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“Grim”, to borrow Rupert Murdoch’s adjective, about sums it up. News Corp capped off a miserable week for media companies, with Time Warner and Disney posting disappointing numbers. Admittedly, in reporting a $6.4bn second fiscal quarter net loss, News Corp had some particular problems. A $2.8bn writedown to goodwill acquired through 2007’s $5.6bn deal to buy Dow Jones hurt results, along with $5.6bn of other writedowns – primarily to the value of broadcasting licences.
Mr Murdoch has been forecasting advertising’s decline. News Corp in November slashed its 2009 operating income forecast, predicting a low- to mid-teen decline. That outlook is now for a 30 per cent drop. News Corp is admittedly more advertising heavy than peers. But if Mr Murdoch’s reputation as advertising’s canary holds – and few media companies are currently brave enough even to venture forecasts – there may be worse to come.
Ailing DVD sales is another source of gloom for media companies. This may be the result of weak consumer spending or a more lasting shift in behaviour, for example towards video on demand. Disney this week stated its belief in a secular change in buying, pledging to reduce expenses in that business and to re-evaluate how to make DVDs appealing to consumers.
This is sensible. The downturn’s severity will mask lasting changes within media. Waiting for recovery risks reacting too late. The slump will also hamper take-up of the higher-priced Blu-Ray format, while VoD services still need to improve their technology and content. After all, News Corp can credibly claim to be well-positioned with a $4bn-plus cash pile hoarded, in part thanks to Mr Murdoch’s predictions of trouble to come. It pays to be prepared for a grimmer outlook on all fronts.
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