Rupert Murdoch at 80

PORTFOLIO POINT: Six decades at the top have given Murdoch a magic carpet ride. Alas, his shareholders have not had as much fun.

So Rupert Murdoch is turning 80. Wow. The only way to describe the man is “extraordinary”. He has been a crucial part of the Australian media scene for almost six decades. Together with Kerry Packer he dominated that industry for the past 40–50 years.

Internationally he has been a player since the late 1960s. And over the past 30 years he emerged without doubt as the most dominant global media tycoon. In the broad sweep of media history only the Brit Lord Northcliffe, the Yank William Randolph Hearst, Italy’s lothario Silvio Berlusconi and perhaps our own pugnacious Kerry Packer even come close.

The difference is that all these tycoons confined their media activities and influence primarily to their native countries. By contrast, Murdoch now dominates media and, in many instances public opinion, in the US, UK and Australia as well. He also competes vigorously in many other countries such as Italy, Germany, Latin America and Asia. None can match Murdoch for the breadth of his influence.

While both Northcliffe and Hearst dominated their local media industries for many decades neither come close to matching Murdoch’s longevity. Northcliffe died a comparatively young man of 57, while Hearst lost control of his media empire after a half century. In many ways Murdoch is a Northcliffe, Hearst, Berlusconi and Packer all rolled into one. He truly is without peer both now and in a historic context.

When Murdoch first arrived in Adelaide in 1952, local Adelaide media tried to run him out of town. They nicknamed him derisively “the boy publisher”. He outlasted all of them and most of his critics as well. Along the way he survived numerous near business death experiences including, most famously, his debt crisis of 1991 that almost crippled him.

Today politicians and governments within the Anglo Saxon world seek his favour; and fear his wrath. Truly an extraordinary magic carpet ride.

But what about the shareholders?

Have the legions of loyal News Corporation (NWS) shareholders been on the same magic carpet ride?

Well for a while they were. In the 1980s, News Corp’s earnings per share (EPS) rose at an astonishing 33% per annum compounded. As a result, News was one of decade’s darling growth stocks.

Unfortunately, most of the growth was debt-financed. When that unravelled in late 1990 shareholders were horrified to watch the News Corp stock price fall about 90%. Once debt was refinanced in early 1991, News rose threefold over the remainder of the year. By the end of 1991 shareholders were pretty much back to where they started before the debt crisis exploded. A close shave.

It was about this time I was fortunate enough to be given the opportunity to analyse Murdoch and News Corp. I did so for the next 14 years. My final broker report in April 2005 was titled A Longer Term Perspective. It was highly critical of News Corp’s performance over the prior several decades. Needless to say, Murdoch was not happy. But unlike most broker research, that report has stood the test of time. Don’t bother looking for a copy, it was removed from the broker’s website within a week of my departure.

Within that report I raised many issues including News Corp’s size (too big), maturity (newspapers are yesterday’s industry) as well as a host of other issues. I noted News Corp’s investment bankers received more in fees than its shareholders received in dividends. That struck a nerve. Overall my analysis with a few tweaks here and there is just as applicable today as it was in 2005.

Perhaps the most telling indictment was that News Corp had experienced no growth in EPS and earnings before interest, tax and depreciation (EBITDA) per share, for the prior 15–20 years. Since 2005 things have improved. News has had a renewed focus on EPS growth and it has increased at 8% per annum since. Despite this, News has been de-rated as old concerns reassert themselves.

One issue for US investors is his Dow Jones acquisition, completed just prior to the GFC. The timing was awful, the price was full and as for buying newspapers – well, it totally baffled growth-oriented US investors. Other concerns include nepotism (what a great word). Just last week Macquarie removed News from its recommended portfolio due to “governance” issues. Enough said.

Perhaps the most compelling indictment of Murdoch over the past two decades is News Corp’s share price performance. For periods of time it strongly outperformed. But this outperformance was associated with market bubbles.

News Corporation share price

For example, from mid-1997 till late 2000 (the dotcom bubble) and from late 2005 until early 2007 (the pre-GFC credit bubble) News Corp did well. But neither period of outperformance was sustained once the bubble burst.

My hunch is that Murdoch understands market psychology better than anyone (he would have made a great stockbroker). Give him a market bubble and he will find a way to wrap News Corp up in it. In the 1970s oil shock he even had some oil leases some of which he still owned two decades later! Maybe still does.

The bottom line is that News Corp’s longer-term performance is very ordinary. Shareholders who have bought since 1998, other than those who bought in the midst of the GFC or a broad market downturn, are underwater! Since August 1992 NWS has risen just 34% or 1.6% per annum. By contrast the wider market has risen almost three times as much.

Include dividends, and News Corp shareholders are underperforming the wider market by at least 6% pa since August 1992. Over 18.5 years, my rough maths says that is a massive underperformance of at least 75%.

So sadly, whilst Rupert was on his magic carpet ride into the history books, the journey of News Corp shareholders has been less memorable. Somehow I think that when Murdoch’s history is finally written, their story won’t get much of a look in.

Anyway, happy birthday Rupert, at least you’ve had fun.

Mike Mangan is a fund manager at 2MG Asset Management. From 1992-2005 he was one of the leading stock broking analysts covering News Corporation and in his final year was rated in the Top 3. He has no financial interest in News Corporation.