Which way for News Corp in 2009?

There has been a lot of discussion about staff layoffs and alleged "dumbing down" of Fairfax newspapers in recent months, with a good deal of the discussion led by News Corp's national flagship newspaper The Australian.

This week sees the announcement of News Corporation's quarterly results for end-2008, and it could have considerable implications for News's Australian newspaper operations for 2009 and beyond. Note the view in this SMH article that investors increasingly view newspapers as a "legacy asset".

When the economy cratered last September, News Corp Chief Executive Rupert Murdoch quickly told investors his media empire would feel the pain.

After that, silence. With a week to go until quarterly results, investors wonder how bad things will be and are girding for sharper-than-expected profit declines, asset writedowns and perhaps more severe job cuts.

Punishing drops in the stock market, coupled with a slump in advertising spending, make it likely that News Corp will join peers such as Time Warner Inc and CBS Corp forced to revalue the assets on their books, analysts say.

So far, Murdoch has resisted big cuts for his 60,000-plus employees: News Corp has made limited cuts, including several hundred jobs at Fox Interactive Media, home of the MySpace social network. Media reports say more are on the way at The Wall Street Journal and New York Post newspapers, while Australian newspapers are also trimming staff numbers.

If Murdoch wants to keep the business healthy, it is time to make "hard decisions" and prune older media like papers, Pali Capital analyst Rich Greenfield said.

"We are concerned that the News Corp growth story, propelled by cable networks and Sky Italia, will be far less exciting over the next few years," Pali Capital analyst Rich Greenfield wrote in a note.

"It just feels like the legacy assets are weighing too heavily," Greenfield added in an interview. "I think they've been the most aggressive in trying to develop businesses with long-term returns on capital...where others initially didn't believe or thought the start-up costs were too high."

Journal cuts

One unit seen ripe for a writedown is Journal parent Dow Jones, which News Corp bought in 2007 for $US5.6 billion ($8.8 billion), or a 65% premium to its market value then. More recently, News Corp has been trying to cut costs at Dow Jones, including freezing employees' salaries this year.

US newspaper publishers have seen their shares lose half to nearly all their value in the past 12 months, prompting some to write down 20% or more of their assets.

Besides The Wall Street Journal, which has typically performed better than other newspapers, Dow Jones also counts local US papers, the Dow Jones Newswires, the Barron's financial weekly among its assets. News Corp also owns The Sun and Times of London and The Australian.

UBS analyst Michael Morris pointed to a $US25 billion writedown at Time Warner and a $US14 billion one at CBS. Assuming News Corp writes off a similar percentage, he estimated that it could write down $US10 billion, or about a sixth of its assets.

"In particular, we see possible issues at the broadcasting and publishing businesses, including Dow Jones," he said.

A writedown would not affect News Corp's daily performance, but it would be an admission the company paid more for acquisitions than it should have. That in turn could weigh on the stock price.

Bad news

News Corp's shares have fallen 67% in the past 12 months, underperforming peers such as Time Warner, Viacom Inc and Walt Disney Co.

Murdoch in recent months managed down shareholder expectations. In a statement in November, he said operating income would fall in the low to mid teens percentage points, instead of rising 4% to 6%.

He also warned that weaker overseas currencies, particularly the euro and pound, could hurt the New York-based News Corp. A little more than half its fiscal 2008 revenue came from North America and about a third came from Europe.

Many media companies have warned of more advertising sales declines. Magazine publisher and broadcaster Meredith Corp said automotive ad sale pacings are down 70% this quarter - a dire sign for companies such as News Corp.

Wachovia analyst John Janedis expects a 26% drop in operating income for fiscal 2009, which ends on June 30. Greenfield forecast a 30% drop, along with an 80% decline in TV profits.

Barclays analyst Anthony DiClemente forecast a 35% drop in revenue for News Corp's Fox TV stations in the second half of fiscal 2009.

In recent years, investors tolerated Murdoch's love of newspapers because his cable, satellite and interactive businesses were growing.

But MySpace competitor Facebook is grabbing more share of the Internet social media space. And Sky Italia's satellite business could suffer because of the weaker euro and a troubled Italian economy.

As if that were not enough, MySpace's $US900 million Internet search advertising deal with Google Inc expires in 2010, about the time economists expect the markets to recover.

"We do not believe a new Google search deal is likely to be as favorable," DiClemente said.

The limits of moralising critique

A good piece from Nicholas Gruen in On Line Opinion on the limits of moralising critique with dealing with the climate change question and the global financial crisis. It had struck me that there was more to the Rudd government's 5 per cent plan for reducing carbon emissions than many were giving them credit for, and that they were to some extent ambushed by The Greens, who had been waiting for a clear opportunity to reclaim moral high ground.

The question about the extent to which you can apply moral critique of your own government, but studiously avoid it for other governments - such as China's - is also a vitally important issue.

This piece first appeared in The Australian Financial Review on January 13, but due to its archaic policy on online access, I've only just come across it.

Since the destruction of Sodom and Gomorrah, we’ve tended to moralise disasters - to see them as the just deserts for our natural sinfulness. Even in today’s secular age, debate on how to handle two crucial issues - the financial crisis and climate change - remains heavily (and unfortunately) moralised.

It’s true that both crises will test our moral qualities. In particular both call for the intellectual courage that’s necessary to see new problems afresh. And we need the moral courage, particularly among those aspiring to lead us, to forge new social consensuses around solutions which embody those insights.

Unfortunately the moralisers usually want us to take intellectual (and moral) shortcuts. They might give some of us a self righteous inner glow. But they’ll only hold us back. In fact they could make things worse.

Activists make climate change politically compelling by moralising it and making it All About Us. They were scathing about the Government’s commitment to reduce its claim on emissions entitlements to 95 per cent of 2000 levels by 2020. That represents a per capita reduction of 25 per cent which seems pretty challenging to me - but there’s no accounting for (moral) tastes.

But here’s the thing. Arresting climate change isn’t all about us. As Garnaut has insisted, what really matters is building a truly global and binding agreement. And for nearly 20 years the major developing countries have resisted binding commitments insisting “you created the problem, you take the lead in fixing it”. Twenty years!

That underlines a further problem with moralism. The moralisers in rich countries feel queasy about forcing poor countries into binding commitments. Their real enthusiasm is the way the looming crisis might make rich societies mend our profligate ways.

But with China soon to be the largest global emitter that’s absurd. Imagine people being excused from water restrictions because they were poor. That’s effectively where moralism has got us in climate change negotiations. (None of this means we should be unprepared to offer compensation or to allow developing countries to temporarily increase their emissions - taking a heavier load ourselves - as we gradually decarbonise production.)

But what really matters is not how heavily we beat our breast in self denial, but how we maximise the chances of engaging the major developing countries. That’s why Garnaut’s most important recommendation was that we commit ourselves to unilaterally reducing our entitlements to emit whilst undertaking to dramatically intensify our efforts if a truly global agreement were reached.

Though Australian policy now embodies this conditional generosity in a diluted fashion, if the idea catches on with other developed countries, we might have made the game-changing difference that enables a truly global system to evolve.

Moralism also threatens to befuddle our response to the financial crisis.

Right back to Adam Smith economists have preached the virtues of prudence and thrift which are the building blocks of investment for the future. That message has, if anything grown in relevance in the last generation as household savings have steadily declined and foreign debt has grown to fund consumption and mining investment.

And at a time like this it would be nice to have less foreign debt so we are less beholden to investor sentiment. But alas, that’s for the medium to long term. Saint Augustine’s prayer - Lord make me chaste, but not yet - may be comical, but this is one situation in which it’s the right prayer. Now is no time to increase our savings.

And yet, appealing to moral notions of thrift, neither the Government nor the Opposition has had the moral backbone to come clean and unreservedly endorse deficit financing as an appropriate response to the crisis. We should be prepared to run substantial deficits and it may be appropriate to run them for some time. It all depends on how things develop - in the international economy and our own.

But that’s not all that should happen. Because we can’t know when it should occur, we should begin now building institutions - for instance independent advisory bodies like the Productivity Commission - to impose disciplines on politicians to move from fiscal accelerator to brake and to increase savings as recovery takes hold.

Doing something like that would make all the difference - between genuinely learning from the mistakes of the past, as opposed to engaging in a bit more empty moralising about them.

First published in the Australian Financial Review on January 13, 2009.

White people demand Quadrant on Australia Day

For many years people have wondered what Australia Day is all about. Now the journal Quadrant has sorted this out for us. Australia Day is about things that the Left hates, which are:

Australia Day, Anzac Day, people who live in the suburbs, people who live in the country, farmers, fishermen, dams, Quadrant, Australian history, the flag, the constitution, Andrew Bolt’s readers, The Australian, Liberal voters, National Party voters, Family First voters, One Nation supporters, the RSL, McDonald’s, McMansions, plasma TVs, Australian Idol, big business, small business, monolingualists, Christians, our last prime minister, liberal democracy, capitalism, lamingtons, Australians, the national coat of arms, the Samuel Griffith Society, soldiers, conservatives, musicals not about Australian Left politicians, commercial television, non-indigenous trees, dog owners, cats, non-Left talk back radio hosts, timber workers, plastic bags, Howard’s battlers, climate change sceptics, white people, commercial radio, America (pre-Obama), sovereignty (ours), realistic paintings (especially by Albert Namatjira), the Big Banana and other Big Things, cultural dissidents, men, sprinklers, green lawns, cars (other peoples), wood fires, rednecks, Sir John Kerr.

Erm, cats??? Sir John Kerr? The Samuel Griffith Society (says what's that, sotto voce)? White people? Cultural dissidents? Australian Idol? Is this what the Right thinks that the Left thinks about?

In a possibly unrelated incident, there were riots in the Manly Corso on Australia Day as white people demanded that the local newsagent stock more copies of Quadrant.

"We're sick of having to read Dissent or The Monthly", said group spokesman Ned "Spanner" Kelly. "We urgently need to know about the formation of an Australian intelligentsia during the adversarial culture of the 1960s", he said, before pulling at the turban of a Sikh taxi driver.

A scuffle subsequently ensued with the owners of the 24-hour kebab shop, as they refused to take the Euro-trash techno off their CD player and put on "Cold Chisel's Last Stand".

Jay Rosen to Barack Obama: Be yourself!

Some interesting speculations by Jay Rosen on his PressThink site about the future shape of government/media realtions under the Obama administration in the U.S.

The thing he is pretty sure of is that they will have to be less opaque and dismissive than those of the Bush/Cheney years:

What is over? The idea of one interlocutor, the White House press corps, acting as our quasi-official watchdog, and an oligopoly of firms—Big Media—through whom news of the presidency flows. That’s over. The big firms are not done; they still have serious pipe going out to homes and bars. But their world is shifted. The White House can go direct—that’s what whitehouse.gov is—and people can go direct (in certain limited ways) to the White House. Control over the sphere of legitimate debate is more widely distributed. The presidency has never had a participation wing, but this seems to be under discussion. Who knows where that goes. Today, however, the White House started blogging.

Behold the communications operation at 1600 Pennsylvania Avenue. It is a broadcaster and media company in itself, with global reach and an unstoppable brand. The White House briefing room, where the press is informed and asks questions, is sacred space for projecting American power and explaining the president’s positions around the world. Making a farce of that space, as Bush did, is not in American interests. Recovering civil and truthful uses for it is.

For more read here.

The ABC - and SBS - of Social Innovation

Public service broadcasting was one of the great 20th century social innovations in media. The aim of public service broadcasters (PSBs) was to seek to harness the new mass media towards social purposes. These included nation-building, mass education, strengthening the information base of democracies, and broadly-based cultural improvement, particularly in areas such as documentaries, news and current affairs and children’s programming.

Public service broadcasters have been major generators of social innovation. Social innovation refers to those forms of social and cultural value that are generated over and above commercial benefit to providers and the benefits to the users or audiences. Given that institutions that generate social innovation are often publicly funded, the tricky question is always to work out whether the less tangible social returns exceed the cost to taxpayers, and whether the value is maintained over time as cultural expectation and technological affordances change.

In the case of PSBs, three messages seem to come through. First, the key to the PSB model is not government funding per se – governments have funded broadcasters from Albania to Zimbabwe, with very mixed results – but the combination of public funding and a degree of independence and autonomy from the government of the day.

Second, a relationship with commercial broadcasters that is both complementary and competitive at some levels seems most conducive to innovation, as it forces PSBs to be more responsive to their audiences, and less inclined to adopt a ‘we know best’ mentality, while at the same time promoting their distinctiveness from the commercial sector.

Finally, the role played by Charter in making broadcasters such as the ABC and SBS accountable to Parliament is vital. Charters provide performance benchmarks that move the rationale for PSBs from market failure (providing what the commercial services don’t) to combining provision of specialist programming with the need to be innovative and responsive to community expectations.

The Department of Broadband, Communications and the Digital Economy (DBCDE) recently called for public submissions into the future roles and responsibilities of the ABC and SBS as Australia’s national broadcasters. The DBCDE Review has been read at one level as a move by the Rudd government to draw a line under the ‘culture wars’ of the Howard years, where debates about perceived ideological bias were seen as permeating the relationship of government to the PSBs – especially the ABC – at all levels, from funding to Board appointments.

More generally, however, the Review of National Broadcasting is being undertaken at a time when the remit of public broadcasters worldwide is being looked at. In contrast to the 1990s, where much of the debate was about whether they are still needed as cable and satellite TV and the Internet lead us to a multi-channel universe, the debate is now about how best to reconfigure their mission in a media environment where users increasingly expect participation, interactivity, and content on demand from any digital media device at any time and place.

The ABC has been a national leader in the provision of online media, with its content-on-demand iView service attracting massive traffic for TV over the Internet, but this comes at a cost. In contrast to radio and television, where the cost of reaching each additional consumer is zero to the broadcaster once infrastructure is in place, the cost in terms of network time and capacity for allowing existing content to be accessed online increase with a growing number of consumer. This is before any consideration is given to committing resources for developing Web-only media content. Public service broadcasters do not have online provision within their Charter obligations, and are funded to only a limited extent – and in the SBS’s case not at all – to provide it to Australians.

In a submission that I co-authored with Stuart Cunningham, Axel Bruns and Jason Wilson for the Review of National Broadcasting, we propose that the ABC and SBS should be understood as public service media. This is not only an accommodation to the 21st century reality of media convergence, but it emphasizes how it is the services provided, rather than the delivery platforms on which they are carried, that is at the core of pubic support for the ABC and SBS today. It also indicates that the basis for supporting public service media is not simply that of market failure in a limited channel environment, but the capacity to promote innovative, engaging and inclusive Australian information and entertainment content in a world of seemingly limitless media choice.

This vision of public service media is framed by a larger understanding of social innovation in the 21t century. At the time when public service broadcasters were first established, social innovation was largely understood as something that came from the centre. Governments identified national priorities, and set up institutions to realise them.

The development of the Internet draws attention to a second vision of social innovation, where it comes from the margin and it built incrementally rather than being the product of large-scale, conscious organizational design. Whatever were the original intentions in developing the Internet, it has proved to be a radically decentralized informational and communications system, where innovation arises from the ad hoc and unco-ordinated actions of myriad individuals whose activities become interconnected in the complex networked ecology to a whole that is exponentially greater than the sum of its parts.

The ABC and SBS can effectively harness both of these models of social innovation. To do so, however, we would ague that there should be a substantial opening up of both organizations to user-created content. By becoming more participatory public service media organisations, there is the scope to stimulate more public participation, creative output, diversity of sources and, ultimately, more public support for both the ABC and the SBS.

In the case of the ABC, its national network of local news and media production bureaus provides considerable scope to develop hyper-local media content that directly communicates with its communities, particularly in non-metropolitan Australia. While the ABC has user-created content initiatives such as Radio National’s “Pool” project and ABC Online’s “Unleashed” section, these continue to be add-ons to a service which continue to emphasise a transmission model of communication, where it is the in-house media professional who decide what their audiences should receive.

We continue to be a central role for journalists and media professionals at the ABC, but it should increasingly be one of working with their audiences to better enable them to become content creators in an ongoing way, rather than periodically providing outlets where users are permitted to contribute. What New York University Professor Jay Rosen terms the ‘people formerly known as the audience’ are increasingly finding their own means of producing and distributing content. Th ABC can help to shape this activity in ways that generate greater quality, reach wider audiences, and enable more significant conversations among Australians about matters of shared local, national and international importance.

For the SBS, user-created content has the potential to promote a new relationship to Australia’s diverse ethnic, language and cultural communities. In news and current affairs in particular, SBS has been a leader in provision of international news and information, but this has largely been done off the backs of the big global news agencies. Material sourced and distributed through the Internet among different communities could provide new windows on world events, with SBS acting as a ‘meta-news-aggregator’, developing an informal network of specialist ‘reporters’ around particular topic areas and international events.

The ABC and SBS have long demonstrated their capacity to be social innovators in the provision of news, information and entertainment content to Australians. As public service media organizations, they are uniquely placed to enable new usr-created content opportunities in the online media space while also managing such content sourcing strategies with their policy, legal and Charter obligations. In doing so, they would not only play a pivotal role in international debates about the future of media and journalism in an environment where media consumers are participants and content co-creators, but also enhance the awareness of Australians of what is possible in the new media environment by drawing upon and renewing their sources of credibility and reputation in the community.

More Australians buy bicycles than cars

Aimlessly flicking through the evening news on a night when its too hot to do anything else, I came across the figure that Australians bought 1.4 million bicycles in 2008, as compared to 1 million cars.

Looking for further information on this, I found the following from the Cycling Promotion Fund:

Australian bicycle sales continue to outstrip motor vehicle sales and prove resilient in the face of a slowing economy. Figures released today show bicycle sales have bucked the downward trend in consumer spending, outselling cars for the 9th consecutive year.

“The economic downturn and the affordability of cycling is one of the key reasons for the continued surge in bicycle sales” said Elliot Fishman, policy advisor with the Cycling Promotion Fund. “The sluggish economy, coupled with concern over climate change, health, congestion and petrol prices have strengthened interest in cycling as an option” said Fishman.

Moreover, this is apparently not a sudden development, but has been occurring consistently through the 2000s.

A few things follow from this. First, if I think about how any car dealerships there are as compared to bicycle shops, I can see why 2009 is looming as a bad year to be in the car sales industry. Second, where do bicycles get attention in economic policy, as compared to the billions that are put before the car industry worldwide?

Finally, as images of unsold cars mount up around the globe, I wonder if we may be on the threshold of some wider shifts in how we live and work. Sure, most cyclists also own a car. But the extent to which bicycle sales exceed car sales in Australia (38% in 2008, as compared to 0.3% in 2001), suggests there may be a wider socio-cultural shift taking palce here whose fullimplications we are yet to fully think through.

What will happen to the New York Times?

Michael Hirschorn in The Atlantic speculates about what could well be an impending crisis for the New York Times, which may come as early as May this year, and what it means for newspapers and journalism more generally.

Virtually all the predictions about the death of old media have assumed a comfortingly long time frame for the end of print—the moment when, amid a panoply of flashing lights, press conferences, and elegiac reminiscences, the newspaper presses stop rolling and news goes entirely digital. Most of these scenarios assume a gradual crossing-over, almost like the migration of dunes, as behaviors change, paradigms shift, and the digital future heaves fully into view. The thinking goes that the existing brands—The New York Times, The Washington Post, The Wall Street Journal—will be the ones making that transition, challenged but still dominant as sources of original reporting.

But what if the old media dies much more quickly? What if a hurricane comes along and obliterates the dunes entirely? Specifically, what if The New York Times goes out of business—like, this May?

It’s certainly plausible. Earnings reports released by the New York Times Company in October indicate that drastic measures will have to be taken over the next five months or the paper will default on some $400million in debt. With more than $1billion in debt already on the books, only $46million in cash reserves as of October, and no clear way to tap into the capital markets (the company’s debt was recently reduced to junk status), the paper’s future doesn’t look good.

...

Regardless of what happens over the next few months, The Times is destined for significant and traumatic change. At some point soon—sooner than most of us think—the print edition, and with it The Times as we know it, will no longer exist. And it will likely have plenty of company. In December, the Fitch Ratings service, which monitors the health of media companies, predicted a widespread newspaper die-off: “Fitch believes more newspapers and news­paper groups will default, be shut down and be liquidated in 2009 and several cities could go without a daily print newspaper by 2010.”

The collapse of daily print journalism will mean many things. For those of us old enough to still care about going out on a Sunday morning for our doorstop edition of The Times, it will mean the end of a certain kind of civilized ritual that has defined most of our adult lives. It will also mean the end of a certain kind of quasi-bohemian urban existence for the thousands of smart middle-class writers, journalists, and public intellectuals who have, until now, lived semi-charmed kinds of lives of the mind. And it will seriously damage the press’s ability to serve as a bulwark of democracy. Internet purists may maintain that the Web will throw up a new pro-am class of citizen journalists to fill the void, but for now, at least, there’s no online substitute for institutions that can marshal years of well-developed sourcing and reporting experience—not to mention the resources to, say, send journalists leapfrogging between Mumbai and Islamabad to decode the complexities of the India-Pakistan conflict.

Most likely, the interim step for The Times and other newspapers will be to move to digital-only distribution (perhaps preserving the more profitable Sunday editions). Already, most readers of The Times are consuming it online. The Web site, nytimes.com, boasted an impressive 20 million unique users for the month of October, making it the fifth-ranked news site on the Internet in terms of total visitors. (The October numbers were boosted by interest in the election, but still …) The print product, meanwhile, is sold to a mere million readers a day and dropping, and the Sunday print edition to 1.4 million (and also dropping). Print and Web metrics are not apples-to-apples, but it’s intuitively the case that the Web has extended The Times’ reach many times over.

The conundrum, of course, is that those 1 million print readers, who pay actual cash money for the privilege of consuming the paper, and who are worth about five figures a page to advertisers, are far more profitable than the 20 million unique Web users, who don’t and aren’t. Common estimates suggest that a Web-driven product could support only 20 percent of the current staff; such a drop in personnel would (in the short run) devastate The Times’ news-gathering capacity.

Also see:

"End Times: A Response"

A letter from The New York Times Company