At the beginning of July, News Corp shares were sitting at US$18.54. Less than a fortnight later the price had fallen almost 20 percent. It seemed an extreme reaction for the (admittedly abhorrent) practices of one newspaper out of a massive media empire.
Murdoch used the excuse that he couldn't possible know what was going on when the News of the World, Britain's biggest selling Sunday paper, accounted for less than one percent of his global empire. His newspaper business isn't the licence to print money it once was. He has his eye on bigger fish.
Around the world, Murdoch's papers contribute only 13 percent of News Corp's global operating income; and this has been sliding steadily from 21 percent back in 2005. It's not because he's selling less newspapers, or doing less advertising; it's because the yield of his newspaper business has taken a big hit. Revenues have increased a little since 2005, but back then operating income was 18 percent of revenue, last year it was half that. His magazine business took even more of a beating, losing $151 million last year.
The bright future for News Corp is in cable television. It was 17 percent of income for News Corp back in 2004, rising to a staggering 57 percent in 2010. And it's high yield; income represents a third of revenue. That's why News Corp was so keen to regain ownership of BSkyB. That's why it wants to buy Austar in Australia. I'm sure it would like to see Telstra bail out of Foxtel. Television makes money, at least for now. (You have to wonder, however, whether this too will go the way of the newspapers as we enjoy faster Internet speeds, IP-enabled televisions and more choice, without subscription fees.)
That helps explain why the News of the World scandal was bad news for News Corp. A bunch of out-of-control journos hack into voicemail messages and the company temporarily loses the chance to pitch for a profitable cable TV business they know and understand.
It shows what a risky business the media is, but at least News Corp has diversified enough to roll with the punches. The success of the film division each year depends on how many blockbusters it has. Income in 2010 ($1.35 billion) was almost twice the year before, thanks to Avatar. As the annual report puts it, "A big gamble resulting in the most successful film of all time."
Smaller media players don't have the same level of insurance. Fairfax (publishers of The Age and the Sydney Morning Herald) saw its share price fall a third over the last year, as investors worry about what will replace the slide in newspaper advertising. But Fairfax wasn't at all impacted by the News of the World scandal (its share price moved very little in July) but imagine if its journalists were found to have conducted equally as unscrupulous tactics to solicit stories? Surely it would be the death knell?
Murdoch is humbled, but News Corp will survive. I suspect it's the rest of the media industry that has to worry about the fallout.
See also:Read more By The Numbers articles by Phil Dobbie here.