ANALYSIS - News Corp taking a careful look at its structure

Chris Pash
By Chris Pash | 14 November 2023
Credit: Jeriden Villegas via Unsplash.

News Corp, seeing itself as undervalued by the market and increasingly less reliant on advertising, has launched a review of its structure.

Please appreciate the “full glory of our valuable assets,” says CEO Robert Thomson.

Details are few but there was mention of “structure” in the media group’s better than expected September quarter results announcement.

“Our quest is to maximise value for all investors, so we are assiduously reviewing our structure,” said Thomson.

Analysts see possibilities, including the value of Dow Jones, the owner of the Wall Street Journal and professional information services, and News’ 61% holding in home classifieds business REA in Australia.

“Management is far from content and is more vocal than ever that investors are underappreciating the structural metamorphosis News Corp has undergone in recent years,” writes Brian Han, director at Morningstar, in a note to clients.

“However, until management's ‘constant institutional introspection’ of its conglomerate structure manifest in some concrete action, we see a limited avenue to increase our intrinsic assessment of News Corp.

“The board and management have forever alluded to simplifying the group and making its businesses (and hence their value) more transparent, ever since it was split off from Twenty-First Century Fox more than a decade ago.

Morgan Stanley analysts, agreeing that the market underestimates the REA investment, have News as their “top pick” in traditional media coverage.

“Management reiterates it is working to continue simplification - whilst no new announcements ... we see various efforts to improve visibility and unlock value,” the analysts say.

Macquarie analysts were “generally surprised to the upside, with ad markets across most parts of the world not as soft as anticipated”.

However, they note that News is “cautious” on this front.

News, like the rest of the media sector, has seen economic uncertainty drag at the advertising market.

Thomson told analysts the company’s news media segment, containing the traditional mastheads of the media group, faced macroeconomic headwinds and volatility caused by algorithmic changes at the large platforms.

However, he says subscriptions continued to increase. At News Corp Australia, digital subscriptions were up almost 4% to 1,049,000.

“We are increasingly less reliant on advertising, which is now a smaller fraction of our overall revenue and focused on digital recurring revenue streams,” he says.

News gets around 14% of its revenue from advertising. In 2019, it was 25%.

Thomson foreshadowed changes. “Teams in the UK and Australia are also acutely cost conscious and we are retooling the infrastructure to reflect the contemporary and future initiatives including printing operations, advertising networks, and back office expenses,” he says.

Later when briefing market analysts, Thomson said News Corp was in a different position to most media companies.

“With a robust balance sheet and poised for even greater growth and profitability in the coming years when the economic heavens return to equilibrium,” he told them.

“But at the same time, we are consciously and constantly reviewing our structure and have already taken tangible steps to clarify internal corporate structures to ensure that we have maximum flexibility in that overall structural consideration.”

Craig Huber, from Huber research: “It's nice to hear that you guys are reviewing your structure. The company is very complicated for an investor.”

A case in point is Dow Jones, the owner of the Wall Street Journal, which now gets more revenue from business to business than from consumers.

Thomson describes Dow Jones as “increasingly valuable, peerless” where revenues rose despite the volatility of the ad market.

“Dow Jones offers a unique set of services and products for global business users and readers,” he says.

“As a result, many of our customers encounter Dow Jones products several times each day, not just the Wall Street Journal. Barron's, MarketWatch and Dow Jones Newswires, but also risk and compliance, Dow Jones energy and Factiva.”

Revenue at Dow Jones professional information business was up 14% and helped to underpin the highest first quarter profit margins since News Corp’s acquisition of that business in 2007.

Overall, Dow Jones delivered 4% growth to $US537 million in the September quarter. The B2B services include Risk & Compliance, an anti-money laundering product, Dow Jones Energy and Factiva.

Risk and Compliance revenue surged 23% thanks to increased demand from the financial and corporate sectors seeking to minimise risk and maximise compliance.

Digital at Dow Jones in the quarter represented 81% of total revenue. Advertising revenue fell 3%.

“We expect both Dow Jones and News Corp are becoming more profitable, more digital and even less dependent on the ebb and flow of advertising,” Thomson told the analysts.

“That is why we are highlighting the Dow Jones results today and expect to be providing increasing visibility over the coming year so that potential investors can appreciate the full glory of our valuable assets, while we intensify institutional introspection on structure.

“As a reminder, Dow Jones profitability has more than doubled since we re-segmented in fiscal 2020, generating close to $500 million in segment EBITDA last year.”

Thomson agrees with the views of some analysts who suggest that News is undervalued and its asset quality underappreciated.

“Our leaders and our teams deserve much credit for skillfully navigating the turbulent media waters of the past decade .. waters which have proven treacherous for many media companies.”

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