Hearst drives credit ratings bid. US media giant Hearst Corporation is showing why being privately owned in the rapidly evolving media sector remains the smartest way to go — if the pair of deals Hearst made last week are anything to go by. The first was a bid of US$81 million for 25% of AwesomenessTV, the teen-skewing digital video network controlled by DreamWorks Animation. AwesomenessTV operates a network of YouTube channels with more than 114 million subscribers.

On Friday night the company moved outside the media to boost its stake in the Fitch credit ratings group by nearly US$2 billion, giving Hearst a controlling 80% (with French group Fimalac retaining a 20% stake). The deal means Fitch — one of the “big three” credit ratings agencies — will be a majority-owned subsidiary of Hearst and will sit alongside 15 daily and 34 weekly newspapers, hundreds of magazines around the world, 29 American television stations, ownership in leading cable networks, several radio stations, significant holdings in automotive, electronic and medical/pharmaceutical business information companies, internet and marketing services businesses and real estate.

Last year, an estimated 60% of Hearst’s US$9.7 billion revenue came from sectors not reliant on advertising, such as corporate subscriptions. Hearst also has shareholdings in several digital businesses, including BuzzFeed, HootSuite and MobiTV. The 50%-owned A&E Networks bought a 10% stake recently in Vice Media, which valued the digital media and publishing group at US$2.5 billion. That was after Rupert Murdoch’s 21st Century Fox paid US$70 million for a 5% stake.

The difference between private Hearst and publicly held News Corp can be seen in the two recent diversification moves from both companies. News bought America’s third-ranked property listings company for US$950 million in cash with the help of its 61%-owned arm REA Group in Australia, which bought 20%. Hearst stumped up with US$81 million for that stake in AwesomenessTV and then a further US$1.97 billion for 30% of Fitch — a much better deal. — Glenn Dyer

Google departure leaves Spanish news begging. With one day to go before Google starts turning off its Spanish-language edition of Google News, there are signs of panic among Spain’s media companies at the realisation the move could cost them dearly.

Now the same local media that pushed for a new copyright law and its heavy potential fees of up to 600,000 euros for linking to articles on Spanish media sites are trying to get Google to reverse its decision. Google News says it will be gone from Spain by the new year, with Google’s search engine still operating, along with other services like Google Maps and Street View.

There are reports the Spanish newspaper association wants the country’s government to do something to halt Google News’ departure, despite the fact that they lobbied the government to introduce the new law to try to get Google to start paying them. But as in Germany (where Google stopped linking to websites owned by the huge Springer media group), Google is calling the Spanish media’s bluff. And the publishers are crumbling, with ad revenues expected to fall as fewer people visit their sites via Google News.

The Spanish Newspaper Publishers’ Association (AEDE) issued a statement last night saying that Google News was “not just the closure of another service given its dominant market position”, recognising that Google’s decision “will undoubtedly have a negative impact on citizens and Spanish businesses”:

“Given the dominant position of Google (which in Spain controls almost all of the searches in the market and is an authentic gateway to the Internet), AEDE requires the intervention of Spanish and community authorities, and competition authorities, to effectively protect the rights of citizens and companies.”

The big drawback for Google is the possibility it could have to pay up to 600,000 euros per link, a law the Spanish government says it has no intention of changing. Spain could follow the German route by giving Google a special deal that allows it to carry on regardless (a move prohibited under this law), but even now, German publishers are reportedly trying to get the country’s government to follow the Spanish law and its hefty fees. The Springer group is said to be a supporter, even though it knows traffic to its website will once again plunge if Google stops linking — or is driven out of the country. — Glenn Dyer

Economist struggling. Buried away in a weekend Financial Times story on The Economist magazine’s outlook in the wake of the poaching of editor-in-chief John Micklethwait by Bloomberg were clues that the paper may be struggling more than previously expected.

The story pointed out that while The Economist’s paid circulation is up nearly 50% under Micklethwait (editor-in-chief since 2006), it has fallen this year for the first time in 15 years as the previous policy of offering deep discounts to win new subscribers failed to hold them as the cheap subs ended and people were asked to pay full whack.

The FT says print advertising in The Economist has fallen by one-third in the past five years to 58 million pounds. The FT has had a similar experience — it’s down a reported 40% or more, according to results included in the financial reports of its owners Pearson Group. Only one-third of The Economist’s paid sales involve digital access, unlike the FT, which says around 60% of its paid sales are digital subscriptions. But even then the FT has started freezing subscription costs for up to two years in recent months because of rising complaints about the way the costs have been increasing every year.

The FT says The Economist intelligence unit, the magazine’s research division, has also been under strain as corporate clients in Europe and the US cut spending. The FT reports:

“The Economist Group glossed over any difficulties, referring to a ‘year of investment’. It increased dividends to shareholders — including the Financial Times, which owns half of the group, and the Cadburys, Rothschilds and Schroders, who together with other prominent families and past and present employees control the other half. It remains roughly as profitable as the publisher of the UK’s Daily Telegraph.”

The print magazine accounts for more than 60% of the group’s annual revenues with its paid circulation of 1.6 million a week, compared with Bloomberg’s Businessweek with 1 million. Time has around 5 million, and falling.

More than 90% of The Economist’s revenues come from Europe and North America, and the group has set its sights on emerging markets, especially India and China, for new growth, with the promotion of a new global chief strategy officer based in Mumbai. — Glenn Dyer

News leak in court case. An apparently inadvertent disclosure in a United States court case has raised more questions about the profitability of News Corp’s news and information division and its offshoots. News Corp’s News America Marketing (NAM) branch is being sued by some of the biggest consumer goods groups in the US, which claim they have been overcharged for advertising and other marketing services for up to 15 years.

The case has been meandering through the US legal system for years in various forms, but last week there was a hearing in New York in which arguments were heard and documents filed in support. The Business Insider website has reported there was an apparent mistake in one of the documents filed, which has revealed estimates about the profitability of News America Marketing:

“Buried in the legal filings is a curious fact: News Corp’s gross profit margins on advertising placed with its News America Marketing (NAM) unit were between 81% and 86%. NAM handles in-store advertising in US supermarkets and coupons for groceries. It’s one of Rupert Murdoch’s under-the-radar businesses. It earns about $US400 million in revenues per year. That would imply that annual gross margins at NAM are somewhere approaching US$344 million … It’s not clear whether those 80%-plus margins are common or excessive. But the document in which they are cited claims that News had the power to raise advertising prices by 54% without losing any business — an indicator of how powerful NAM’s hold on the supermarket business is.”

There are no estimates of News America’s performance contained in the latest quarterly earnings statement from News Corp — the legal actions are backgrounded, with their current status and activity in the quarter given, but that is as far as News goes about revealing the operations of NAM to its shareholders.

But there is the hint of solid earnings — even at half that, that’s still gross profits a year of US$160 million. News Corp’s latest quarterly report said news and information had revenues of US$1.451 billion in the September quarter, down from US$1.495 billion, with earnings before interest, tax, depreciation and amortisation of US$105 million, down from US$133 million. If that’s the case, then the profitability of other assets in the division, such as The Wall Street Journal, would have to be weaker than hinted at in the filings. And the losses for News Corp Australia would be larger. — Glenn Dyer

Front page of the day. The Daily Tele’s “for the bush” …

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