Anyone looking for an explanation as to why News Corp investors, or at least its share price, appear largely indifferent to the reputation-shredding scandals and investigations in the UK would only have to look at the group’s third-quarter results.
News’ worldwide publishing operations, which include its Australian and US newspapers as well as those in the UK, generated less than 10% of the group’s earnings. They just don’t matter that much anymore in what is fundamentally a US-dominated cable network programming, television and movie business, contributing only $US130 million of its $US1.31 billion of earnings for the quarter.
That’s not to say that the problems in the UK haven’t had an impact – the costs of News’ investigations of the phone hacking, the settlements with those hacked and the closure of The News of the World was $167 million in the nine months to March – but that is almost immaterial in the context of a group that generated $US25.3 billion of revenue over that period.
News could, as has been speculated as the crisis has enveloped Rupert Murdoch and his son James, sell or spin off its newspapers to put some distance between its real core and the irritants and it would probably add rather than subtract value.
Chief operating officer Chase Carey was asked about that option at the analyst and media briefing overnight and, while he said the possibility had been discussed by the management and News’ board, said there were no plans to do it. The focus was on improving the publishing businesses, he said.
Perhaps the more interesting question posed was about the future of News’ 39% shareholding in BSkyB.
Carey had raised that topic at an investor conference earlier in the week, saying News preferred to control outright its businesses rather than hold minority positions and might consider “monetising” the stake if it couldn’t acquire all of BSkyB.
News’ plans for a $US12 billion bid for the rest of BSkyB were derailed by the News of the World scandal and BSkyB is now subject to an inquiry by the UK regulator, Ofcom, as to whether it is a fit and proper holder of a broadcasting licence. The intensity of the outrage in the UK makes it inconceivable News will be allowed to acquire all of BSkyB, which makes questions about the fate of its shareholding quite relevant.
Carey, however, clarified his earlier commentary on the UK pay TV service, saying he didn’t expect to be doing anything other than continuing to own the stake in the short to medium term. News would rather own and control or else monetise it, but there were no timeframes for that, he said.
Presumably that would change with an adverse Ofcom ruling and News would quickly move to cash out a holding that has a market value of more than $US7 billion. Given that Rupert played a central role in creating the business, and carried through long years of heavy losses before it became (with significant input from James) profitable, one suspects that would be the option of last resort.
The result did illustrate why News wanted to take out the BSkyB minorities. For the nine months to March the business grew its earnings from $US354 million to $US577 million – it is a very attractive asset that News knows intimately.
Also, News doesn’t need the cash. Apart from the continuing strong performance of its core operations, which drove the nine-month earnings from $US3.5 billion to $US4.2 billion, News is sitting on more than $US10 billion of cash.
That’s despite having deployed nearly $US4 billion of the $US5 billion cash it earmarked for a share buyback that was announced when, with the intensity of the scandal and the backlash it provoked escalating in the UK, it abandoned the bid for BSkyB last year. Today it announced another $US5 billion of its shares would be bought back once the original $US5 billion has been spent.
It is apparent that if its film and television businesses continue to perform as they are, News would have the capacity to extend that program even further. Their performances, and the support the buyback has provided for the market in its shares, have put a rising floor under News’ share price.
During the analysts and media call, Carey made an unsolicited statement defending Rupert Murdoch. While he acknowledged the recent “hard truths” within the finding of the UK parliamentary committee looking into the phone hacking, he rejected the majority of the committee’s “notion” that Rupert was unfit to run a major media company, describing the findings as “partisan”.
“He’s one of the smartest, most forward-thinking executives of our time and both the board and I rebuff any notion that he is unfit to run this company,” he said, after referring to the “great business risks” Murdoch had taken building BSkyB and saving The Times and The Sunday Times.
Few would doubt Murdoch’s achievements or the entrepreneurial courage he has demonstrated over the decades in building businesses, generally in the face of powerful incumbents.
Something quite horrible happened within the culture of the UK newspaper operations, however, including, it would seem, some form of attempted cover-up. How much responsibility News’ senior executives, including Rupert himself, have to take for what occurred will become clearer when the Leveson inquiry commissioned by the UK government to investigate the culture and practices of the UK media is ultimately concluded.
This article first appeared on Business Spectator.
