News Corp split signals big changes for Murdoch papers

If Rupert Murdoch goes ahead and cuts his newspapers adrift from the hugely profitable movie and cable-TV business at News Corp, there will be big changes, which will put yet more pressure on journalists and journalism.

The movie studios and global pay-TV empire currently make about 90% of News Corp’s US$5 billion annual profit, and their money has been available to fund Rupert’s favourite newspapers like The Times in London, the New York Post, and our own national paper The Australian.

If the two parts of the News Corp business are separated into two companies with different shareholders and separate listings, it will be absolutely impossible to continue that cross-subsidy. And the newspapers, which make very little money on aggregate, will have to cut their cloth accordingly.

As Murdoch’s biographer Michael Wolff writes in the UK Guardian today, it is unthinkable that there won’t have to be some pretty savage cuts as a result, and it is likely that some of the biggest loss-makers will have to be sold off.

Or as one News Ltd source told The Power Index this morning: “There’s only one man in the whole world who thinks it’s a good idea to run The Times, the New York Post and The Australian at a massive loss, and that’s Rupert. If he fell under a bus, do you really think News Corp would still own these papers in two years time?”

Michael Wolff claims that The Times, the New York Post and the Wall Street Journal are all making big losses, and puts the total at US$250 million between them. Closer to home, The Australian has hardly ever made a profit in its 48-year life, and would have to undergo radical surgery if it were to pay its way. Kim Williams is on record as saying it needs to do that, so it was already facing cuts, but they will become more urgent.

So did Williams know this split was coming? It seems not. The word in Holt Street is he was summoned to New York over the weekend by Rupert. And the hacks are speculating that he was called there to be given the news.

We’d love to be a fly on the wall in that conversation. How disappointed would Williams be, having crafted his big restructure, to be told he’ll have to go back to the drawing board.

On the other hand, if Williams knew this was in the wind, it might explain why he was so reluctant to put a number on the jobs that could go when News Ltd, like Fairfax, moves to an 18hr-a-day newsroom, digital-first newsroom.

But either way, those numbers are likely to look a lot larger than they did a week ago.

Worldwide, News Corp’s publishing division, which includes books and newspapers, does still make an annual profit of about US$500 to $US600 million, so it’s not exactly on its uppers, but profits are heading down, as you would expect, and the now defunct News of the World was a big contributor.

So if these are the consequences for the business he loves, why on earth is Rupert Murdoch doing this? Two reasons are offered. First is that it may give News a better chance of dodging a bullet from the British media regulator, Ofcom, which is about to rule on whether News and the Murdochs are “fit and proper” persons to run BSkyB (most experts suggest it won’t work).

Second is that Rupert has been forced into it by pressure from shareholders and his executives at News Corp in America, who have long wanted him to cut the papers adrift.

Certainly, the News Corp share price has risen on the news, adding about 9% at one point. But whatever the reasons, it looks like a defeat for the old tycoon. And it looks like being another bad day for journalists and journalism.

However, we do know of someone who might like to buy The Australian. Lachlan Murdoch knows her too. In fact, she’s one of his fellow shareholders and directors at Network Ten. Yes, Gina Rinehart. Come on madam, now is your chance.

This article first appeared on The Power Index.