Web 3.0 & News Corp (Part 5)

Synthesis and Conclusions

For the year ended June 30, 2007, News Corp. earned $28.66 billion in revenues, $4.45 billion in operating income and $3.43 in net income. Fox Interactive Media (FIM) earned $10 million in profits on sales of $550 million in FY2007. FIM’s revenues in Q4 2007 doubled from the same quarter a year ago to over $183 million and FIM’s operating income contribution in Q4 2007 was about $30 million. MySpace is part of FIM.

The Company has been able to visualize the problems faced by the print and the broadcast media (falling subscription and advertising rates) far ahead of the pack and has aggressively managed it assets. News Corp. has been among the first old media companies to focus on digital media and the effect of it can be clearly seen on its FY 2007 numbers. As a part of its future growth strategy the Company plans to continue its focus on digital media and make acquisitions in the space.

The Dow Jones acquisition is going to expand Murdoch’s presence in the online financial space.
There are rumors of Murdoch making the WSJ Online, free to attract much greater traffic, and then use it for advertising, which might be a very good strategy in the long run. The Company will also look at integrating social networking features into the site, thereby developing a vertical business blog network that could grow into a large community with an opportunity to earn millions in advertising dollars.

The Company is already evaluating, formulating and implementing appropriate digital strategies that will generate new revenue and profit streams. It is currently weighing the options of allowing user-to-user advertisements and sales on MySpace. The acquisition of Photobucket is a strategic move to monetize its MySpace asset and we are likely to see many such acquisitions by News Corp. in the future.

The Company’s digital successes aren’t confined to MySpace alone. Its newspaper sites in Britain, Australia, the New York Post, continue to show growth. In fiscal ’07, the total number of users across all newspaper sites grew 25% to 20 million users, generating nearly $100 million in revenue. At FOXNews.com, revenue grew about 50% and is increasing its steady profitability. At its station-owned and operated sites, the Company saw a 350% increase in unique users. Thus the Company has been growing its Internet properties rapidly, though some of them are in the early stages of digital development with much room for growth.

Recently, News Corp. Chairman and CEO Rupert Murdoch said that he would not be surprised to see a profit margin of over 20% on sales of $1 billion in FY2008 at FIM. Murdoch and his boys believe that MySpace can generate in excess of $800 million in revenue in fiscal ’08. The Company seems to have made the strategic shift from the struggling / low margin old media business to the high margin, high growth online/integrated media business, and has become one of the most compelling contenders for the title of The Next Generation Media Conglomerate.

The top management of the Company is confident about its ability to monetize its Internet properties and I see no reason why we should doubt the Company’s capability. With the recent acquisition of Dow Jones and its bouquet of Internet properties the Company is well poised to deliver strong results in the coming quarters, the only reservation in investors’ minds being Murdoch’s age, and the lack of succession planning at the company. I think, a strong outside CEO who has experience with a portfolio-style management will do just fine at News Corp, and succession will not be a huge issue.

In fact, over the next decade, I would not be surprised to see News Corp.’s multichannel new media revenues constitute 30%-50% of their portfolio. However, for this to happen, more divestiture of old media assets, coupled with replacements with new media assets will be in order. Don’t be surprised to see more newspapers and TV stations sold off, and Internet companies purchased that align with large verticals.

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[Part 2]
[Part 3]
[Part 4]

This segment is part 5 in the series : Web 3.0 & News Corp
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