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News Corporation (NYSE:NWS) is a diversified broadcast and print media company whose subsidiaries include the Fox Broadcasting Company, Twentieth Century Fox, MySpace, SKY Italia, Dow Jones & Company, The Wall Street Journal and Barron's. For the year ended June 30, 2009, the company made $30.4 billion in revenues, down 8% from $33.0 billion in fiscal 2008.^[1] Plagued by declining viewership and circulation, News Corp attributed this result to revenue decreases at its Television (-21%), Other (-20%), Book Publishing (-18%) and Filmed Entertainment (-11%) segments.^[1][2][3] Furthermore, after the company acquired popular social network MySpace in 2005, MySpace lost its top ranking in social networking sites to Facebook.

News Corp received 38% of its 2009 revenues from advertising and, therefore, stands to lose significantly from a reduction in overall advertising spending, which is highly correlated with economic booms and recessions.^[4] The company also received 45% of its 2009 revenues from outside the United States and this international exposure shielded the company from the full effects of the credit crunch and financial crisis.^[5] Along with a host of smaller competitors, News Corp competes with a number of large media conglomerates like Time Warner, The Walt Disney Company, CBS and Viacom.

In Q2 2010, News Corp posted a net income of $254 million, up from the -$6.4 billion of Q2 2009.^[6] Its revenue, on the other hand, rose 10% from the year before to $8.7 billion. Adjusted EPS of 25 cents beat the consensus estimate of 20 cents.^[7]

Business and Financial Metrics

In 2009, News Corp made made $30.4 billion in revenues, down 8% from $33.0 billion in 2008.^[1] Plagued by declining viewership and circulation, the company attributed this result to revenue decreases at its Television (-21%), Other (-20%), Book Publishing (-18%) and Filmed Entertainment (-11%) segments.^[1][2][3] In the Television segment, revenues decreased due to the sale of 8 owned-and-operated FOX Network-affiliated television stations in July 2008 and lower advertising revenues. In the Other segment, revenues decreased due to the sale of a portion of the company's ownership stake in the NDS Group in February 2009. In the Book Publishing segment, revenues decreased due to the lower sales of general books and a weak retail market. In the Filmed Entertainment segment, revenues decreased due to reduced worldwide home entertainment and theatrical revenues. Rupert Murdoch, the company's chief executive, took a 40% pay cut in fiscal 2009 as the economic downturn sent News Corp's stock price plummeting. ^[8]

Operating Segments

News Corp has 8 operating segments: (i) Filmed Entertainment; (ii) Television; (iii) Cable Network Programming; (iv) Direct Broadcast Satellite Television; (v) Magazines and Inserts; (vi) Newspapers and Information Services; (vii) Book Publishing; and (viii) Other. Of all these segments, Filmed Entertainment (20%), Cable Network Programming (18%) and Television (15%) contributed the most its 2009 revenues. The company's smallest segments by revenue are Book Publishing and Magazines and Inserts. Until 2009, the New Corp's fastest growing segments by revenue were Newspapers and Information Services (39%, driven by the acquisition of Dow Jones & Company, owner of the Wall Street Journal), Cable Network Programming (28%, driven by higher affiliate and advertising revenues at FOX Broadcasting Company) and Direct Broadcast Satellite Television (22%, driven by subscriber growth at SKY Italia).

Key Trends and Forces

NWS planning to be Carbon Neutral by 2010

News Corp. is going green, unveiling an ambitious plan to become carbon neutral by 2010. The company even hired advisors to help in the efforts to reduce carbon emissions and purchase carbon offset credits. Rupert Murdoch is already purchasing carbon offsets from Indian wind power projects. With increased emphasis by many on the environmental and national security concerns associated with energy investing, this may prove to be a good move for News Corp. Indeed, if word gets out that News Corp. is trying to be not only successful as a company, but also environmentally responsible, it might be beneficial for the company. But it could backfire quite badly as well since the money spent in becoming green might have been spent on improving the business.

Impact of an Economic Slowdown on Advertising Spending

Spending on advertising is highly correlated with general economic growth, which makes such macro factors as oil prices and the U.S. housing market key concerns for News Corp. Advertising spend in 2007 grew less than 1% over the previous year due to weakness in the housing market and growing fears of a recession. With the effects of the subprime crisis continuing to spread, 2008 may be another weak year. ^[9] Advertising is a key component of News Corp's revenues in all segments, (cable and broadcast television, magazines and inserts, websites, etc.), making up 45% of fiscal 2007 revenues; continued weakness in advertising spending may have a strong negative effect on profitability.^[10] Because of weakened advertising spending in 2008, NWS reported a loss of $6.42 billion mainly because of slumping ad sales in its television and print businesses. Furthermore, the company's quarterly revenue dropped by 16% because of slumping ad sales.^[11]

NWS providing free mobile apps to Blackberry/iPhone users

The Wall Street Journal plans to make its mobile applications free to paid subscribers (of either the online or print WSJ) starting in October 2009. News Corp. previously planned on charging everyone to read WSJ articles on their phones, but had a change of heart, deciding only to charge those users who do not already have a paid subscription. With this decision, News Corp lowers the risk of upsetting and losing its existing customers, as well as expands to a new medium to attract further potential clientele.^[12]

Weakness in the Publishing Industry

The Print Publishing Industry publishing industry as a whole has been declining for the past few years. Circulation of magazines and newspapers is decreasing as consumers turn to alternative media sources such as the Internet, a cheaper and more convenient news source. Due to these decreases in circulation, advertising spending on newspapers and magazines has also shrunk, as have revenues from classifieds.^[13] With the recent acquisition of Dow Jones (DJ), which publishes the Wall Street Journal, News Corp is increasing its exposure to the publishing industry. As a result of the deal, 26% of News Corp's revenues will come from publishing, partially tying the company's profitability to further industry developments.^[14] In 2008, advertising revenues from NWS's Wall Street Journal decreased an estimated 20%, signaling that the company's print businesses are in peril.^[15]

Declining movie attendance and DVD purchases

Movie Attendance has been declining for the past few years; price hikes designed to maintain revenues have only exacerbated the trend. With more convenient options such as DVDs or pirated movies online available to consumers, going out to the movies is losing its once-universal appeal. Studios have attempted to counteract the trend by focusing more on promoting DVD sales for their new releases, sometimes even releasing movies in the theaters and on DVD simultaneously. ^[16] However, this market, too, has matured quickly as DVDs reached full penetration in the United States. In the company's Q2 2009 for example, the Fox Home Entertainment's sales declined by 25% as consumers shifted to online content.^[11]

Competition

News Corp as a whole competes with a number of large media conglomerates. However, each of the company's operating segments also compete with a variety of smaller companies focusing on 1 or 2 specific businesses.

• The Walt Disney Company (DIS): Disney's strategy centers on creating hit-animated motion pictures for children and then capitalizing on this content through its other businesses such as theme parks, toys and shows on the Disney Channel. In 2008, the company's revenues were $37.8 billion.
• Time Warner (TWX): As the largest U.S. media & entertainment conglomerate, Time Warner owns, among other properties, Time Warner Cable, Time Inc., Warner Brothers and HBO. In 2008, the company's revenues were $46.0 billion.
• CBS Corporation (CBS): Although CBS has operations in radio, outdoor advertising and print publishing, its biggest segment by far is television. In 2008, the company's revenues were $14.0 billion.
• Viacom (VIA): Spun off from CBS, Viacom operates in the film, television and digital media segments, and its brands include, among others, MTV Networks, BET Networks and Paramount Pictures. In 2008, the company's revenues were $14.6 billion.

Studio Market Share

The table below shows the 2009 domestic studio market share by gross (total) revenues.^[17] On the whole, gross revenues for the industry in 2009 were $6.9 billion.

References

1. ↑ ^{1.0 1.1 1.2 1.3} Results of Operations, 2009 NWS 10-K Pg. 48
2. ↑ ^{2.0 2.1} Another Bad Week for Broadcast TV, Clusterstock
3. ↑ ^{3.0 3.1} U.S. Daily Newspaper Circulation Plummets, Silicon Alley Insider
4. ↑ 2009 NWS Analyst Report, Morgan Stanley
5. ↑ Geographic Segments, 2009 NWS 10-K Pg. 142
6. ↑ News Corp Q2 Net Income
7. ↑ News Corp Revenue Jumps 10%
8. ↑ Nat Worden, Wall Street Journal, "News Corp To Close London Paper, Sell $1B Bonds"
9. ↑ Joshua Chaffin. "US advertising faces 'another poor year'." Financial Times (FT.Com) December 4, 2007.
10. ↑ News Corp 2007 10-K Item 1 Business p.29
11. ↑ ^{11.0 11.1} "Fox DVD sales, earnings decline in Q2" Video Business 2/5/2009
12. ↑ Silicon Alley Insider: WSJ Changes Mind, Won't Charge All Subscribers To Use Mobile Apps
13. ↑ News Corp 2007 10-K Item 7 Management's Discussion and Analysis p 47-48
14. ↑ News Corp 2007 10-K Item 7 Management's Discussion and Analysis p 50
15. ↑ "If WSJ ad revenue is off 20%, other papers may face worse" BloggingStocks.com 2/6/2009
16. ↑ Scott Bowles. "What, movies worry?" USA Today 03/20/2006
17. ↑ Studio Market Share, Box Office Mojo