What does the Financial Times sale mean for News Corp?
What's a newspaper worth? Based on Pearson's sale of the Financial Times to Nikkei, a lot more than you might expect.
The accepted wisdom is that newspapers are dying assets. Some might even have negative value, because of the costs involved in shutting them down. The News Corporation (ASX: NWS)-ownedThe Australian, for example, makes losses, although don’t expect Rupert Murdoch to close it. He’s already said he won’t.
Internationally, new proprietors seem to think newspapers are still worth something. Jeff Bezos, the founder of Amazon, paid US$250m for the loss-making Washington Post in 2013.
The transaction that has really surprised, however, is the recent sale of the pink-hued Financial Times to Japanese media group Nikkei for US$1.3bn. It seems like a phenomenal price. Reports suggest the newspaper contributed only US$39m to the annual operating profit of Pearson PLC, its former owner.
If that’s correct – and it’s hard to verify – it means the Financial Times was sold for a whopping 33 times operating profit.
Of course, the Financial Times isn’t just a newspaper. It’s one of the two main premium financial publications in the world (the other being the News Corporation-owned Wall Street Journal).
Business newspapers valuable
Business newspapers are naturally more valuable media properties because their readership tends to be wealthy, which appeals to advertisers. And the Financial Times in particular has been reasonably successful at converting print subscribers to online subscribers. If there’s any newspaper business likely to sell for a premium price, it’s this one.
The question is what this premium price means for other newspaper owners. For most, perhaps nothing. Many mastheads might be barely remembered in 50 years.
In the meantime, though, some newspapers might have strategic value that someone is willing to pay for. Alternatively, they can be used to influence opinion in a way that might favour a corporation’s other interests.
Intelligent Investor today published its latest review of News Corporation, The not-so-bad News. While newspapers account for a very small part of News’ valuation, they do contain strategic or ‘opinion influencing’ value in my view. It’s hard to quantify, but may be a source of upside.
Easier to quantify is the internet traffic newspaper websites can direct to other company-owned assets. On acquiring US property listings website Move Inc. last year, News stated: ‘We intend to use our media platforms and compelling content to turbo-charge traffic growth’. It’s already working, with Move’s unique users up 34% for the quarter ended 31 March 2015.
Newspapers are certainly unfashionable businesses. While there’s little doubt many are in decline, this doesn’t imply they have zero value. Perhaps they have most value as part of a larger group.
A group like News Corporation, for example.