Media Fortune Fame & Folly

What is News Corp up to?

Rupert Murdoch is set to celebrate his 90th birthday in March 2021 by launching a TV news channel in the UK, where he is now living much of the time. News UK TV comes two years after he lost control of the Sky pay TV network to Comcast in a $39bn deal.

It was a rare (if well-compensated) setback for the hyperactive media empire which had been created when the 22-year-old Aussie inherited a single, struggling newspaper, the Adelaide Advertiser, on the death of his Scottish-born father in 1952.

Within 20 years, Oxford-educated Murdoch had built Australia’s largest newspaper group and acquired the UK tabloids, the News of the World and The Sun, on the way to becoming the world’s first “multi-media” entrepreneur.

For Comcast, Sky was a consolation prize after losing out to Walt Disney in the $71.3bn auction for Murdoch’s 21st Century Fox. But the golden proceeds were little comfort for the man who had built Europe’s most successful TV network in a spectacular 30-year journey which had transformed: the viewing (and paying) habits of Brits, the finances of the country’s premier league football, and the whole world of multi-channel satellite broadcasting.

Murdoch, whose reputation has been damaged by UK phone hacking scandals, had spent more than a decade trying to take complete control of Sky TV, only to be frustrated by politicians who seized the opportunity to oppose the dominance of a media empire that had been waived through generations before. His UK history is full of irony, including:

  • The launch of Sky TV, originally a ‘pirate’ channel based in Luxembourg, was saved by a last-ditch 1990 merger with the UK’s “official” satellite licensee British Satellite Broadcasting (BSB) whose desperate-for-a-deal backers had no inkling that News Corp was itself teetering on the edge of bankruptcy when they initiated merger talks. The two satellite broadcasters had already lost a total of £1bn. Not for the first or last time, Rupert Murdoch played great poker. Within just three years, the ‘merged’ company under News Corp management was making £2m profit a week. Four years later, it had become one of the UK’s 100 largest companies.
  • The opposition, over the years, to Murdoch’s plans to acquire the 60% of Sky he didn’t own sprang from concern about the management of the lossmaking Sky News channel. Nobody was arguing about future control of Sky’s film, sports or entertainment, just of the high-quality news channel which would not even have existed without Murdoch’s personal commitment.
  • The UK scandal that has scarred News Corp broke open when journalists were found to have hacked the mobile of murdered schoolgirl Millie Dowler. Some News Corp reporters were jailed, its CEO was tried and acquitted, the company felt compelled to close the legendary News of the World, and mists obscured the cover-up of wrongdoing. But News Corp’s tabloid rival, the Mirror Group (Reach Plc), is now known to have been at least as guilty of phone hacking as News Corp, and its own journalists may even have intercepted the murdered girl’s messages. But the scandal made it impossible, even for a supportive UK government, to approve Murdoch’s last proposed takeover of ‘his’ Sky TV. Instead, it led to the separation of News Corp and 21st Century Fox which, in turn, spawned Disney’s top-of-the-market acquisition.

Now, Murdoch looks ready to lead the integration of newspapers, audio and video in the UK where News Corp’s interests include: traditional news brands The Times of London, The Sun, and the Sunday Times; the Wireless Group of Virgin Radio, TalkSport, TalkRadio, and Times Radio.

The big idea for 2021 is a new-style TV news channel, being launched by David Rhodes, the former executive of Fox News and CBS who moved to London this year. News UK TV seems likely to have the following characteristics:

  • 4-5 hours every evening
  • Broadcast by satellite but also streamed and “pushed” as online video/ podcasts, perhaps including links with streamers Netflix, Disney+, or even Spotify
  • Some integration with Wireless Group radio stations, including the 11-month-old Times Radio
  • Shared talent with its newspapers and radio

If the launch of Times Radio in January is anything to go by, News UK TV will be recruiting some established personalities from the BBC and ITV.

There may also be some links to Fox News, which is owned by the Murdoch-controlled $18bn listed company Fox Corp. Having fallen foul of the UK broadcasting regulator’s impartiality rules in 2017, the controversial Fox News is now marketing a subscription streaming app in the UK, with a free trial. Some kind of relationship between Fox News and News UK TV seems likely, if only to share programmes and/or advertising sales.

The whole News UK approach seems set to transform TV news, accelerating the move from high-cost, regulated broadcasting to relatively low-cost, unregulated online media: from linear to on-demand.

Both News UK and a rival (the Discovery-backed GB News fronted by former News Corp editor and BBC broadcaster Andrew Neil) believe there is a market opportunity for opinionated (and right-leaning) news channels for Brits who may dislike the BBC output or (like Rupert Murdoch) its state-funded dominance. The new operators also realise that the UK’s traditionally strict regulations on impartiality can be satisfied not so much by having precise ‘balance’ in individual programmes as by ensuring that viewers are exposed to differing views.

While the two new services both have broadcasting licences from the UK’s regulator Ofcom, online streaming will be increasingly important. That itself may prompt an explosion of low-cost competition, including from other news brands.

For News UK, it is a very Rupert Murdoch race to get on the air before GB News, in the way that Sky TV beat BSB to the screen 31 years ago. We might, therefore, expect it to launch earlier than the touted Spring (March/April).

But the News UK plan may also define the future of its sprawling News Corp parent.

The $10.9bn company, with 23,500 people, has newspapers, book publishing, business information, and digital media primarily in the US, UK and Australia. In addition to its UK dailies, it publishes The Australian and New York Post, controls the REA and Move property digitals (respectively in Australia and the US), and owns Dow Jones (publisher of the Wall Street Journal, Barron’s, and MarketWatch), and book publisher Harper Collins -which was recently outbid in the $2bn auction for Simon & Schuster.

The Murdoch family owns 39.4% of the News Corp equity but controls the voting shares in a $9bn-revenue/ $1bn EBITDA company where:

  • News media accounts for 31% of revenue but only 5% of EBITDA and may be scarcely breakeven on cashflow
  • Digital property is 12% of revenue and 29% of EBITDA
  • Some 67% of total revenue is digital (compared with 48% in 2014). Some 42% of this is circulation, which has more than doubled in the past six years. Print circulation is 19%, and a total of 22% of revenue comes from print and digital advertising.

It is striking just how ludicrously under-valued the listed company is, because:

  • Its 61.6% of the Australian listed REA Group of property digitals owned and 80% of Move in the US may equate to an eye-watering 90% of the market cap of News Corp, leaving a mere $1bn as the apparent valuation of all other assets.
  • Dow Jones ($236m EBITDA) may be worth $2.6bn or about double what Nikkei paid for the Financial Times in 2015.
  • Harper Collins ($215m EBITDA) may be worth $2bn.
  • Its Foxtel pay TV in Australia is under pressure from Netflix and $1.9bn revenue was 14% down last year. But it may still be worth some $3bn. The Aussie news media revenue was down 16% to $1bn in 2019-20.
  • Even valuing News Corp’s worldwide news media at only 1 x EBITDA, they would still be worth $600m.

Add all that together and the ‘sum of the parts’ valuation would be at least 60% higher than the current $10.9bn, which is itself a five-year high.

The depressed market cap is, presumably, a function of the fact that investors don’t expect the Murdoch family to start streamlining the group any time soon: the locked-in value will stay locked-in. In the past three years, News Corp EBITDA has increased by only 4%.

It’s the ultimate legacy business created by a man who, for all his huge impact on TV and movies, has always loved newspapers. Does elder son Lachlan, now co-chair of News Corp and also of Fox Corp, feel the same – as his father prepares to celebrate his 90th birthday? And does he feel as attached to the Australian market?

The poor financial performance there is only one reason why News Corp may be prepared to quit the country where it all began.

The Australian parliament is conducting an inquiry into claims that Rupert Murdoch dominates the country’s political debate, after almost 70 years of political muscling. The inquiry will be addressed by two former prime ministers, Kevin Rudd and Malcolm Turnbull. The fact that they are from each of Australia’s two main political parties may add to the menace.

The fall-out from the inquiry may, ultimately, prompt a seismic shift in the Murdoch family businesses.

Are they now preparing a huge reorganisation which would enrich all shareholders, their third payday in a few years? Just consider the possible steps:

  1. Sell the $1.6bn-revenue Dow Jones business information group, perhaps to Thomson Reuters, Bloomberg, or Hearst/Fitch – for $3bn+
  2. Sell Harper Collins
  3. Sell the REA and Move digital property investments
  4. Sell the $3bn Australian media portfolio (without REA)

The divestments might yield $15-20bn.

That would leave News Corp’s UK and US newspaper-centric media which could then be combined with Fox Corp ($12bn-revenue/ $2.8bn EBITDA) to create a $20bn global news and sport media group. It would have the highly-profitable Fox News and some regional TV stations in the US. But it would have a growing emphasis on streaming which may be as important to the future of news and sports as it is to the entertainment battleground that Rupert Murdoch bequeathed to Disney.

The third generation of News Corp could become one great legacy. News UK TV could be just the start.

News Corporation