Rupert Murdoch’s News Corp. (NASDAQ: NWS) (NASDAQ: NWSA) is reinventing itself — and the strategy underscores why Wall Street has learned to trust him.
Later this year, the entertainment and media colossus is expected to complete a much-discussed spinoff. The company will shed its problematic “old-media” components, such as Dow Jones, the New York Post, and other print operations. Murdoch’s cleverly named 21st Century Fox will boast some prime film and television properties.
Work on the split is proceeding as you read this piece. A stockholder vote on the separation will occur on June 11. The “new” News Corp. — the gallery of print-media properties — will have an investor day on May 28 in New York and on June 5 in Australia, media analyst Anthony DiClemente pointed out in a recent report to investors.
Wall Street has come to count on Murdoch for decisive, unflinching acts. Two years ago, when an embarrassing phone-hacking scandal made Murdoch look bad, News Corp. responded by promptly closing the 168-year-old scandal-engulfed News of the World tabloid in London.
Now, he is again making an emphatic statement by executing the split, and the decision reflects Murdoch’s devotion to his shareholders. Murdoch is not hampered by sentimentality, something his stockholders can appreciate about him.
Remember, only six years ago, he completed News Corp.’s more than $5 billion acquisition of Dow Jones. Did the usually forward-thinking Murdoch execute the deal to gain respectability for his racy print holdings? Possibly. Remember, as well regarded as The Wall Street Journal‘s journalism was, few observers in the media industry at the time rushed to extol the financial prospects of one of the beacons of the much-maligned “old media.”
At around the same time, Murdoch was bullish on the prospects of the Fox Business Network. He launched it in the hope of complementing the advertising-magnet Fox News Channel. Murdoch suspected that CNBC, the king of the hill in television-business news, might be vulnerable to a broadside attack — just as CNN succumbed to the relentless Fox News charge.
But Fox Business has failed to put a scare into CNBC, which recognised the threat and redoubled its marketing efforts while keeping such CNBC mainstays as Maria Bartiromo under its roof. “We’re not stupid, you know,” an NBC News executive told me at that juncture. “We saw how CNN got complacent and we’re not about to do the same at CNBC.”
Murdoch is shifting his focus from business news, in print and on cable, to sports. He is rolling out the Fox Sports 1 cable channel in August and intends to take on ESPN, the jewel of Walt Disney (NYSE: DIS). If any naysayer wants to carp that Murdoch falls in and out of love quickly, so be it. He wants to seize the day and doesn’t worry about criticism.
Murdoch is changing the dynamic of his company, while rolling the dice on sports, at an opportune time. News Corp.’s fiscal third-quarter performance was reassuring to the Street. Its revenue and earnings per share topped analysts’ projections.
Barclays analyst DiClemente pointed out the “strong results from two of 21st Century Fox’s most valuable assets — its cable networks and film businesses” as well as “the planned separation remaining on track for the end of the fiscal year in June.”
He continued: “We reiterate our Overweight rating and increase our price target to US$37 as we continue to see upside potential on a sum-of-the-parts basis. … We remain optimistic that the launches of Fox Sports 1 and FXX can drive long-term affiliate growth.”
The sports venture may not yield positive results overnight. Clearly, it will take time to challenge a juggernaut such as ESPN. Murdoch and his lieutenants certainly recognise that the Fox News Channel needed time to find an audience.
I have learned not to bet against Murdoch. I was a Dow Jones employee until earlier this year, so I had a ringside seat at News Corp. I came to appreciate Murdoch’s resolve. After his company came under siege in the media for the phone-hacking scandal, Murdoch faced the crisis and acted decisively by shutting down News of the World. Crucially, Wall Street didn’t find a good reason to lose faith in News Corp.’s ability on the bottom line.
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A version of this article, written by Jon Friedman, originally appeared on fool.com.
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