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How Knewz can transform News Corp profits

After a year of watching digital-only brands struggling to breathe, News Corp has confirmed it is developing a news aggregation app and web site, provisionally branded Knewz. com.

The app, which could launch in the next few months, will reportedly link directly to the web sites of a wide range of news brands. News Corp (apparently) won’t take a commission on the advertising revenue from those links and will (apparently) share data with the publishers – by contrast with Google News, Facebook, and Apple News+. According to the Wall Street Journal, it “won’t be striking licensing deals with media companies for the service, since it is simply linking to their sites without hosting their content on its platform or charging for it.”

News Corp has said the service will offer “a wide spectrum of news and views, from local, niche and national sources, without bent or bias.”

It is not yet clear how that seemingly supportive, no-brainer relationship with rival news brands will impact its business model. But it seems to show that the $10bn-revenue News Corp is finally ready to enter the race to become a global digital news provider. Its major newspapers straddling the Anglosphere will naturally make it a strong competitor for the New York Times and The Guardian, especially in the US, UK and Australia. The idea of providing an alternative to the online platforms that aggregate news stories, while offering more of a reward to publishers, might be a neat way of creating a uniquely comprehensive news hub like HuffPost must once have dreamed about.

In its quest to become the ‘go to’ source for news across the world (perhaps starting in the US), Knewz could include some or all of the following:

  • Paid-for access to News Corp’s quality news brands including The Times of London, Sunday Times, The Australian, the New York Post and the Wall Street Journal. Will it have ‘pick & mix’ pricing?
  • Free access to The Sun, the UK’s largest digital news brand
  • Free story-by-story links to a wide range of the world’s leading newspapers including News Corp’s own brands
  • Separate editions for the UK/Ireland, North America and Australasia
  • A news streaming ‘channel’ and/or Fox News (now owned by the Murdoch family’s ‘new’ Fox Corp)

The significance of this search for the sustainable future of news is underlined by News Corp’s latest financials. For the year ended June 30 2019, the $1.2bn EBITDA was generated by its four divisions in the following order:

  1. News & Information
  2. Digital real estate
  3. Pay TV (Australia)
  4. Harper Collins Book publishing

News & Information’s $4.96bn of revenue was 49% of the News Corp total and almost $1.5bn came from the Wall Street Journal/ Dow Jones. In addition to its famous newspaper mastheads in the UK, US and Australia, this division includes retail promotion firm News America Marketing (up for sale), the global advertising marketplace Unruly, and the UK-based TalkSport and Virgin Radio group.

But, even with some newer, fast-growing businesses, the division’s $5bn revenue converted to EBITDA of just $417m (8% margin). It gets worse.

If you calculate the cash operating income of News Corp’s divisions by deducting their respective capital expenditure from the EBITDA, the US-Australian digital real estate operations are seen to be far the most profitable, generating $306m (at a 26% margin). News & Information (hungrily eating up $170m a year of capex) generated just $245m (5% margin) of cash operating income. Harper Collins generated ($246m (14%) and Aussie Pay TV $73m (3%), with the losses of the 65%-owned Foxtel pay TV (c2m subs) not quite wiping out the profits of Fox Sports Australia with which it merged in 2018. But, then, that’s been another price of the competition with Netflix which helped Rupert Murdoch decide to sell much of his family’s movie and TV empire to Disney.

It is now six months since the Aussie media pioneer adroitly swapped control of 21st Century Fox for billions of dollars, a major shareholding in Disney, and the Fox News, Fox Sports and TV stations that now comprise Murdoch’s 39%-owned Fox Corp ($11.4bn-revenue/ $2.7bn EBITDA). So, he’s (more or less) given up entertainment and doubled down on news, information and sports.

The Knewz plan prompts the question of what will be News Corp’s relationship with Fox Corp, not least on news itself. Having sold their beloved pan-European Sky TV (now owned by Comcast), will Rupert and Lachlan Murdoch now want to turn the $1.8bn-profit Fox News into a global news channel to compete with CNN, the BBC – and Sky News? Exactly 50 years after man landed on the moon and Rupert Murdoch relaunched The Sun which sent his fledgling News Corp into orbit, we’re all watching.