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Will investors follow Rupert Murdoch to the newspaper rack?

June 29, 2012|By Dawn C. Chmielewski
  • News Corp.'s headquarters in New York.
News Corp.'s headquarters in New York. (Mark Lennihan / Associated…)

Newspaper companies are hardly a hot commodity these days with Wall Street investors.

At least 14 newspaper chains, including Tribune Co., publisher of the Los Angeles Times, have filed forĀ  bankruptcy in recent years. Even the New York Times Co., publisher of the nation's pre-eminent daily newspaper, has seen its stock fall nearly 85% over the last decade, as advertisers and readers gravitate to other news sources.

That's why it's hard to imagine much investor enthusiasm for a new publicly traded publishing company carved out of News Corp.'s global media assets.

News Corp. Chairman and Chief Executive Rupert Murdoch said the new entity would be among the largest publishing companies in the world, consisting of some of the most prestigious brands around, including newspapers the Wall Street Journal, the Australian and the Sun and Times of London, and the publishing company HarperCollins. The company also would include the digital education division.

"In a time of strategic discord and confusion in the global publishing industry, I believe that a well-capitalized, well-run, scale player on the stage can thrive like no other time," Murdoch said in a call Thursday with media analysts.

Murdoch underscored News Corp.'s efforts to capture readers on digital platforms. The company was the first to deliver a daily newspaper to Apple Inc.'s popular iPad tablet. The Wall Street Journal offers digital subscriptions on its website and via apps.

"People will pay for news," Murdoch said. "As the world gets more complicated, people need to know what's going on."

Ken Doctor, a news industry analyst and author of "Newsonomics: Twelve New Trends That Will Shape the News You Get," said the newspaper industry doesn't offer the kind of future growth potential investors typically covet.

Newspaper advertising revenue has fallen 50% in the last five years alone, even as digital ad revenue appears to have flattened. The dominant online players -- Google, Facebook, Yahoo, AOL and Microsoft -- will scoop up about 67% of the digital ad spending in the United States, Doctor said. And their share of the digital ad pie continues to grow. 

"The only bright light there is circulation revenue looks like it can be ported over to digital," Doctor said.

The world's newspapers take in about $30 billion annually in circulation revenue, Doctor said. Major national publications, including the New York Times and the Wall Street Journal, have demonstrated subscribers will pay for the convenience of accessing news online or on their portable devices.

One media analyst, Bernstein Research's Todd Juenger, speculates that Murdoch, after separating his empire into two businesses, ultimately may take the publishing assets private. He could then focus on transitioning his publishing companies from print to digital, and making key acquisitions, without facing the quarter-by-quarter scrutiny of Wall Street.

"He could run the company as he pleases, be freed from answering annoying shareholder questions, and maybe even reduce the public disclosure of any lingering financial fallout from the News of the World scandal," Juenger said.

The 168-year-old News of the World tabloid was at the center of a phone hacking scandal in London.  News Corp. shuttered the publication, and was forced to abandon its $12-billion bid to acquire complete control of pay television operator British Sky Broadcasting.

Murdoch will serve as chairman of the global publishing company, which is expected to be created in the next year. Among the names mentioned as candidates for chief executive are Murdoch confidant Joel Klein, head of the fledgling education unit, Dow Jones Editor in Chief Robert Thomson, and Dow Jones CEO Lex Fenwick.

Lachlan Murdoch, the 81-year-old company founder's eldest son, may return to the publishing group, according to two people with knowledge of the situation who requested anonymity because they were not authorized to speak publicly. He left the company in 2005 after clashes with senior executives.

Murdoch's youngest son, James, is expected to play an expanded role in the company's television business, these knowledgeable people said. James Murdoch, who serves as News Corp.'s deputy chief operating officer, stepped down in February as chairman of News International, the company's British publishing arm, amid criticism of his handling of the phone hacking scandal.

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