News Corp Racing Toward Activist-Led Split Up
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Activists demand a say
The pressure is starting to increase for News Corp, which owns a multitude of media assets including Dow Jones. According to The Wall Street Journal:
Starboard Value has built a stake in News Corp and the activist shareholder plans to push for strategic and governance changes at the Wall Street Journal parent.
…
Starboard values News Corp’s entire portfolio at over $20 billion, including about $8 billion for REA.
News Corp’s Class A shares are up roughly 14% so far this year, bringing its market capitalization to about $12 billion.
Starboard argues that News Corp’s Dow Jones business, the publisher of the Journal, Barron’s and MarketWatch, is worth more than $7 billion given the multiple of earnings that the New York Times’s parent trades at.
If you take Starboard’s analysis seriously, Dow Jones and REA are worth a collective $15 billion. What’s the book publishing division worth? It also has subscription video services and various other newspapers in the United States, the United Kingdom, and Australia. How much are they all worth? And yet, News Corp itself is trading at under $13 billion. That’s a serious delta.
These numbers are a little lofty. Last year, Irenic Capital, another activist investor, made a push for News Corp to be split up. According to a late 2022 story on Axios:
Irenic believes News Corp would be valued higher if its digital real estate practice, which includes a large digital real estate listings business in Australia, was separated from its media business.
Irenic believes that News Corp should be trading at roughly $34 per share, compared to the roughly $15.60 share price it trades at today.
News Corp owns a 61.4% stake in Australia’s REA Group, which is valued at roughly $5.7 billion.
News Corp reported FY 2023 earnings in August and revenue was down 5% year-over-year with total segment EBITDA for the full year down to $1.42 billion, a 15% decrease.
But while the numbers are down from last year and the company is likely not worth as much as Starboard says, News Corp is still worth more than what it’s trading for today. The simple reality is, News Corp owns some unbelievable assets that carry strong value.
And yet, it can’t unlock that value because the company is dealing with two issues. First, it is a conglomerate, and so it’s hard to value the different assets. Is a Dow Jones dollar equal to a HarperCollins dollar? Uncertainty tied to this can make investors balk. The other problem is that the Murdoch family’s trusts control nearly 40% of the company. From a governance perspective, this gives investors very little wiggle room.
This governance issue is another area that Starboard has advocated changing. Why should the Murdochs exhibit such control if their financial position is not equal to those voting rights? And since they own such a large stake, it minimizes activist investor’s ability to force change. However, while it is a large stake, it is not a majority one. And while I am not an expert on how activist investors can force change, at the end of the day, you only have to convince 51% of the vote to act.
At some point, investors are going to want to arbitrage the delta between what the individual assets are worth and what the company is trading for. And with Rupert Murdoch stepping back from day-to-day operations, maybe that time is now. Could we be slowly approaching the end of News Corp as a single entity?
Does The Information need ads?
There was an interesting story in Adweek last week about staff changes at The Information. And one part jumped out to me:
…not an indication that The Information plans to broaden its advertising business, according to an executive familiar with the hiring. Rather, the publisher hopes to more meaningfully grow the brand partnership business.
However, the strict paywall and relatively niche readership of the publisher can present challenges to growing a material advertising business.
“To be a successful media business today, you have to have everything,” said the executive. “You need subscriptions, but you also need ads.”
There’s a two-part question to this quote.
First, does The Information need ads? As much as I am a huge advocate for diversification, I would actually argue that The Information doesn’t need ads. In many respects, it is already diversified. It hosts in-person events. Next week, it has its WTF Summit, which I suspect, just based on the speakers in attendance, is a good product for the company.
And so, if we look at events, newsletter sponsorships, and some low-impact on-site sponsorships, the company is already diversified and therefore doesn’t need ads.
Second, how could The Information introduce ads if it really wanted to? The second paragraph in the quote is partially correct in that the publisher has a very strict paywall. That can limit the ability to monetize the site with standard display. However, I find this argument incredibly lacking in creativity and is indicative of media executives that are obsessed with selling scale and boxes on a screen.
The niche readership is, in and of itself, its power and The Information could introduce traditional b2b marketing services products. In August 2022, Vanity Fair reported:
In the absence of cold, hard numbers, Lessin said revenues are up 35% year-over-year and that The Information has more than 360,000 “active readers,” meaning only a certain slice of them are paying readers. (Others get free newsletters and comped articles and such.)
I have no idea what the breakdown is between paid and unpaid, but if we assume that it has a 10-15% conversion rate, we’d be looking at anywhere from 36,000 to 54,000. Again, that could be totally wrong and the number could be higher; however, that would mean that 306,000 “active readers” don’t pay a dime.
These people need to be broken up into tighter audience segments, either by industry or job function. For example, venture capitalists could be one segment. Or software tech CEOs vs. hardware tech CEOs. Each of these segments might have unique advertisers that want to get in front of them.
The Information could then introduce more custom content, dedicated sends, and other targeted promotion to these people for sponsors. It’s not traditional advertising; however, it would unlock a legitimately new revenue stream for the business.
Ultimately, The Information’s power as an ad business will not be in its scale, but in its theoretically high quality audience. So long as the data backs that up, it’ll be able to generate a good secondary source of revenue from marketing services. It doesn’t need massive scale to achieve that. 360,000 active readers is more than enough.
Thanks for reading today’s AMO. If you have thoughts, hit reply or become an AMO Pro member for an invitation to the private AMO Slack. I hope you have a great week and see you on Tuesday.
