What the New News Corp (NWSA) Adds to Your Portfolio

Major conglomerates typically split off underperforming businesses so they can receive a sharper focus from management and also allow the remaining operations to thrive without the added burden. 21st Century Fox’s separation of its publishing operations, along with some other units, is no exception. Former News Corp shareholders holding the stock of the new News Corp (NASDAQ:NWSA) may see benefits in the long run while the two initiate their respective strategies.

How it is composed – a publishing behemoth – in the U.S., Australia, and the U.K.

News Corp (NASDAQ:NWSA)’s News and Information segment will report on its financial publications, such as The Wall Street Journal and Barron’s among others, along with the digital/online editions of these papers. These operations contribute about 80% of revenues. It also operates a Digital Real Estate, Book Publishing and Other division.

News Corp (NASDAQ:NWS)

With advertising revenues from these products trending lower 10% year over year, and circulation/subscription revenues treading water, the publishing businesses required an overhaul. As a result, the company proposed last December to split or spin off the unit in order to realize “structuring efficiencies.” Management touted the transaction as a means of continuing, and lending stability to, ongoing operations. We can surmise that the move was in lieu of an outright sale of the division. Accordingly, News Corp (NASDAQ:NWSA) can maintain the same strategy, for the most part, that it had been pursuing prior to the split.

Its strategy going forward

Management states as its number one initiative for the new operation as investing in “high quality premium content.” Chairman & CEO Rupert Murdoch has already pointed out that this is unlikely to include the buyout of further newspapers, part of the reason being because of cross-ownership and possibly “duopoly” regulations that restrict the ownership of multiple publications in one market.

It is more probable that News Corp (NASDAQ:NWSA) will target digital properties like websites, mobile applications, video-on-demand services, and online video for instance. Along those lines, it plans to monetize its existing businesses by way of such platforms.

In my view, News Corp’s best opportunity to lift the value of its publishing assets may well be to boost the subscription bases of its offerings, and this is accomplished through improvement of content as well as marketing. As an independent entity, News Corp (NASDAQ:NWSA) may be better situated to invest in the content of products such as The Wall Street Journal, while growing its subscription base digitally and through enhanced customer service. In this way, it intends to replace lost advertising revenues with recurring subscription revenues, just as numerous companies have done in transitioning to the Internet.

Importantly, too, News Corp intends to distribute dividends to shareholders. Its elevated cash flows and debt-free balance sheet ought to allow its payout to be generous, though I believe the actual amount has yet to be declared.

CBS Corp as a case in point

The closest comparison to the News Corp (NASDAQ:NWSA) split was Viacom’s 2006 spin off of CBS Corporation (NYSE:CBS). In that instance, the slower-growing broadcast television assets were separated from their parent, only to flourish in later years.