Difficult To See The NY Post Surviving This

The News Corp news this morning:

The board of News Corp. approved in principle splitting the $60 billion media conglomerate into separate publishing and entertainment businesses, a person familiar with the situation said on Thursday.

News Corp.'s board, overseen by 81-year-old chairman Rupert Murdoch, met on Wednesday and an announcement was expected later on Thursday on the decision to create two publicly traded companies, the source said, confirming a report in the Wall Street Journal.

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Details on the management structure are still to be resolved and formal approval by the board is still needed. The process is expected to take about a year, said the source, who did not want to be named as the decision had still to be made public.

Pressure on News Corp to get rid of the newspaper business was ramped up after a phone hacking scandal tainted its British titles and forced the company to drop its proposed acquisition of pay-TV group BSkyB.

“As recently as a month ago he (Murdoch) was still saying no way would he do this,” said one News Corp insider with knowledge of the internal conversations.

The Wall Street Journal, owned by News Corp, earlier said one company will hold the entertainment businesses like 20th Century Fox, Fox broadcast network and Fox News Channel, while the other will hold the publishing assets, which include The Times, The Australian, and HarperCollins book publishing.

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The film and television businesses generated revenues of $23.5 billion in the year to June 2011, dwarfing the publishing unit's $8.8 billion. Publishing, including integrated marketing services, accounts for around 7 percent of News Corp's enterprise value, according to analysts at Barclays Capital. It estimates that publishing represents 24 percent of revenues and around 11 percent of operating income.

Analysts estimate an independent publishing division would generate about $1.3 billion in EBITDA at a multiple valuation of 6 times, or $3.25 per share. They expect a standalone entertainment unit to be valued at $52 billion, or $23 per share, based on an 8 times cash flow multiple.

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With a split between the struggling publishing business and its much larger, faster-growing entertainment business, the majority of the big names are anticipated to jockey for key roles on the entertainment side.

Chase Carey, News Corp's current No. 2, is widely seen as the likely CEO designate for the entertainment business. Liz Murdoch and James Murdoch are expected to report to him. That could raise questions about the current heads of the Fox TV business, Peter Rice and Kevin Reilly.

Less clear is who would run the publishing business. One obvious candidate is Joel Klein, the former New York City chancellor for education, who joined News Corp last year to run its new education business, which so far consists only of Wireless Generation, a digital company for schools. Murdoch's eldest son, Lachlan, a former New York Post publisher and currently a director, is another prospect.

The Post loses millions every year.

Whoever takes over the publishing division of the "new" News Corp will have to make cost-cutting decisions almost immediately, as the publishing division will no longer have TV and movie revenue to shield its loses.

Perhaps they can sell the Post off to some other oligarch looking to use it as a vanity project.

More likely, they will do some cost-cutting that will ultimately fail to make the paper profitable and eventually close the paper down.

They might even have to slowly liquidate the entire newspaper division, selling off the more prestigious and/or profitable assets and closing the rest.

Unless Klein can make his education division so profitable that he can shield the newspapers, of course.

But it's difficult to see how that happens.

And one more thing - just because they're splitting up the company doesn't mean they won't still be liable for the hacking.