Media analysts, who see newspapers as a drag on News Corp., hope the imbroglio will cause the conglomerate to take an unsentimental look at the relatively low-performing and troublesome assets.
In the eyes of Wall Street, News Corp. Chairman Rupert Murdoch's Achilles' heel has always been his unabashed love of newspapers.
Now with Murdoch and son James scheduled to testify before Britain's Parliament on Tuesday, media analysts are hoping the phone-hacking scandal at the company's now-closed News of the World tabloid will finally convince the 80-year-old mogul that it is time to stop the presses that threaten the family empire.
"Investors hate everything to do with the newspaper business," said Rich Greenfield, an analyst with BTIG. "It is perceived to be the worst asset within News Corp."
In a global conglomerate with revenue of more than $30 billion and assets that include a major movie studio and broadcast and cable television networks, News Corp.'s newspaper holdings are one of the smallest profit centers.
The division, which includes British papers the Sun and the Sunday Times as well as the Wall Street Journal and the New York Post in the U.S., will contribute about $6.2 billion, or 18% of News Corp.'s total revenue for fiscal year 2011 and $543 million, or 10%, of the company's $5 billion in operating income, according to estimates by Nomura Equity Research.
But Wall Street's concerns about Murdoch's newspaper operations extend far beyond their financial results.
Dubbing News Corp.'s newspapers "toxic," Nomura analyst Michael Nathanson said in a report issued Monday that the company should use the News of the World debacle to "take another look at its assets to determine which are noncore."
Shares of News Corp. have plummeted 17.4% since the scandal began raging out of control two weeks ago, erasing an estimated $8 billion in market value.
The imbroglio has resulted in the resignations of two Murdoch confidants and the arrest of one of them, and the collapse of a $12-billion deal to buy outright the powerful British Sky Broadcasting satellite TV service. In the last few days, the commissioner and assistant commissioner of Scotland Yard were also brought down by the fiasco.
Wall Street has never been on the same page with Murdoch when it comes to newspapers. But some observers point out it was newspapers that gave Murdoch entree to the corridors of power. Politicians kowtowed to the press baron and his papers in exchange for endorsements. Once inside, Murdoch's newspapers could also go on the attack, laying waste to any opposition. Read More
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