The Wharton Journal ran an interesting article this week discussing the problems facing News Corp. (NASDAQ:NWS). The author, P.J. Jannuzzi, suggests the company’s acquisitive ways have created a bloated company unable to take advantage of some of its valuable businesses.
Furthermore, despite having a plethora of film, television and print media generating content, it’s been unable to successfully monetize this content — at least in a meaningful way. Jannuzzi recommends create a digital portal providing a tiered-subscription model where users could access movies, network television, cable networks and even the Wall Street Journal, all in one place.
It’s an interesting proposal, but one I doubt an empire-building Rupert Murdoch will consider. While a visionary, Murdoch appears more concerned right now about maintaining the family’s hold on the business than being a game-changer. Jannuzzi believes part of the solution lies in eliminating its dual-class structure, where the Murdochs control 40% of the votes.
I don’t normally have serious concerns with this type of structure because it’s been my experience that leadership having a vested interest in the business succeeding usually is a good thing.
However, in this instance, the Murdochs would be forced to prove their worth in the C-Suite and it’s very unclear at this point whether Rupert or his son James are capable executives. The hedge funds that have recently bought up shares must see something the rest of us don’t.
Time Warner (NYSE:TWX), on the other hand, announced excellent third-quarter results earlier this month. Revenue grew 11% to $7.1 billion while profit beat analysts’ estimates. The big winner was its filmed entertainment segment, which saw revenue increase by 19%, thanks in large part to the final installment of Harry Potter.
The segment’s adjusted operating margin rose to 16%, compared to 7.5% in the same quarter last year. Full-year 2011 estimates for earnings are $2.78 a share, a 15% increase from 2010.
While a lot is going well at Time Warner, the bigger long-term concern is what effect losing the entire pro basketball season will have on its business. While it indicated in its third quarter 10-Q that the lockout shouldn’t have a material effect upon the company in the fourth quarter, it was unable to quantify what a lost season would mean to its TNT viewer ratings.
You have to think it will affect those ratings as viewers go elsewhere for their sports entertainment. However, it should allow the company to focus on some different projects that it might not otherwise tackle. The bigger question is: What happens next year when the players come back (assuming they do)? Will TNT be able to regain its audience? Nobody knows for sure, but if baseball and hockey are any example, viewership does eventually come back.
In terms of valuation, News Corp. and Time Warner are very similar. The difference comes down to style of management. If you’re like me and prefer a scandal-free business, the choice is rather simple. Not to mention that Time Warner pays a much nicer dividend. In the long term, that could be the performance difference between the two.
