Do News Corp Investors Believe Murdochian Magic Is Alive and Well?

New Corp

By separating the company formerly known as News Corp into two separate public companies, one comprising its publishing assets and the other its Fox cable network and its 20th Century Fox film studio, investors hoped the futures of both businesses would be strengthened. News Corporation (NASDAQ:NWSA), the publishing branch, will be able to devote resources toward engineering a turnaround, with the hope of dominating the smartphone market for news, entertainment, and information, while Twenty-First Century Fox (NASDAQ:FOX) will focus on creating a national sports network that will compete with Comcast’s (NASDAQ:CMCSA) ESPN.

Shares of News Corp began trading separately from the 21st Century Fox on Monday, with investors giving a tepid reception to the slower-growing publishing business, which includes The Wall Street Journal and HarperCollins. After beginning the trading period up about 2 percent, the stock fell as much as 4.04 percent to $14.96 by the afternoon. Comparatively, shares of 21st Century Fox shares began up 2.1 percent at $29.37 on Friday, giving the company a market value of about $68 billion to News Corp’s approximately $9 billion market value.

In a Monday research note seen by Reuters, Evercore Partners analyst Alan Gould said the new Fox company would be one of the fastest-growing entertainment conglomerates, giving the stock an “overweight” rating and a $34 price target. “News Corp is largely seen as ink on paper, and the perception is that the good assets, so to speak, went to Fox,” added Gabelli & Co analyst Barry Lucas.

Shareholders of the old News Corp received on share in the new publishing company for every four shares in what is now 21st Century Fox.

Rupert Murdoch, who is chairman of both companies, announced his plan to split his media empire last summer after shareholders began clamouring for the company to shed its slower-growth newspaper assets. Ongoing trouble brought by the phone-hacking scandal that involved News Corp’s British tabloid newspapers only bolstered their case, as the incident sent shares of the company tumbling in the summer of 2011 and thwarted its deal to buy the remaining portion of the pay-TV service BSkyB. In fact, the demerger is the culmination of a two-year effort to “detoxify” the News Corp brand.

Still, Murdoch spoke effusively of the prospects for the new News Corp when he met with investors in May. “I have been given an extraordinary opportunity most people never get in their lifetime: the chance to do it all over again,” he said. Similarly, the chief executive of the new News Corp, Robert Thomson, told investors in Sydney that the company would retain its “Murdochian magic,” according to the Guardian. The company would have “a permanent startup sensibility,” he added.

He said the media sector was “still at the early stage of a second great migration, from print to web from web to mobile” and the company was working to ensure its newspaper content was appealing on smartphones and other mobile devices. For investors, that goal is key; as News Corp takes its first steps as separate company, advertisers are increasingly putting their dollars in digital products and other places besides newspapers. While News Corp, like other publishers, has digital media, advertising there commands lower prices than traditional print publications.

The company is putting a great deal of resources into transforming its United Kingdom tabloid newspaper The Sun into a money-making mobile app. In August, the newspaper will begin charging customers 2 pounds a week for online access, and in order to sweeten the deal, News Corp recently secured a deal for exclusive rights to show Premier League highlights on the internet and mobile phones. Thomson said it is employing expertise from the television side of the business and The Wall Street Journal to make the product as distinctive as possible.

However, Thomson cautioned that the company’s transformation from a newspaper-centered business to a fast-growing digitial business would “take longer than a couple of quarters.”

“All investors should understand that context.” he told the Guardian. “We are also candidly and decidedly optimistic and focused … we are not here for the short term.”

Follow Meghan on Twitter @MFoley_WSCS

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