Early on Tuesday morning rumours began to circulate of a possible restructuring within Rupert Murdoch's News Corp, which would see the company separate its entertainment businesses from its smaller section of publishing titles. The rumours are generally seen as credible, having been first published in the News Corp-owned Wall Street Journal. Though the company’s representatives are so far refusing to confirm or deny reports outright, BBC Business editor Robert Preston has been told by a News Corps insider that the company has “nothing to add to [the] WSJ piece”.
The idea of dividing News Corp into two separate organisations is not a new one, having first been suggested several years ago, but until now Murdoch had always rejected such a move. The media mogul seems to have a sentimental attachment to newspapers, that until the 1980s were the nucleus of News Corporation. However, the recent scandals that have engulfed Murdoch-owned titles such as the former News of the World have led shareholders to see splitting the company as an ideal way to protect the company’s film and television interests, including the Fox Broadcasting Network and British Sky Broadcasting, from the problems besieging the company’s UK newspaper titles.
Preston believes that “One potentially significant benefit is that BSkyB would be distanced from the British newspapers where the alleged lawbreaking took place - and so the risk of Ofcom stripping BSkyB of its broadcasting licence would presumably be diminished”. The Murdoch family, which owns a 40% share in News, is expected to retain overall control of both new companies.
The primary concern for News Corp as a whole will no doubt be the company’s shareholders, whose confidence in the managing directors has been shaken by the handling of the hacking scandal. Nonetheless, it would appear that the hacking scandal is only one of many factors that contributed to this re-think. Even if recent events have convinced Murdoch to change his mind on a move he has so long resisted, shareholders have long hoped to see the company’s entertainment and publishing sections separated. In May Chase Carey, News Corp’s Chief Operating Officer, revealed that dividing the company had been discussed by shareholders, but there were no plans to pursue that action at the time.
The entertainment wing of News Corp currently represents 75% of the company’s revenue and 90% of profits and is a faster growth business. According to Media consultant Theresa Wise, as things stand News Corp is valued less as a company because investor’s can’t split slow growth, the publishing businesses, from the more successful entertainment section.
News Corp’s newspaper interests are no longer simply an unprofitable facet of the company: they now have the potential to cast a shadow over the entertainment companies that are the main priority for the majority of the corporation’s shareholders. Share prices in Australia have already benefitted from the rumours this morning, rising 2.4% as the news spread. With rumours circulating that an announcement could be made within the next week, it is possible that this time Rupert Murdoch will have to bow to pressure to cut off a far more lucrative part of his media empire from his beloved newspapers.