Rupert Murdoch Just Can’t Let Go Of His Newspapers
Rupert Murdoch and other News Corporation executives are meeting today to make a crucial decision that the 81-year-old media CEO has long fended off, whether to split its publishing holdings off from its lucrative entertainment assets. It is a “sharp reversal in the thinking” of Murdoch, who built his $53 billion media empire from a single paper in Adelaide, Australia, notes the New York Times.
Murdoch has staunchly stood by keeping the newspapers — the Wall Street Journal, the New York Post and the Times of London — part of the company, despite repeated requests from investors and senior News Corp. officials. His response has been “I want to own these.” In regard to his UK newspapers, Murdoch has insisted that he will not sell The Sun, The Times of London and The Sunday Times.
Newspapers a Drain on News Corp.’s Profits
The publishing division of News Corp. has been notably less profitable than its entertainment holdings which include cable channels like FX and Fox News, the 20th Century Fox studio and Fox Broadcasting. In the period that ended June 2011, the publishing arm made $864 million in operating profit, in contrast to the other division’s $4.6 billion.
The extent to which the newspapers have been a drain on the company’s profits — even before News Corp. was embroiled in the hacking scandal that led to Murdoch closing the British tabloid the News of the World last July — was apparent in the company’s $5.6 billion purchase of the Wall Street Journal in 2007, notes the Guardian’s Michael Wolff. The purchase was made “despite the recognition by News Corp’s executives that the deal would have a profound negative impact on News Corp’s shares – and despite the fact that the Journal would shortly be worth only a fraction of what the company paid for it.”
The proposal to spin-off the publishing units was reported first in what was effectively an “in-house” announcement in the Wall Street Journal. Investors signalled their approval quickly: by the end of Tuesday, News Corp.’s stock rose 8 percent at $21.96 a share, its highest close since 2007. Today, the shares have hit a 5-year-high.
The Hacking Scandal Takes Its Toll
The new division would contain some 175 other papers besides the Wall Street Journal, the New York Post and the Times of London as well as the Harper-Collins book business and a recently formed education division that may likely have as one of its senior officials Joel Klein, the former New York City Schools chancellor who now works for News Corp. and is a close advisor of Murdoch’s. The editor-in-chief of the Wall Street Journal, Robert Thomson, has been mentioned as a candidate for chief executive, as has Tom Mockridge, chief executive of News International (the British newspaper arm of News Corp.), says the New York Times. The Guardian also says that there has been talk that Murdoch’s older son, Lachlan, who was forced out of an executive role in the entertainment division after clashing with Fox News chair Roger Ailes, might be considered for chief executive of the new company.
Murdoch himself would remain as chief executive of the new entertainment company with News Corps.’s COO Chase Carey in the same position and Murdoch’s younger son, James Murdoch, possibly as deputy chief operating officer.
The Murdoch family will still retain control over what would be two companies, as it will hold about a 40 percent stake in both.
Another reason for the spin-off may be that News Corps. is attempting to resurrect its failed bid to control 39 percent of the satellite broadcaster British Sky Broadcasting (BSkyB). The company had to withdraw the bid in the wake of the investigation into the hacking scandal which has drawn in numerous British politicians including Prime Minister David Cameron. The British regulatory agency Ofcom is deliberating about whether News Corps. is “fit and proper” to acquire more stakes in the company; analysts think it unlikely the reorganization will enable News Corps. to revisit the bid.
News Corp. has spent over £100 million on legal bills related to the hacking scandal and could face up to 500 claims in the civil courts. Whether Murdoch or anyone in the company admits it or not, the scandal is having its repercussions.
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