Write this down: News Corp

February 2, 2009

News Corp is many things to many people. Its latest incarnation? Pinata.

Everyone is taking a whack at Rupert Murdoch’s international media empire these days as its stock languishes and it gets ready to report second-quarter financial results on Thursday. Newspaper advertising revenue is falling, the movie season hasn’t looked so hot so far, MySpace is unlikely to friend Facebook, the euro and the pound are hurting European operations, DVDs are dying and cable networks revenue doesn’t look like it will be able to compensate.

On top of all that, people are beginning to wonder if the company will announce a writedown, and how soon. My story, which ran on Friday, says the newspaper business looks ripe for a writedown, and quotes Pali Capital analyst RIch Greenfield saying that part of the company’s problem is Murdoch’s sentimental attachment to old media:

If Murdoch wants to keep the business healthy, it is time to make “hard decisions” and prune older media like papers, Pali Capital analyst Rich Greenfield said.

… “It just feels like the legacy assets are weighing too heavily,” Greenfield added in an interview. “I think they’ve been the most aggressive in trying to develop businesses with long-term returns on capital … where others initially didn’t believe or thought the start-up costs were too high.”

Bloomberg’s story sees a writedown coming from a different angle:

Plunging DVD sales threaten to reduce profit for studio owners Time Warner Inc., Walt Disney Co., Viacom Inc. and News Corp., and may force them to write down the value of movies, analysts said. …

The decline is being fueled by viewer shifts toward rental services such as Netflix Inc., the U.S. recession and technology that makes it easier to stream Web videos to televisions.

“Making a movie just won’t be as profitable as it once was,” Barclays Capital analyst Anthony DiClemente in New York said in an interview. “There will be a complete bottoms-up reconstruction of the economics of the film business.”

Curiously enough, most of the Wall Street analysts who have been fueling the bad-news-about-News Corp trend are keeping their “buy” and “hold” recommendations on the stock. That acknowledges that News Corp is a bet for folks with a long-term point of view when it comes to media stocks. Murdoch has pulled the company from the brink before so perhaps there’s no reason that he couldn’t again.

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