidden under a pile of other data for a brief time. Each year brings us closer to the eventual Day of Reckoning.

  3. Bill Hilliger

    My personal thanks to all those who no longer buy or support News Corpse products. The boycott is starting to work. Remember bad news for News Corpse …is good news for Australia and Australian democracy.

  4. Jeff Richards

    Wonderful news. I havent bought a Murdoch / Moloch * paper in years. I will dance on the grave of the Australian, that trashy rag of Abbotts ‘Team Australia’.

    *Moloch, also spelled Molech, a deity to whom child sacrifices were made throughout the ancient Middle East. The name derives from combining the consonants of the Hebrew melech (“king”) with the vowels of boshet (“shame”), the latter often being used in the Old Testament as a variant name for the popular god Baal (“Lord”)…The laws given to Moses by God expressly forbade the Jews to do what was done in Egypt or in Canaan. “You shall not give any of your children to devote them by fire to Moloch, and so profane the name of your God” (Lev. 18:21).” (Encyclopaedia Britannica)

  5. Lord Barry Bonkton

    A GOOD NEWS Story from Rupert, Ha ha green shoots on the Nullarbor ? Time for EVERYBODY to dump your Foxtel!

  6. Electric Lardyland

    Of course, writing for constantly loss making papers, won’t stop News Ltd commentators endlessly lecturing the rest of Australia on the merits of fundamentalist market economics and how the market should be the final arbiter.
    I mean, hey guys, don’t the figures suggest that maybe the rabid, reactionary bilge, might not be working anymore and maybe it’s time to try a different approach?

  7. Johansen Frank

    Ha ha. So the maggots will crawl out of the stinking corpse and go looking for another job- where to- oh the ABC. The irony is both delicious and frightening.

  8. klewso

    Trading-in professional objectivity for political partisanship – to foist/sell their own personal opinions to the electorate/punters – what did they expect it would cost them?

  9. Brian Williams

    Electric Lardyland – another way to put it is that the fundamentalist market economics so beloved of the News Ltd crew will result in their ultimate demise, as the market refuses to pay for their twaddle. Has irony ever been so delicious.

  10. sanz

    So who will author “Killing News Limited”?

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