News Corp's publishing unit gets more cash
The cash flows are still positive, but the challenge is to counter the secular decline in the publishing industry and revive sales.
We estimate the value of News Corp's publishing business is close to $4.3 billion, taking into account the total net debt that News Corp has and distributing it in proportion of its individual business segments. The company had very little net debt when it reported its results last quarter.
This implies that with $2.6 billion cash infusion, the valuation of News Corp's publishing business could bump up to $7 billion. The publishing business suffered significant losses last fiscal year, primarily due to the write-down of assets. The cash flows are still positive, but the challenge is to counter the secular decline in the publishing industry and revive sales.
With this cash infusion, the publishing company will be little more than one-tenth the size of the remaining video-content focused entity. This includes News Corp's several newspapers in the U.S., the U.K. and Australia, as well as its magazine publishing business.
The phone hacking scandal had a severe impact on News Corp's publishing business in the U.K., as well as its image worldwide. Its financial impact on the company's market value was a lot more than that could be justified by its fundamentals. As a result, News Corp decided to separate its TV and movie businesses from the publishing scandal, and redefine its image -- while keeping bad publicity to a separate unit. This way, it can dilute any further impact on the value of its remaining businesses.
Furthermore, unlike its movie and TV networks businesses, the publishing business has not shown much strength and perhaps would be better managed as a separate entity. The publishing business is facing a secular decline, as print media is being replaced by digital media, which has yet to be monetized to the same extent as print. A lot of digital content is available for free while print content has been traditionally distributed based on subscriptions or individual purchases.
Our price estimate for News Corp stands at $30, roughly in line with the market price.
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John Stumpf acknowledges that growth has been slow, but he says he's still optimistic.
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