Bloomberg News

News Corp. Publishing Business Lost $2.1 Billion

December 21, 2012

News Corp. (NWSA:US)’s publishing business, poised to spin off into a separate company next year, reported a net loss of $2.1 billion in fiscal 2012 because of restructuring, falling sales and the costs of a U.K. scandal.

The business swung to a loss in the period after a profit of $678 million in 2011, News Corp. said today in a filing. The company, controlled by Rupert Murdoch, is breaking off the division from its entertainment operations, which will be called the Fox Group. Publishing revenue fell to $8.65 billion in the year ended June 30, from $9.1 billion in 2011.

News Corp., bowing to pressure from shareholders, agreed in June to split its slower-growing publishing assets from the more valuable Fox television and film businesses. The latest numbers spotlight the challenges facing Robert Thomson, who will become chief executive officer of the new company after serving as managing editor of the Wall Street Journal.

“This financial result illustrates part of the reason why it’s a good idea to split up the company,” said David Bank, a media analyst at RBC Capital Markets LLC in New York.

Shares of News Corp. fell 1.9 percent to $24.95 at the close in New York. The stock has climbed 40 percent this year.

In his new role, Thomson faces a lingering hacking scandal, which has weighed on earnings. News Corp. closed its News of the World newspaper in July 2011 in response to public anger over revelations that journalists accessed messages on a murdered schoolgirl’s mobile phone. The investigation spawned parallel probes of computer hacking and bribery and led to the arrests of more than 80 people, including the unit’s former head of security and its top lawyer.

Earnings Effect

The publishing division recorded $782 million in earnings before interest, taxes, depreciation and amortization for the year ending in June, a decline of 36 percent from a year earlier. News Corp. spent $224 million in legal fees due to the scandal and recorded $151 million in restructuring, mostly stemming from the closure of News of the World.

Assuming the New York-based company doesn’t face significant further costs from the hacking incident, the publishing spinoff could maintain flat to slightly rising Ebitda in the coming year, said Brett Harriss, a media analyst at Gabelli & Co. in Rye, New York.

“They’ll still be cash-flow positive,” he said in an interview. “And it’s not a surprise how much they lost from hacking.”

Nathaniel Brown, a spokesman for News Corp., declined to comment on the hacking costs.

Losses Continue

The publishing business posted an additional loss of $92 million in the three months ended Sept. 30, compared with net income of $38 million a year earlier. The company had impairment and restructuring expenses of $2.76 billion last year and $115 million in the most recent quarter.

News Corp. plans to complete the breakup by the middle of next year, though Thomson will begin working as incoming CEO on Jan. 1. The 51-year-old stands to make as much as $4 million in the new job, with $2 million in salary and the remainder coming from incentives.

The publishing spinoff will include the Wall Street Journal, the Times newspaper in London, the HarperCollins book division, education and marketing assets, and the Australian TV business. Murdoch will remain CEO of the Fox side, and chairman of both businesses.

Separately, the Wall Street Journal announced the appointments of Alex Martin as page one editor and Mike Allen as global enterprise editor in an internal memo. The moves come as Gerard Baker takes over as the paper’s managing editor from Thomson.

To contact the reporters on this story: Edmund Lee in New York at elee310@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net


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