Audit Notes: News Corp. split edition

More on the implications of Murdoch's move

The Financial Times’s John Gapper has the best take on what Rupert Murdoch’s bustup of News Corporation means:

Some US investors believe that the BSkyB deal could be put back on the table under the new structure. That is not plausible. Splitting assets into two companies, both controlled by the Murdoch family, will make no difference, at least until Britain’s press ethics inquiry fades. “It’s just a corporate sham. It won’t pass muster,” says one London financier…

We are now seeing Plan B. Amid the excitement at Mr Murdoch’s shift on Tuesday, investors overlooked the fact that the news division is no longer sturdy enough to finance its own investment needs. “We will need to navigate some treacherous shoals,” says one executive.

Mr Murdoch, being no fool, knew this. It is presumably one of the reasons for him resisting the change in the corporate structure until now. Investors put up with the losses at papers such as the New York Post while growing divisions such as Fox News compensated for them. They will be less sanguine when the financial duds are part of a smaller, weaker company with revenues falling in double digits.

— Ken Doctor is on the same track at Nieman Journalism Lab:

What will newspaper resources look like in 2013 and 2014? Without deeper and deeper cost-cutting, given print advertising’s continuing spiral downward, the new publishing company’s thin 7 percent profit margin would disappear quickly. Even with a Murdoch squarely in charge, it looks a major round of Australia cost-cutting is imminent, but that may not be enough in Sydney or London.

However capitalized, we can assume the standalone publishing company would be more subject to the market pressures than it has been as a division of a singular company. Sure, we know Rupert plans to keep feeding all his newspaper children for the foreseeable future. Still, the creation of a news-plus-books company increases the performance pressure on these newspapers; no longer can their subpar performance be obscured in the larger News Corp. quarterly reports.

Such pressure could lead to sale, closure, or deeper cutting of costs, no matter which Murdoch or non-Murdoch is running the company.

The Guardian on how it’s unlikely that the split could help Murdoch snare BSkyB after all:

Becket McGrath, partner at Edwards Wildman Palmer and former director of competition enforcement at the Office of Fair Trading in the UK, said it seemed unlikely the split would be enough to overcome early objections to one company controlling Sky and so many newspapers.

“The only way - and I believe it to be a very, very long shot - is if somehow there was complete management and editorial independence in practice at the two businesses. The concerns the first time were over Sky News and the newspapers, the remedy was to put Sky News at arms length, and if they were to become structurally separated through a News Corp restructure now I still believe it would be a very high bar to prove the same media plurality issues would not apply the second time around. The same people are ultimately controlling both,” he said.

Wouldn’t that be something if Murdoch were somehow able to get away with the old editorial-independence charade again?

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,