News Corp. (NASDAQ: NWS) Chairman and Chief Executive Officer Rupert Murdoch, facing his greatest public relations crisis of his career, ordered on Thursday the closure of News of the World amid a widening phone hacking scandal. But shareholders should press the Australian-born billionaire to shed even more newspaper assets, which have weighed down the media conglomerate’s earnings for years.
Murdoch’s attachment to newspapers runs deep. He took over the Sunday Mail and The News in Adelaide, Australia, in 1954 after the death of his father, Sir Keith Murdoch, a war correspondent and publisher. The mogul fine-tuned his formula for success of sex and sensation at these papers, writing many of its banner headlines.
In the early 1970s, Murdoch entered the U.S. market through the acquisitions of two dailies in San Antonio, Texas. He then snapped up the New York Post in 1976. Again, the Murdoch magic of sex and scandal was a huge success. Murdoch sold the Post at a profit and later acquired it again. He bought and sold several other publications, including Village Voice, Boston Herald-American (later renamed Boston Herald), Chicago Sun-Times and New York magazine.
Murdoch’s passion for publishing sometimes borders on the irrational. His 2007 acquisition of Dow Jones & Company, parent of The Wall Street Journal, is a case in point. The $5 billion deal was for $60 per share bid — a 67% premium above what Dow Jones had traded for before the deal was made public. Dow Jones had been floundering for years, and Murdoch was the only serious bidder for the company.
As the phone hacking scandal worsens, pressure is mounting on U.K. regulators to reject News Corp’s $12 billion takeover of British Sky Broadcasting (PINK:BSYBY), a pay television company. Critics already were concerned Murdoch would wield too much power if the deal went through. Now, the News of the World scandal has the same critics — and more — seeking Murdoch’s head on a platter. Something will have to give. The most logical place for Murdoch to bend is in the newspaper business.
Besides The Wall Street Journal, MarketWatch and Dow Jones newswires and the New York Post, the New York-based conglomerate News Corp. owns four national newspapers in the U.K. (including News of the World) and 146 papers in Australia. And although the company does not release details of the financial performance of individual publications, many likely are not big moneymakers.
For instance, the New York Post reportedly has lost money for years. The U.K. papers probably will continue to struggle as economic growth is expected to be a measly 1.5%. But Australia’s economic growth is expected to grow by 4.25% in 2011, which may benefit Murdoch’s bottom line. What’s more, troubled economic times can be amplified for print media — as 2010 marked the first year where online ad sales were on par with display ads in ink and paper. Ad spending in the U.S. rose about 3% at newspapers to $168.5 billion last year, according to eMarketer. But the breakdown is telling — with spending on print ads down over 8% as online ad sales surged. Print ads are expected to see another decline of 6% in 2011.
Murdoch collects newspapers like a kid collects baseball cards. The problem is that his hobby is being funded by shareholders — who are benefiting less and less.
