James Murdoch, Without Newspaper Ink Flowing In His Veins, Brings A New Reality To News Corp – Bye Bye Thelondonpaper

Philip M. Stone September 1, 2009 Follow on Twitter

The announcement that News International capitulated in its free newspaper war in London with Associated Newspapers, saying it could no longer stomach the annual £13 million loss at its Thelondonpaper and was shutting it down, should have sent shockwaves throughout the Murdoch non-US newspaper empire – not that those newspapers would be shut down too but their financial performance will be overviewed more than ever by the younger generation Murdoch who has no news ink flowing in his veins and is interested really in just one thing – the bottom line.

And if anyone is in any doubt to the thinking of James Murdoch– he runs the News Corp. European and Asian business -- just read the last line of his speech to media executives last week at the annual MacTaggart Lecture in Edinburgh, “The only reliable, durable, and perpetual guarantor of independence is profit.”

Thelondonpaper’s closing shows a new reality has entered into News Corp’s newspaper business. Rupert Murdoch’s old ways of nurturing newspapers over time until they drive profits is over. For Rupert, now near 78, newspapers were a true love to be treasured – that was the ink is in his veins and he remembers only too well that newspapers started his empire – but to 37-year-old James there is no such newspaper love. He was brought up on the broadcast side of the business and while recognizing the historical importance of newspapers to News Corp his accountant’s mind knows full well the quicksand now involved there.

Not to be too coy, the News Corp reality is that a £13 million annual loss  by a newspaper is little more than petty cash to a company said to have some $6 billion in cash sitting in the bank, so it was not that Thelondonpaper was bleeding News Corp to death. But no doubt James told his father that if you’re going to run a business as a business then the company has no business continuing that type of loss with no real prognosis on when the newspaper could turn a profit, especially in these recessionary times.

It’s doubtful that James would have closed Thelondonpaper without Rupert’s ok – how much persuasion that took we will never know – but the fact Rupert acquiesced brings new reality to the way News Corp is run. James really is the boss in Europe and Asia and while Dad may have the absolute final word it’s unlikely he will go against his son’s sound business practice.

As this column has said several times in the past, the Bancroft family – owners until 2007 of Dow Jones including the Wall Street Journal, should be on their knees every night thanking God for sending Rupert Murdoch their way. There was a reason why no one else matched his $5.2 billion bid for Dow Jones – no one could see how to make money at that price – but making money then wasn’t the most important thing to Rupert. He wanted the Wall Street Journal, he knew he had to pay top dollar to get it, and he did. Since he owned a large chunk of News Corp and the company was doing ok no one was really going to tell him what he already knew -- that financially he was paying too much.

Since then, of course, reality has set in. Last year the company wrote down Dow Jones’ goodwill and intangible assets by $2.8 billion (an admission he paid around 50% too much?)  and in today’s newspaper world the unit may still be well overvalued. To try and claw back some of that money News Corp is now said to be considering selling its stock-index business.  That could possibly be worth up to $1 billion – after all, for those financial information companies really into branding like Bloomberg and ThomsonReuters what would it be worth to no longer have the Dow Jones Industrial Averages but rather the Bloomberg Industrial Averages or the ThomsonReuters Industrial  Averages. Hard to put a value on that kind of daily global brand recognition in the financial world.

The one thing the Dow Jones people can be relieved about is that James, as yet, doesn’t have sway over the US business. If he did no telling what knife he would take to the WSJ or to the New York Post.

As it is James still has his hands full in London because The Times continues to lose money – far more than Thelondonpaper was losing --  and does good business practice allow for its stable mate, The Sunday Times that makes oodles of money, to support the losses of the daily product? Of course, the main protection for The Times is the very fact it is The Times – there is too much history there and there is no way Rupert will go down in history as the man who allowed the end to such an internationally revered paper. Reducing its size from broadsheet to compact a few years back was a move he took only when The Independent had completed such a move to generally favorable reviews, and he said then that the Times’ history would not have allowed that it be the first UK broadsheet to have gone compact. For around a year Murdoch had printed the paper in both broadsheet and tabloid size and that could not have done the accounts any good.

His two national tabloids, The Sun and The News of The World, are still goldmines, but their circulations are down, their advertising is down, and promotion costs are up, so it’s tough there, too.

The new financial reality hitting News Corp is predicated on its $3.4 billion loss in its last fiscal year that ended June 30. Even Rupert felt that in his own pocket – his total remuneration fell by 37% -- but don’t shed too many tears for he still took home $20 million.

But those kinds of hits can drive new financial realities into a company, and James is poised to ensure there are no laggards on his patch. You only have to read the company’s section on its newspaper business in reporting its full year earnings to recognize something has to give.

“The Newspapers and Information Services segment reported fourth quarter adjusted operating income of $96 million, a decrease of $167 million compared with the same period a year ago, and full year adjusted operating income of $466 million, a $320 million decrease versus fiscal 2008. The adjusted operating results primarily reflect lower advertising revenues and the strengthening of the U.S. dollar against the Australian dollar.

“The U.K. newspaper group reported lower fourth quarter operating income contributions due to 18% lower advertising revenues in local currency terms, as well as higher marketing and production costs. For the full year, operating income contributions were below those of a year ago as reduced depreciation expense on printing presses that were decommissioned during fiscal 2008 was more than offset by 14% lower advertising revenues in local currency terms and higher marketing and production costs.

“The Australian newspaper group reported fourth quarter and full year operating income decreases primarily due to 18% and 10% declines in advertising revenue in local currency terms for the quarter and year, respectively, reflecting lower display and classified advertising, especially in the employment and real estate sectors.

“Dow Jones & Company’s fourth quarter operating results declined from the same period a year ago, due to lower advertising revenue at The Wall Street Journal and lower information services revenue that more than offset reduced operating expenses and increased circulation revenues, which were driven by price increases at The Wall Street Journal.”

In other words, newspaper ink in the veins is not enough to whether the storm.  There are those who will say the closure of Thelondonpaper has more to do with the free newspaper model being in trouble and there is truth to that with Rupert now saying the only news he is really interested in these days is news that people pay for, but the fact is in the old News Corp Thelondonpaper would have been given the time it needed to find its feet, let alone embarrassingly capitulate in a newspaper war with an arch rival like Associated Newspapers.

That Thelondonpaper’s legs were cut out from under it shows new financial realities have reached even into News Corp. newspaper business, and who really expected that?

See also in ftm Knowledge

Rupert Murdoch and News Corporation

News Corporation has a global, multi-media footprint. Whether on paywalls or pay-TV Rupert Murdoch has the ear of the media industry. Update includes Sky Europe ups and downs, competing with Google to Berlusconi. 144 pages PDF (July 2010)

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