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News Corp. Charging Ahead

Posted on Friday, Jan 4th 2008

News Corp. has certainly been the most bold and dramatic dealmaker of 2007. Murdoch gets it.

WSJ print revenues were up 7% in October and online revenues were up 30%. I have already discussed, why the WSJ acquisition is a good one, and suggested that the WSJ should go free. This week, Bear Sterns Analyst Spencer Wang came up with an analysis of why it shouldn’t. The fallacy in Spencer’s analysis is that he assumes a CPM of $6, which by all accounts, is way too low. Even sites like GigaOm and ReadWriteWeb can sell $25-$50 CPMs, besides sponsorship deals that are high-priced and strategic. With WSJ’s brand power, I would imagine that they can recover their lost revenues from eliminating subscription fees much faster, and with much less risk.

News Corp. was recently rumored to be in talks to acquire LinkedIn, a professional networking site. I love the idea of a WSJ+LinkedIn marriage. Perfectly synergistic blend of Content and Community, inching towards Web 3.0, and offering a good segue into rolling up the Online Jobs vertical next. They have also had acquisition talks with Jobs Search Engine SimplyHired. In 2008, my bet is that Murdoch will consolidate his position in the Jobs category.

MySpace, Murdoch’s 2005 acquisition, now has over 110 million users and in October 2007 it clocked 45 billion page views. One out of four Americans is on MySpace and 300,000 new users around the world join everyday. Every MySpace unique user spends over three hours monthly on the site.

Fox Interactive Media’s (FIM) revenues in 1Q08 were $188 million and were up 80% over 1Q07. This is primarily due to growth at MySpace. News Corp. is finally able to monetize its crown jewel. The acquisition of Photobucket did it.

In late 2007, MySpace joined forces with Google to launch Open Social, an open platform for social application development. It will enable developers to write widgets. This move is also fraught with possibilities.

MySpace also launched “SelfServe” in November 2007, an ad platform that offers customized tools for small businesses to create and target display ads. There are 23 million small businesses in the US alone and only 1 million advertise online. Not a bad move, but for SelfServe to become a compelling Ad Network, they have to meaningfully compete with the emerging Vertical Ad Networks whose value proposition is much better audience quality.

Fox Interactive Media now houses the #1 social network, MySpace; the #1 photo sharing site, Photobucket; the #1 gaming site in IGN; a leading site for sports video, Foxsports.com; the #1 men’s lifestyle site in AskMen; and a leading television site in Americanidol.com. In all, FIM reaches over 175 million people globally.

News Corp. is busy reorganizing its portfolio, having recently sold off Eight FOX Stations to Private equity firm Oak Hill Capital Partners for $1.1 billion. It is rumored to be in talks with Bertelsmann to sell its publishing house Harper Collins for $1 billion and contemplating selling its stake in Sony.

News Corp. is among the three main contenders to acquire Weather Channel for $5 billion. Since October 2007, Weather.com has been providing forecasts to News Corp.’s MySpace. Fox movies would be available for rent digitally through Apple iTunes soon.

News Corp. started FY08 with a bang. Its revenues in 1Q08 grew 19% over 1Q07. Operating income in 1Q08 grew 23% over 1Q07.

News Corp. is well poised for robust growth in 2008 and is the top contender for rolling up strong Web 3.0 verticals. Expect to see more aggressive dealmaking in 2008.

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Of the related news outlets performance, News Corp had the worst one day drop (about 6%). Over the last year, at a time of divestments, stock performance was atrocious. This advertising piece should not delude investors in believing this Co. is well-positioned for 2008. My advise: dump it.

Rick Martenisia Saturday, January 5, 2008 at 7:47 AM PT

Rick,

Most companies, when they go through the painful cleanup process and embrace a new strategy, go through stock gyrations. Investing in companies that have a strategic re-engineering in process is a very different style of investing than day trading.

And why do you call this an advertising piece? This is perhaps one of the most honest, analysis and framework driven business blogs around. Looks like you haven’t been here much.

Sramana

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