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A Noisy Stub: Rupert Murdoch’s Australian news assets valued at zip

by Michael West | May 12, 2020 | Uncategorized

Rupert Murdoch’s News Corp is shrinking – Facebook is now 60 times the size – yet its political clout still has Australia’s politicians entranced. When will its hold over governments fade? Michael West reports.

News Corp is just not that big any more. Google is worth $US946 billion on the sharemarket and Apple $US1.3 trillion while the American media mogul Rupert Murdoch presides over an empire in decay. News is valued by the sharemarket at a piddling $9.5 billion.

We say piddling with tongue firmly planted in cheek. It is still enormous but it is shrinking. Having just posted a billion-dollar loss for the March quarter, News and its rival Nine continue to flog assets to raise cash.

And it is still up to its old tricks. While its pundits loudly bash up social welfare, its executives quietly rope in the corporate welfare. It was only a month ago that News and Nine Entertainment (which now owns Fairfax newspapers SMH, The Age and the Australian Financial Review) were gifted a $50 million Government subsidy to keep its regional newspapers afloat.

In yesterday’s The Australian, a News Corp masthead, it was revealed that News Corp was already planning to sell these regional titles. “Why don’t we get taxpayers to increase our sale price?” must have been the thinking.

There is no doubt, given the revolution in media, Rupert Murdoch now exercises political influence way beyond his economic weight in this country. Yet it is surely unsustainable.

His Australian media assets, if the latest research report by UBS is any guide, are probably worthless. That’s right, The Australian, Herald Sun, Daily Telegraph, Foxtel, Courier Mail and Adelaide Advertiser, despite their enormous political influence are financially worthless.

The UBS report, News Corp: How much is the market valuing NWS stub assets at?, describes Rupert’s traditional media business as “stub assets”.

“We estimate that REA ( comprises 74%-82% of News Corp’s market value … This implies a valuation of $2.59-$3.77 per share for all other News Corp assets … This could imply that the market is pricing the NWS ‘stub’ (mostly traditional media assets) at around $0.73- $2.10 per share”.

If you took the view, as one fund manager told us, that the real value in these “stub assets” was the Wall Street Journal and Dow Jones, it would be reasonable to conclude that the Australian media business is worth nothing much at all.

UBS is forecasting a 10 per cent revenue slide this year and 13 per cent the next from News Corp’s News and Information Services division. On a break-up basis, it is valued at just $1 billion (REA at $5.2 billion and Harper Collins at $1.7 billion).

Shares in News have rallied strongly since the group handed down its March quarter result a few days ago. It was better than anticipated, though a loss.

It will still have to rip costs out of the business for years to come however, if it is to survive. On UBS estimates, this year’s $4.9 billion revenue is tipped to fall to $3.6 billion in four years’ time.

And these are rosy estimates in our view. Rupert’s proliferation of online rivals distribute their content for free via email, Twitter, Facebook and other social media while his newspaper business model relies on chopping down thousands of trees, buying ink, sustaining presses and newsrooms, and carting the newspapers around the country on the back of trucks.

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Most of the newspapers will have to shut at some point. They have been losing money for years. Same deal for Nine Entertainment. But it’s a double-edged sword. Even though the newspapers are already loss-making, print ads are worth more than online ads, which means the company will be forced to absorb deep revenue cuts from both advertising and circulation.

The upshot? Declining sales and declining influence; a media organisation even more reliant on a few big advertisers, its survival increasingly dependent on corporations and governments to finance it and deliver story “drops” to drive traffic to its websites.

For the business of mainstream media, the picture remains as unrelentingly bleak as it did five and ten years ago when this reporter worked in big city newsrooms and experienced first-hand the destruction wreaked by the rise of the internet.

As UBS frames it: “News Corp is also exposed to newspapers in Australia, the USA and UK, where print declines are still generally offsetting digital growth; Australian Pay TV, where we believe OTT competition will continue to push non-sports ARPU lower and both sports and non-sports content costs higher; and the global book publishing industry, where the shift to digital is driving revenues lower on a per unit basis …”.

It was long the hope that earnings from online advertising would grow and replace the “rivers of gold” as newspaper ads were once known. Yet online ads are cheap. They don’t yield nearly as much as they once promised.

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In the wake of the UBS report (which was spot on with its “Buy” recommendation on a very short-term basis, as the stock has jumped 20 per cent since), News handed down its March quarter profits, actually a $1 billion loss due to asset write-downs.

There were tiny rays of light. “Digital subscribers at News Corp Australia’s mastheads – which include the Daily Telegraph, The Herald Sun and The Australian – rose 20.5 per cent from a year ago, from 409,000 to 493,200, according to the company’s internal data,” said the news report in rival SMH.

Whether these numbers can be trust at all is another matter.

Yet, at the critical revenue line, there was a decline of 7 per cent. This means costs will continue to have to be ripped out of Australia’s newspapers, already enfeebled by umpteen rounds of redundancies of experienced journalists.

“Total earnings across News Corp’s global News and Information segment was down 16 per cent to $US73 million from a year ago.”

Bear in mind, these are pre-Covid numbers. The virus is accelerating the decline. It might have kept people at home engaging in online content  – a short-term fillip – but is wreaking a savage blow to advertisers and broader economic activity.

Meanwhile, the incursion from new media is hammering at audiences. The combined circulation of the AFR and The Australian is around 130,000 but YouTube sensation and political observer Jordan Shanks, who routinely pillories the mainstream media and the political system, has 406,000 subscribers to his Youtube channel alone.

Thanks to the mainstream media’s plunging credibility, particularly News Corp, millennials don’t bother tuning in. Jordan Shanks is clear evidence of this.

What does this mean for Australia’s media landscape? The implications reach way beyond the financial fortunes of two media organisations which now dominate 60 per cent of the nation’s newspaper markets. As with politics, the mainstream media has a credibility problem which is sapping its audiences.

Yet it’s political clout remains. The “Canberra Bubble Syndrome. The broadcast media, TV and radio that is, has long taken its political cue from the newspapers. Politicians and corporate vested interests drop their “exclusives” to the Canberra Bubble. The Bubble packages the message and broadcast media follows. Yet the traditional Free to Air TV model is also under siege.

The decline is agonisingly slow yet inexorable. Great journalists remain in the mainstream media. The problem is their bosses. In a declining revenue business, cutting costs triumphs over product integrity. Management is increasingly stacked with unimaginative cost-cutters and greasy pole-climbers whose KPIs (incentive payments) are tied to axing their own workers; in this case journalists who make too much trouble for advertisers and governments.

The rub is the closer they get to these advertisers and governments, the less their credibility in the community and the less the demand for their products. The irony is that the Murdoch titles sit behind hard paywalls, which diminishes their influence and makes it even more imperative their editors and journalists strike “scoop-for-comment” deals with politicians and other vested interests daily.

This does not serve democracy in Australia well. That the media was obsessing over personality politics before the last federal election, busy sucking in talking points from party political strategists while #sportsrorts and myriad other forms of mass corruption were unfolding rapidly and quite visibly, is testament to the quality of traditional media in this country.

Yet money is a harbinger. Investors are valuing Rupert’s Australian media assets at zero, so unless he and his successors somehow stage a corporate recovery, News Corp is destined for oblivion, along with its grip over government.   

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Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.

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