New York: Rupert Murdoch is considering splitting his News Corp media company into two, one unit focusing on publishing and the other on entertainment, according to two people familiar with the matter.
Murdoch, who is chairman and chief executive officer of News Corp, is overseeing internal discussions on whether to separate the New York-based company's businesses, said the people, who asked not to be identified because a decision isn't final. The talks are at a late stage, one of the people said.
The potential split of the company comes as UK regulator Ofcom considers whether News Corp should be allowed to keep its 39 per cent stake in British Sky Broadcasting Group Plc. A phone- hacking scandal at the UK newspapers thwarted News Corp's plans to take full control of Britain's biggest pay-TV operator, which was led by Rupert's son James for almost a decade. Some News Corp shareholders have pushed for a breakup as a result.
"I don't think most corporate shareholders want to have exposure to UK newspaper assets," said Alex DeGroote, an London-based analyst at Panmure Gordon. "But I think Rupert Murdoch wants the assets, so there's a conflict between what shareholders want and what Rupert wants, so one way around that is de-merge them."
Shares of News Corp gained 2.4 per cent to close at A$20.79 in Sydney trading. The Nasdaq-listed Class A shares fell 1.4 per cent yesterday and have climbed 13 per cent this year.
News Corp, owner of Fox Broadcasting and Fox News, derives at least 70 per cent of its annual profit from television, and is working to expand in markets outside the US with investments in pay-TV operators.
Chief Operating Officer Chase Carey said in February that executives discussed a breakup following the UK scandal where tabloid journalists hacked into the phones of politicians and celebrities for exclusive stories. A News Corp official declined to comment.
A UK committee, after probing whether News Corp misled Parliament in the telephone-hacking scandal, concluded last month that Murdoch, 81, is "not a fit person to exercise the stewardship of a major international company." Murdoch "exhibited wilful blindness to what was going on in his companies and publications," the House of Commons Culture Committee said in a report. "This culture, we consider, permeated from the top."
'Material Influence'
Now Ofcom may force News Corp to sell or cut its stake in BSkyB. Its 39 per cent holding has a market value of 4.3 billion pounds.
Ofcom, which has said News Corp's existing holding gives it "material influence" over BSkyB, is probing whether News Corp and its directors are fit to hold a broadcasting license. The regulator, which has an ongoing duty to monitor control over broadcasters, would still take News Corp's holding into account in any separate company. Ofcom declined to comment today.
The watchdog, which started gathering evidence in April, is in talks with the police and examining civil lawsuits from hacking victims. Appearing before Parliament in July last year, Murdoch said it was the "most humble day" of his life.
Police probes into phone and computer hacking and bribery have led to more than 50 arrests, including former News of the World editors Rebekah Brooks and Andy Coulson, once the communications chief of UK Prime Minister David Cameron. News Corp closed the Sunday tabloid in July last year and later replaced it with a Sunday edition of the weekly Sun tabloid. In the UK, News Corp also owns the London-based Times and Sunday Times newspapers.
New Rules
In addition to the police probes and the parliamentary committee, hacking at News of the World prompted Prime Minister David Cameron to set up a judge-led inquiry into media ethics that has also interviewed the Murdochs and may recommend new rules for the British media.
Publishing, which also includes the New York Post and Australian newspaper, contributed about 18 per cent of News Corp's operating income in the 2011 financial year, according to data compiled by Bloomberg. Cable network programming generated 57 per cent of earnings alone.
For the nine months ended March 31, News Corp's publishing unit generated operating income of $458 million, or less than 8 per cent of its sales, according to the company's earnings report in May. The cable networks, film and television units accounted for a combined $4 billion in profit, more than 25 per cent of their $15.9 billion in revenue.
Faster Growth
"Those that want the higher growth of the broadcast business and have it able to chase new markets will pay a premium for that," said Peter Esho, the Sydney-based chief market analyst at City Index Ltd. "This is also a good way to quarantine the rest of the business from the recent issues in the UK when publishing is a small part of the business."
The Murdoch family would retain control of both companies, News Corp's Wall Street Journal reported today. The Los Angeles-based Twentieth Century Fox film and television studios, the Fox broadcast network and Fox News would form the bulk of the entertainment company, the Journal said, citing people familiar with the situation.
"There certainly is an awareness" that News Corp would trade at higher multiples if it didn't own newspapers, Carey said on a February conference call.
New Generation
Rupert Murdoch said in August that News Corp's board wants him to remain as chairman and CEO and that Carey would succeed him if he were unable to do the job. Some investors had asked the company to separate the jobs.
A separation of the newspaper business would be in the interest of many investors and some News Corp managers, said Charlie Beckett, director of the media institute Polis at the London School of Economics.
"It reflects more clearly what a new generation of News Corp would be about," he said. "Newspapers in Britain especially are a small part of their overall business, there are less convergences between the publishing bits and the big hitting entertainment."
Murdoch has been increasing his focus on faster-growing broadcast assets as falling circulation and a shift in advertising to online outlets crimps earnings from newspapers.
News Corp last week offered A$2 billion (Dh3.7 billion) for Consolidated Media Holdings Ltd to double its stake in Australia's biggest pay-television network while cutting jobs at the nation's largest newspaper business.
