With Rupert Murdoch widely reported set to cede the CEO position at 21st Century Fox (FOXA) to his son James, he faces what may could be the biggest challenge of his five-decade career: Remodeling his beloved newspapers that are a separate company called News Corp. (NWSA) into 21st Century web-based publications.
The 84-year-old reportedly resisted the idea of spinning off his papers into a separate company for years even though his top advisers urged him to do so, arguing their growth prospects were much worse than other assets such as the 2oth Century Fox film studios, Fox News Channel and the Fox broadcasting network. The split of News Corp. (which had been the name that most of the Murdoch empire had traded under) and 21st Century Fox occurred in 2013.
According to media reports, once the transition among the Murdochs is complete, James Murdoch will focus on the day-to-day management of 21st Century Fox while his brother Lachlan will be responsible for its strategic direction. The New York Times noted in 2012 that "the pay TV business is in many ways as near to James Murdoch's heart as newspapers are to his father." Murdoch's pursuit of the Wall Street Journal's parent company Dow Jones in 2007 is a case in point, given his offer for the company represented a 67 percent premium. News Corp. spokeswoman Daisy Dunlop declined to comment for this story.
News Corp.'s newspaper holdings are vast. According to News Corp.'s latest 10-K filed with the Securities & Exchange Commission, the company owns more than 120 publications in Australia, accounting for more than 59 percent of the total circulation of the country's newspapers. The company's U.K. papers, which include The Sunday Times, News of the World and The Sun, generate approximately one-third of the country's paper sales. Besides the Journal, the company's other U.S. newspaper is the New York Post, which many experts believe operates at a loss.
"Personally, I don't think it changes anything near term," said Douglas Arthur, an analyst with Huber Research Group. "There's been a lot of pressure on the management team to return cash to shareholders. They are in investment mode not in return-of-cash mode."
Indeed, News Corp. acquired romance book publisher Harlequin for $415 million last year to bolster the business at its Harper Collins publishing division. It also added heft to its digital business through its $950 million purchase of Move, Inc., now known as Realtor.com, in 2014.
The company's overall results, however, have lagged as has its stock price, which has slumped about seven percent since the split. Net income in the latest quarter plummeted 52 percent to $23 million, or four cents per share, as print advertising revenue plunged 12 percent. Overall revenue fell one percent to $2.06 billion.
During the three-month period that ended March 31, the company's News and Information Services business, its largest that includes the papers, reported revenue of $1.35 billion, a decline of nine percent on a year-over-year basis. The Wall Street Journal saw an 11 percent decline in advertising revenue in the quarter though the company expects a sequential improvement in the fiscal fourth quarter.
Not surprisingly, the business paper is in a cost-cutting mode. According to the Independent Association of Publisher's Employees (IAPE), the union representing some the publisher's workers, it recently announced layoffs of more than 50 workers and doesn't see better times ahead.
"We know that Mr. Murdoch isn't going to be in charge of News Corp. forever and ever but I don't know whether these days we look that far ahead," said Tim Martell, the union's executive director, in an email. "The restructuring, the layoffs - it's the one constant that we live with at Dow Jones."