Friday the two most senior people responsible for newspapers resigned from the Murdoch Empire. These departures will not quell the outrage in Britain and potential for outrage in America. A political and legal tsunami engulfs Murdoch. There are no sacrifices left except Rupert and his son James Murdoch.
Right now they are being hunted by the British government and face serious consequences. Moreover, if a reasonable percentage of pissed off Brits stop buying the newspapers, the company loses circulation revenue and then loses more money as advertising rates are adjusted downward. Furthermore, the ad agencies will treat it as damaged goods and demand lower rates in any case,
So the financial outlook for July, 2011 through June 2012 is pretty grim for the British print holdings called News International (NI). Events of the past few weeks combine to drive down the sale price of those papers to anyone foolish enough to want to get into the newspaper business. Actually, it would be interesting to see if competitors could come up with enough money to buy the Sun and the Times not to run them, but to close them down and liquidate the physical assets. The calculation being each will increase circulation and revenue as a result of not having the Murdoch papers on the street. This is a bit of a stretch but not impossible given the severely reduced valuation for NI.
I'm betting that both Murdochs resign on the demand of shareholders who understand this is their one chance to even the score for three decades of abuse.
1. Murdoch has in essence looted the company with no real Board oversight. Examples include:
Lack of prudence on My Space-paid $500 million and sold it for $35 million. That's the kind of depreciation you can only get with a French car.
Purchase of daughter Elisabeth's production company for $615 million, considered a rather steep premium.
Bought Dow Jones/Wall Street Journal for $5.8 billion and had to write down $2 billion in value as an overpayment.
2. Looking at News Corp's essential financial data it should be a $35-to-$40 a share stock. Forget the P/E ratio that stock brokers are fond of quoting. Consider that at the moment the H/I index for the company is lousy. That's my comparison of the Hubris Factor to the Integrity Factor, which is hovering around 95/5.
3. Its dividend is 15 cents a year, a laughable return on investment.
4. The loss of 30% of share value in three months is just the beginning. Expect it to be a $10 a share stock by October.
5. Further, the shareholders, faced with revenue and image issues, may choose to sell the entire company at one go to appease Murdoch. This way, in my opinion, is because it won't look like quite the sidewalk tag sale that it is. It would be favored by shareholders who don't want to pay investment bankers and lawyers any more money than absolutely necessary.
My theory is that an unholy alliance of, say, Time Warner and Bloomberg, would go into this sort of a deal. Keep in mind that the Comcast deal makes owning over the air channels by a cable company a no brainer, and TW is no longer a cable company per se, having spun off TW Cable.
Time Warner takes the 27 owned and operated TV stations in America, still worth money, especially because of retransmission fees.
Time Warner takes the cable networks that Fox owns in regional and national sports. It finds useful the deals that have Fox managing National GEO channels and some other pay TV properties abroad.
Warner Brothers merges 20th Century into Warner Brothers, creating the largest studio operation in the world.
This also provides their Turner division channels with a new library of movies and TV content at a discounted price.
OK, so where is the Fox News Channel’s fate in all of this?
Now the coup de grace is that Bloomberg takes over Fox News and merges it into Bloomberg News, gaining more distribution nationally and globally. But much more importantly for Time Warner it gets Fox News out of the way of CNN, allowing CNN to gain some viewers and further raise its advertising rates. The Fox Business News channel is replaced by what had been the business-oriented Bloomberg News channel.
What Bloomberg also gets is the financial data business of Dow Jones, picking up an entirely new group of terminal users whom it didn't have. It loses some too, because clients who took both drop Dow Jones. Net net Bloomberg gains. Bloomberg was characterized by Dow Jones back in the late 1980's as an amateur, so payback is a bitch.
Time Warner takes over Star Asia (China, India et al) and sells 49% of it to investors happy to get into the deal as those two countries have fantastic growth curves for pay television. The outside investment returns all the value of Star and then some.
This combine then sells the stake in BSky back to BSky or other investors for a healthy price. The advantage to selling it direct to BSky is that they defer a small part of the cash and instead take a most favored nation approach to having their products distributed on BSky for the next 25 years.
The British newspapers are disposed of no matter what the return. The loss is written down against taxes or some other financial device to negate the loss.
What the hell is left?
Mort Zuckerman buys the Post to close it.
The Australian holdings get gobbled up by the likes of Packer and other Mining and Banking interests in that nation.
That's my prediction. Sort of reminds one of the Europeans sitting around a table divvying up Africa in the mid-19th Century. In this case the deal pays for itself in the dismemberment.
This is how an Empire dies.
If the Murdochs can stay out of jail they fade away, rich and angry. James could end up like Edgar Bronfman, investing here and there, losing a bundle most of the time, but remaining, in his own head, a player.
Lets see how it works out. My thinking is that there have to be a few people at TW and Bloomberg smart enough to look at it this way if I can see it.
Oh, and one more thing, Roger Ailes will be out of work along with a team of propaganda presenters.