Record Operating Profit At News Corp., But Dig Deep Into The Results And At Newspapers, the Company's Traditional Foundation, Operating Income Was Down 30%

Philip M. Stone August 10, 2006

Its news release headline put it best: “News Corporation Reports Record Full Year Operating Profit of $3.9 billion – Growth of 9% over Fiscal 2005”, but dig into the numbers and it’s obvious that newspapers are now just a small part of the empire, and their performance is worsening.

The good news came from it cable network programming, television, movies, even Sky Italia showed an operating profit for the first time, but newspapers were down 30% for various reasons – loss of revenue from sold properties (TSL Education), increased costs for the UK printing plant project  (a £600 million investment), but at the end of the day it admits to “weakness in the overall advertising market.” Without the print plant charges, newspaper income still would have dropped 11%

Companies naturally want to tell their shareholders all the good news before they tell the bad news, and so the order of segment results itself tells the story on News Corp. today. The results begin with filmed entertainment, followed by television, cable network programming, direct broadcast satellite television, magazine and inserts, and then newspapers (at least there was an operating profit) which is why it wasn’t bottom of the pile – that privilege fell to book publisher HarperCollins that reported a fourth quarter loss of $6 million, down $18 million from a year ago, and even though there was a record full year operating income of $167 million it still showed a loss.

The newspaper results are split between the Australian and UK operations. In Australia, higher production and editorial costs together with “a weaker advertising market” resulted in a poor fourth quarter although total annual revenue was up because of the inclusion of the Queensland Press Group that was acquired in November, 2004.

In the UK the one bright spot was increased circulation revenue from higher cover prices across all titles – remember it was Murdoch long ago that started the price-cut war that destroyed most Fleet Street financials for many years – but now higher cover prices are its salvation, especially at the Sun and The Sunday Times.  

FTM has written extensively about the weak UK advertising market and these News Corp results merely reinforce the view that there is a fundamental change in the UK market – marketing executives are flocking to non-traditional advertising venues that can show interactivity, measurability and video. That’s as good a reason as any for Times Newspapers actually changing its name to Times Media – it’s now a multimedia platform rather than just newspapers and it wants to get that message across to advertisers. The company has appointed an executive to oversee newspaper Internet marketing opportunities.

Perhaps because newspapers are the traditional foundation of the company, Murdoch is showing no sign on giving up on a product segment that obviously lags behind his American move studio and television activities where the real money is. And that will become no clearer than in London next month when News International gets into the free newspaper business, going for the PM market now solely owned by The Evening Standard.

The Standard has had its share of circulation problems over the past years, let alone an advertising downturn. The company has tried to counter by producing its own free PM newspaper, Lite Standard, available from 1130-2:30 p.m. that acts as a 48-page teaser to the full 80-page Standard. Lite Standard has done well, but the full Standard has not really improved its numbers, staying under 300,000 circulation.

So now Murdoch is going for the jugular. Associated Newspapers, owner of the Metro franchise in the UK (as well as the Evening Standard), has had great success in London since 1999 distributing the free Metro at underground (subway) and railway stations. The mayor of London, however, who does not have a good relationship with Associated Newspapers, twisted arms at  Metro to allow its boxes to be used for a competitive PM newspaper, and the result of bids for that business are expected later this month.

But Murdoch has decided not to wait -- he is starting up thelondonpaper, handed out by 700 distributors, and looking for a circulation of some 400,000 – 100,000 more than the Standard – with a September 18 launch date.

It’s aimed at the young upscale reader on the way home from around 4:30 to 7:30 p.m. According to News International the Standard sells only around 100,000 copies in that time period, and it believes the free product, which will not concentrate on hard news as the Standard does, will do much better.

Associated has not said what it will do to compete, but the trade press is speculating that it will launch its own free PM newspaper, to be called London Lite. Other options could be that Lite Standard will expand its giveaway time or even the full Standard itself will become free, or at least cuts its 40p cover price down to 10p- 20p (whenever it has done that on a promotional basis its circulation increases considerably).

Some agency people who have seen a mockup of the new 48-page all color thelondonpaper said it is impressive.

What is for certain is that both sides have deep pockets, and both have been ruthless in the past – Murdoch with his AM price war and Associated 17 years ago protecting its PM franchise from Robert Maxwell who launched the London Daily News. Associated  retaliated by reviving the  long-dead Evening News, pricing it below competitors and within six months Maxwell’s new publication had folded, and so went the Evening News, too.  

Murdoch’s  launch will bring to four the number of free newspapers available to Londoners (five if Associated does also launch a free newspaper). Besides Metro and the Lite Standard, CityAM is distributed to employees in the financial world – back office rather than boardroom -- and it is near a 100,000 distribution since its launch almost a year ago.

London is already one of the world’s most competitive AM newspaper markets with 10 national newspapers, but the PM market has for many years been left   just to the Standard, except for Maxwell’s short-lived attempt (how many FTM readers can remember, like the author, when the London PM market thrived with the likes of the tabloid Star that merged with the broadsheet Evening News in 1960 which in turn incorporated into the tabloid Evening Standard in 1980 – look at the Standard masthead and you’ll still see the Evening News still named in small type.)

Now, after all these years, it appears that PM market is becoming competitive again. About time, too.

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