Rupert Murdoch’s UK tabloid newspaper, The Sun, loves a good back-to-basics campaign. Now one appears to be under way at News Corpitself. As the UK hacking scandal rumbles on, Mr Murdoch’s media empire needs to protect the bits that are not toxic (almost all of it) from the bit that is (the UK newspapers). News Corp confirmed yesterday that it was considering splitting into two separately listed companies. Spin-offs are mostly done to realise immediate shareholder value. But, given the nature of the hacking scandal and the poor state of the newspaper business, this spin-off is more about long-term recovery than financial engineering.
News Corp’s entertainment unit (including TV and broadcasting) has three times as much revenue ($18bn in the nine months to March) as the publishing arm ($6bn), and is 10 times as profitable. So the structure of the company is lopsided. Mr Murdoch has always resisted a split – most recently in May. He loves his newspapers. The scandal not only worsened the lopsidedness, it lost News Corp its £8bn offer for the rest of British Sky Broadcasting– an enormous setback.
Mr Murdoch could sell News International, the bit that owns the UK papers. But single-digit margins mean that even a hefty multiple for the whole of publishing makes it a sideshow next to News Corp’s $50bn market capitalisation. There are few buyers for this declining business, especially one with a potential $1bn legal liability hanging over it.