Rupert Murdoch has not lost his genius for changing headlines.
Within hours of him jetting into London, reports of a newsroom revolt over News Corp’s investigators shopping reporters to the police had been replaced with admiring coverage of his plan to accelerate the launch of a Sunday edition of The Sun.
Few other executives would be forgiven by shareholders for launching a print newspaper in 2012. Details were scant all round, not least about the Sun on Sunday’s digital plans.
Mr Murdoch rhapsodised about iPad newspapers when launching The Daily last year, but the Sun on Sunday is first and foremost a print product, meant to reclaim some of the $240m in revenue Enders Analysis estimates News Corp lost when the phone hacking scandal felled the News of the World.
The Sun’s proprietor must know that the headlines will not stay positive for ever. Even after more than two-dozen arrests at his UK newspapers and scores of settlements with phone hacking targets, investigations into the scandals are far from over.
But if Mr Murdoch is in the mood for contrarian moves, now would be a good time to consider something he has long resisted: spinning off News Corp’s newspapers.
Bankers have often pitched the idea to Mr Murdoch and his executives, explaining that the publishing assets are a drag on the valuation the Fox cable, broadcast and film studio brands would command without them.
Most analysts ascribe a fraction of its $49bn market capitalisation to publishing. Nomura estimates that newspapers’ contribution to group operating profit will fall from 11 per cent last year to 4.2 per cent by 2014. To many analysts, they seem an irrelevance or a liability.
The costs of the UK investigations have made newspapers harder for investors to ignore. News Corp has spent almost $200m in legal fees and settlements already, and the lawyers’ bills could rise rapidly if US investigations turn serious.
Executives have rejected past suggestions of a spinoff for several reasons, including doubts over investors’ appetite for newspaper stocks, concern about shrinking News Corp and the personal attachment Mr Murdoch referred to when he told Sun staff the title was “a part of me”.
Such a move might seem even harder now. Print advertising budgets are shrinking fast, and a small publishing company could find it harder to absorb liabilities from the spreading UK scandal.
But the slow-growth publishing brands fit increasingly badly with the rest of the group. Nomura estimates that News Corp will see compound annual earnings growth of 9.3 per cent between 2012 and 2017, but publishing profits will advance by just 2.2 per cent a year. Publishing’s operating margin, at 7.8 per cent this year, is less than half the group average.
If Mr Murdoch bundled his UK, Australian and US newspapers with HarperCollins book publishing and News America Marketing, he could present investors with a market-leading international publishing company with estimated 2012 revenues of $8.6bn and operating income of $700m.
With diverse assets including the Dow Jones enterprise business, NAM’s cash-generative magazine inserts and perhaps a digital growth narrative akin to that pitched by Gannett on Wednesday, investors could see more than just a story of print decline.
But some close observers doubt Mr Murdoch would be separated so easily from Dow Jones, which he bought in 2007, and say his appearance in London last week prompted another thought about how a split might happen.
The Sun’s publisher unexpectedly toured its newsroom, not with James, but with his eldest son, Lachlan. The 40-year-old, now chairing the Australian broadcaster Ten Network, once ran the New York Post and has long been seen as the one heir with any feel for newsprint.
As the London scandals have knocked James’s succession hopes, expectations have grown that Lachlan will return to an executive role. John Hartigan’s departure last November as head of the News Ltd Australian newspaper division has created a useful vacancy.
If Mr Murdoch wants to preserve his newspaper legacy and his hopes for family succession, he could engineer a sale of the News International UK titles to News Ltd, which could then be spun off to shareholders as an Australia-listed company under Lachlan’s leadership, still with the same family stake.
As the Sun on Sunday launch shows, it is rash to make predictions when a defiant Mr Murdoch is calling the shots. News Corp may never be all Corp and no News. But the establishment of an Australian-based, family-run newspaper business would represent a poetic return to where he took over from his father, almost 60 years ago.
Andrew Edgecliffe-Johnson is the FT’s media editor