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For the News Corp subsidiary that runs The Wall Street Journal, Marketwatch, Factiva, and several other businesses please see Dow Jones
The company received about half of its $28.6B revenue in 2007 from advertising, and thus stands to lose from weakness in overall advertising spending, which is highly correlated with recessions and economic booms; these economic cycles are driven by macro-economic factors such as increased or decreased consumer spending (see U.S. Housing Market). Nearly half of News Corp's 2007 revenues are derived from international locations (mainly Australia and Europe). This international exposure can help to protect the company from a major downturn in the domestic economy.
Along with a host of smaller competitors, News Corp's rivals include other large media conglomerates such as Walt Disney Company (DIS), Time Warner (TWX) , and Viacom (VIA).
[edit] Business Financials
News Corporation operates in eight industry segments: Filmed Entertainment, Television, Cable Network Programming, Direct Broadcast Satellite Television, Magazines and Inserts, Newspapers, Book Publishing and Other.[1] In 2007 47% of total revenues came from international operations, which are primarily located in Australia and Europe. News Corp's overall revenue has grown at a CAGR of 14% for the past five years.
Its 2007 operating income increased by 15% over 2006, propelled by 16% growth in the cable network segment, a high margin business largely owing its success to the popularity of Fox News, and the DBS segment, which consists of the Sky Italia satellite television business; this latter business grew by 21% in 2007 alone. [2] In 2008, however, the company was hurt by decreased advertising spending and weakened print and television industries. As a result, NWS posted a loss of $6.42 billion in its Q2 2009.[3] Furthermore, declines in ad spending caused NWS's Q3 2009 revenue to drop 16% to $7.4 billion.[4]
Filmed Entertainment is the company's largest segment, accounting for 23% of revenues; Television is the second largest with 20%. The most rapidly growing segments, however, are Direct Broadcast Satellite Television, Cable Network Programming, and Other (which includes News Corp's social networking site, MySpace). Magazine and Book Publishing are the company's smallest segments; each grew only 3% in fiscal 2007, reflecting weakness in the publishing industry as a whole.
[edit] Key Trends, Risks, 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. [7] 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.[8] 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.[3] Furthermore, the company's quarterly revenue dropped by 16% because of slumping ad sales.[4]
- Profit Potential of Social Networking: In 2005, News Corp acquired MySpace.com, the largest social networking website in the world with 150 million members. The acquisition is a bet on the site's ability to bring in advertising revenues as Internet advertising is the fastest growing component of the otherwise stagnant U.S. advertising industry. While in 2005 the site was a clear industry leader, its number of unique U.S. users is being rivaled by competitor Facebook.com. Even if MySpace retains its number one spot, the social networking business model may not easily accommodate enough paid advertising to turn a large profit. [9]
- 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.[10] 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.[11] In 2008, advertising revenues from NWS's Wall Street Journal decreased an estimated 20%, signaling that the company's print businesses are in peril.[12]
- 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. [13] 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.[3]
[edit] Competition
Each of NewsCorp's segments competes with a variety of smaller companies focusing on one or two specific businesses; competitors of the company as a whole include other international media conglomerates.
- 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 its shows on the Disney channel. In 2007 Disney's total revenues were $37 billion, compared to News Corporation's $28 billion. Despite their greater revenues however, Disney and News Corp share the same box office share (13%).[14]
- Time Warner (TWX) The largest US media/entertainment conglomerate, Time Warner owns Time Warner Cable, Time Inc., Warner Brothers, and HBO among other properties. Although the company's film and television franchises are quite successful - Time Warner has the biggest share of the box office among competitors - the company has struggled to draw profit from the 2000 merger with America Online, and is currently repositioning the service as an Internet advertising business. [15]
- CBS (CBS) Though CBS has operations in radio, outdoor advertising and publishing, its biggest segment by far is television, accounting for 66% of revenues. The company derives the majority of revenues from advertising from the pharmaceutical, automotive, and financial services industries. [16]
- Viacom Spun off from CBS (formerly known as Viacom), Viacom operates in the film, television and digital media segments. Its brands include MTV Networks, BET Networks, and Paramount Pictures, among others. The company is the smallest among its competitors; its strategy consists of strongly promoting its family of brands and focusing on delivering consumers visual content, whether on television, in the movie theaters, or online. [17]
Among News Corp's competitive advantages is the MySpace investment and the potential it brings to profit from social networking. News Corp is the only large media company that owns a leading social networking site. News Corp also has a virtual monopoly on Italian satellite television through its SkyItalia business, the result of a merger between the top two Italian satellite TV providers. With low penetration rates (just over 20%) and minimal competition, the SkyItalia business is a promising source of revenue.[19]
[edit] Studio Market Share
The following chart shows 2007 domestic studio market share by gross revenue. Total gross revenue in that year was ~$9.7B for the industry as a whole[20].
| Rank | Company | Market Share |
|---|---|---|
| 1 | Paramount | 15.5% |
| 2 | Warner Bros | 14.7% |
| 3 | Buena Vista | 14.0% |
| 4 | Sony/Columbia | 12.9% |
| 5 | Universal | 11.4% |
| 6 | 20th Century Fox | 10.5% |
| 7 | New Line | 5.0% |
| 8 | Lion Gate | 3.8% |
| 9 | MGM/UA | 3.8% |
| 10 | Fox Searchlight | 1.4% |
| 11 | Miramax | 1.3% |
| 12 | Rogue Pictures | 0.8% |
[edit] References
- ↑ News Corp 2007 10-K Item 1 Business p.1
- ↑ News Corp 2007 10-K Item 7 Management's Discussion and Analysis p 51
- ↑ 3.0 3.1 3.2 "Fox DVD sales, earnings decline in Q2" Video Business 2/5/2009
- ↑ 4.0 4.1 "News Corp. (NWS) Reports Q3 Results" StreetInsider.com 5/6/2009
- ↑ News Corp 2007 10-K Item 6 Selected Financial Data p.41
- ↑ News Corp 2007 10-K Item 7 Management's Discussion and Analysis p 54
- ↑ Joshua Chaffin. "US advertising faces 'another poor year'." Financial Times (FT.Com) December 4, 2007.
- ↑ News Corp 2007 10-K Item 1 Business p.29
- ↑ News Corp 2007 10-K Item 1 Business p.29
- ↑ News Corp 2007 10-K Item 7 Management's Discussion and Analysis p 47-48
- ↑ News Corp 2007 10-K Item 7 Management's Discussion and Analysis p 50
- ↑ "If WSJ ad revenue is off 20%, other papers may face worse" BloggingStocks.com 2/6/2009
- ↑ Scott Bowles. "What, movies worry?" USA Today 03/20/2006
- ↑ Disney Corporate Website http://corporate.disney.go.com/
- ↑ Time Warner Wikinvest article http://www.wikinvest.com/stock/Time_Warner_(TWX)
- ↑ CBS Wikinvest article http://www.wikinvest.com/stock/CBS_(CBS)
- ↑ Viacom Corporate Website http://www.viacom.com/ABOUT%20VIACOM/default.aspx
- ↑ Company Data www.sec.gov
- ↑ News Corp 2007 10-K Item 7 Management's Discussion and Analysis p 56
- ↑ 20.0 20.1 Box Office Mojo: Studio Market Share. Retrieved on July 6, 2008.
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