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News Corp.'s split, executive moves raise questions

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Even before News Corp. officially announced late last month its plan to split into two publicly traded companies, industry observers were speculating about what such a move would mean for News Corp.'s Dow Jones & Co., which publishes The Wall Street Journal. “We recognize that over the years, News Corp.'s broad collection of assets have become increasingly complex,” said Rupert Murdoch, chairman-CEO of News Corp., in a statement. “We determined that creating this new structure would simplify operations and greater align strategic priorities, enabling each company to better deliver on our commitments to consumers across the globe.” Sometime in the next 12 months, News Corp. will divide itself into a media and entertainment company, comprising such businesses as Fox News Channel and Twentieth Century Fox, and a publishing company, consisting of Dow Jones, HarperCollins, the London Times, New York Post and other newspapers. Industry observers speculated that News Corp. is making the move for two main reasons. First, the media and entertainment business is growing faster than News Corp.'s newspaper businesses, which are maintaining their profits by cutting costs, according to Ken Doctor, news industry analyst for Outsell Inc. Second, News Corp. may be looking to inoculate the media and entertainment side of its business against the newspaper side, which has been plagued by the lingering cell phone-hacking scandal. In part because of the scandal, News Corp. withdrew its bid to expand its ownership stake in BSkyB, a British satellite TV company. Dave Novosel, senior analyst at Gimme Credit, wrote in a report, “We think that the split of the newspaper operations puts News Corp. in a better position to make another bid for BSkyB [because] the phone-hacking scandal originated in the newspaper unit, and Ofcom [the U.K. communications regulator] may look more favorably on the remaining entity.” For the b-to-b media and marketing world, however, the focus is not on News Corp.'s overarching strategy but on what the parent company's split means for Dow Jones and its key brand, the Journal. Even before the official announcement of the News Corp. split, it had been an eventful month for Dow Jones, which announced sweeping executive changes, detailed plans to convert SmartMoney into a digital-only product later this summer and sold its FINS.com online career marketplace to Dice Holdings. Doctor said all those moves are in keeping with what he sees as Dow Jones' ultimate strategy. “WSJ, the brand, is a global brand, and in going global it is becoming more of a digital brand,” he said. Dow Jones' promotion last month of Alisa Bowen, who was general manager of the Wall Street Journal Digital Network, to head of product for Dow Jones is a move that exemplifies the business' focus on digital. While Bowen was promoted, others tied to the pre-Murdoch era left the company. Todd Larsen, who joined the company in 1999, stepped down as president of Dow Jones, and Scott Schulman resigned as president of Dow Jones Corporate Markets. Also last month, the Wall Street Journal Digital Network debuted a video website (live.wsj.com) that features videos from various Dow Jones properties, including WSJ.com, MarketWatch.com, Barrons.com and SmartMoney.com. The network now offers more than four hours of live programming each business day. In May, the Journal streamed 19.7 million videos, about three times what it streamed in January. Its YouTube Channel has almost 25,000 subscribers and has streamed 20.8 million videos. “We see Internet-delivered video growing very rapidly, and growing very rapidly for us,” said Alan Murray, the Journal's deputy managing editor and executive editor-online (and previously CNBC's Washington bureau chief). Advertiser interest is a key driver of the Journal's online video expansion, with b-to-b marketers such as SAS Institute running 15-second pre-rolls. “It's the highest CPMs we get, and there's a huge demand for it,” Murray said. “The demand from advertisers is very strong.” As Dow Jones continues its embrace of online video, analysts are divided on whether the looming News Corp. split potentially puts Dow Jones in an advantageous position or not. While acknowledging the comparative strength of Dow Jones and the Journal, Doctor said the newspaper businesses of News Corp. are declining in revenue. In a year's time, these newspaper brands may be in even worse shape, he said. On the other hand, Doctor did note that the publishing business split off from News Corp. would not have any debt, which will likely allow the brands to invest. Matthew Harrigan, senior equity analyst at Wunderlich Securities, also stressed this point. “We expect the publishing entity to have scale and capital flexibility that should increase its prominence relative to weaker and less aggressive competitors,” Harrigan wrote in a report. He added: “Given its affluent demos and real-time information, Dow Jones should retain growth prospects with its ability to move behind paywalls. ... Despite everything, we estimate that Dow Jones could still be worth nearly $3.6 billion with Wall Street Journal's huge appeal for tablets.” Ed Fitzelle, managing director of Whitestone Communications, said he doesn't see a natural fit between Dow Jones and the other newspapers in the proposed new publishing company. “There's no real synergy among The Wall Street Journal and the Sun and the New York Post,” he said. Doctor reached a similar conclusion, speculating whether the new publishing company would be a candidate for another split in a year's time. He said Dow Jones and the Journal, whose natural competitors include Bloomberg, Pearson's Financial Times and Thompson Reuters, don't appear to fit in a company that also houses the Sun and the Post. “They're not business and they're not global,” Doctor said of the tabloids.
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