Here’s the truth: The New of the World wasn’t important to News Corporation.
At least in terms of the balance sheet, newspapers were a thing of the past, contributing little to the massive company’s bottom line.
Rupert Murdoch loved his ink-stained publications – he has his proclivities (read: The Daily) – but everyone expected the newspaper business to fall by the wayside once his successor, likely his son James, took over.
The real issue with the NotW scandal is the negative effect it could have News Corp’s satellite business, specifically BSkyB.
News Corp already cancelled its proposed $12.6 billion takeover of the company, but it still owns 39%. As Bloomberg BusinessWeek reports, that stake could be in trouble.
James Murdoch is the head of BSkyB, and the board voted today to keep him on as chairman, but the story isn’t settled. He is under fire for perhaps lying, or omitting the truth, about his knowledge of the hacking situation. Anything that comes to light about his leadership will negatively reflect on BSkyB.
Additionally, regulators in England – who were worried about News Corp’s “tight grip on Britain’s lucrative pay-TV market” before the NotW troubles blew up – are using the scandal as a way to attack the company’s position. The company holds 40 licenses, everything from lucrative English Premier League games to lucrative movies, and Prime Minister David Cameron and other politicians want a review.
Why does this matter? Because News Corp makes a huge amount of money from the network. The key facts:
Last year, BSkyB’s earnings contributed $354 million, or 14%, of News Corp.’s $2.5 billion net income. Had News Corp. fully acquired BSkyB, Enders Analysis estimates, the satellite operator would have accounted for 25% of the company’s annual revenues and close to 30% of its operating income. Enders forecasts that BSkyB could crank out annual growth approaching 10% over the next few years, which would have offset cyclical revenues in News Corp.’s ad-supported businesses.
Those figures will only improve.
Revenue at BSkyB soared 54% in the five years through 2010, vs. a 37% increase at News Corp. For the fiscal year ended June 30, BSkyB is expected to report operating profits of $1.7 billion on revenue of $10.6 billion, up 24 per cent and 14 per cent, respectively, from the year earlier, estimates London consulting firm Enders Analysis.
So no, the NotW as a physical product did not matter. But if it means the demise of Murdoch’s easy money from BSkyB, well, that would be a huge blow.