Monday, February 9, 2009

News Corporation's financial result

As was predicted on this blog (!!!!), Rupert Murdoch's News Corporation announced a dramatic fall in earnings in the second quarter of the 2008-9 financial year i.e. the period that the economic crisis hit from October-December 2008, with an operating loss of $US7.6 billion ($A11.6bn).

It gives no joy at all to foresee significant job losses at Rupert Murdoch's Australian newspapers. But I always had a sense, during the reporting of Fairfax's difficulties last year, of misplaced schadenfreude among News journalists. Moreover, a mindset of Murdoch good/Fairfax bad seemed to take hold, particularly at last year's Walkley awards, with Rupert Murdoch repeatedly hailed as the last, best hope for journalism.

Just as demonisation of Rupert Murdoch as the media antichrist was always misplaced, so too was his championing by the MEAA and others. At the time, it struck me that "I'll give this six months", as there was no apparent reason why the same forces hitting Fairfax newspapers (plummeting classifieds revenues, recession-hit advertising, declining newspaper sales, online competition for news) would hit the News stable.

As Matthew Ricketson notes, much of this commentary came from the pages of The Australian, where it was argued that News had invested in 'real' journalism, whereas Fairfax had succumbed to the dark side of online and celebrity fluff. What is not clear at News is the extent to which The Australian is insulated from the quite substantial cuts now coming to the rest of the News publications.

There is appeal to a 'flagship' publication, and the economics of online news do point to an opportunity here (e.g. The Economist, The Guardian, and Murdoch's recently acquired Wall Stret Journal), but the extent to which investors are pressuring media businesses that have a strong stake in newspapers or advertiser-financed television also cannot be underestimated. Link


ILove said...

Terry, you are linking to WA Today stories? You do like to read learned discourse!

Rupert Murdoch is probably trying to show he has no cash in order to en-sober and curtail the extravagance of his mother’s birthday celebration.

Or he's just trying to be newsworthy. Merrill Lynch say concerns are exaggerated and add new media and emerging markets should position News for long term growth, and help offset declines in traditional media.

The ‘loss’ is due primarily to a writedown of intangibles, which is a sensible conservative thing to do in the current economic climate. To quote from the WAToday article you linked to: “Mr Baxter said all changes were made with an eye to positioning the company for when the recession was over” and BBY analyst Mark McDonnell: "The write-down is a mixture of prudence and opportunism.” Newscorp is not bleeding cash.

The advertising revenue has declined, but it is not dire. In fact the Australian newspaper advertising decline of 20% YoY is less than the tv ad decline of 30%. Of greater concern is that Merrill Lynch project an over 70% decline in global newspapers OI in 2H09 (I suspect a lot of that comes from the UK), but this isn’t as bad as TV (down 80%). And let’s not fan the flames of pink slips, quoting again from your WA Today: “"there's no edict from News Ltd head office here in Sydney to the rest of the group saying you've got to get rid of this many people," Mr Baxter said. "(But) there's no point trying to tell you there are not going to be redundancies, clearly there are redundancies at every company round the country. We won't be any different, but we will do it in a very careful way."

I agree with McDonnell (and it’s rare for me to agree with non-resource equity analysts based in Brisbane) that Newscorp are cleaning not clearing the decks.

Terry Flew said...

The original link was to The Age, but that had disappeared b/w Sat and Mon, hence WA Today. Matthew Ricketson is a serious media commentator, with The Age and an ex-RMIT journalism academic.

The wider issue here is the near disappearance of classifieds from the metropolitan dailes (Brisbane Courier-Mail has 2 pages, of which 1.5 are 'adult services'). I don;t think he is going to sit back with these for too long, assuming he will be making the calls over the next 3-5 years.

I agree with you about it not being the time for a firesale on News Corp assets, but small strategic shifts will have big implications in Oz. News Corp is not the alternative to rethinking what journalism as a profession and business is now becoming.