How Should Investors Play the News Corp (NWS) Split?

Last quarter, News Corp (NASDAQ:NWS)’s publishing segment’s operating income plunged from $130 million to $85 million, while its revenue slid 4.1%. By comparison, The New York Times Company (NYSE:NYT) reported a 93% plunge in profit last quarter, while its top line declined 2%. The Washington Post’s profit also fell 85% on a 4% decline in revenue. Both of these former publishing titans face the same problem that will confound new News Corp. shareholders – how can traditional newspapers remain relevant and profitable in the age of the Internet and freely distributed information?

Both companies have offered up similar plans for “paywalls” to force readers to pay for premium content, but the plans are yet unproven. Both The New York Times Company (NYSE:NYT) and The The Washington Post Company (NYSE:WPO) recently touted growth in their digital circulation, but let’s examine these numbers realistically through the lens of 21st century technology.




Daily Digital Circulation





Y-O-Y Growth





The New York Times





676,000




49%




The Boston Globe (The New York Times)




32,000



50%




The Washington Post




1,097,500




41%


Source: Quarterly reports

That year-on-year growth looks good, until you realize that, which is considered a primary source of Internet news, boasts nearly 35 million
unique visitors daily. This is dire news for shareholders of the new News Corp., which already posted similar top and bottom line declines last quarter.

Yet that doesn’t mean that it will be clear skies ahead for 21st Century Fox. Although all of Fox’s main media segments, except for its TV stations, reported robust double-digit growth last quarter, the film and television business is an unpredictable one.

Last quarter, Fox’s film entertainment segment’s 17% revenue growth far exceeded film studio revenue growth at both Time Warner (5.0%) and The Walt Disney Company (NYSE:DIS) (13%). However, Fox’s film business is still smaller than either Time Warner Inc (NYSE:TWX)’s Warner Bros. division or Walt The Walt Disney Company (NYSE:DIS)’s Studio division. Fox also owns fewer high-profile franchises than its rivals. Both Warner Bros. and Disney have been able to cash in heavily on the recent comic book movie craze, with their respective DC Comics and Marvel divisions.

Fox’s animation studio, which created Ice Age, also faces stiff competition from The Walt Disney Company (NYSE:DIS)’s Pixar, and Warner Bros. Animation division. However, last quarter Fox reported that strong box office sales of Life of Pi, Taken 2 and Ice Age: Continental Drift
all boosted the segment’s operating income by 2%, indicating that the threat of competition might be overblown.

In the cable networks business, Fox also reported stronger revenue growth (17%) than either The Walt Disney Company (NYSE:DIS)’s 6% gain at its media segment (ESPN, ABC), and 4% growth at Time Warner Inc (NYSE:TWX)’s cable networks (Turner Broadcasting, HBO). This clearly indicates that Fox’s cable networks are still in a younger growth stage than its primary competitors, which will be amplified by its strong position in satellite TV.

Lastly, Fox intends to grow its position in regional sports television, through its recent acquisitions and investments in Sports Time Ohio, Yankees Entertainment and Sports Network. This will solidify Fox’s position against The Walt Disney Company (NYSE:DIS)’s ESPN, which has a broader national focus. Fox also bought out the remaining 50% of its ESPN Star Sports joint venture with Disney, re-branding the network as Fox Star Sports Asia, which will lead into its launch of Fox Sports Japan. This dedicated focus on regional and international sports network expansion shows that it is eager to replicate Disney’s success with ESPN.

The Foolish Bottom Line

After all is said and done, it’s obvious which company investors should flock to – 21st Century Fox. By leaving its troubled print media business behind, 21st Century Fox has a chance to grow and flourish as an unchained rival to Time Warner, Disney, Comcast Corporation (NASDAQ:CMCSA), CBS Corporation (NYSE:CBS) and Viacom, Inc. (NASDAQ:VIAB). Meanwhile, shareholders of the new News Corp. should brace for slower growth and possible future litigation from its sensational tabloid news practices. Therefore, current shareholders would be wise to sell shares of the old News Corp. – which will simply become the new one – to purchase more shares of the newly formed 21st Century Fox instead.

The article How Should Investors Play the News Corp. Split? originally appeared on Fool.com is written by Leo Sun.

Leo Sun owns shares of Walt Disney. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Leo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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