We estimate that News Corp’s (NASDAQ:NWS) broadcasting business, which includes Fox Broadcasting Network and MyNetworkTV, constitutes roughly 10% of its value. Fox Broadcasting Network offers a wide variety of programs, reaching out to a large audience. It is one of the four biggest broadcasting networks in the U.S. along with NBC, CBS and ABC. In addition to regular TV shows, Fox also broadcasts some sports programming. Although its retransmission fee is slowly growing, Fox Broadcasting and MyNetworkTV earn their revenues primarily from advertising.
After a sharp decline in 2009, News Corp’s broadcasting revenues have gradually recovered amounting to $4.8 billion in 2012. We expect slow growth in broadcasting revenues due to the audience shift to cable networks and increasing distribution of advertising across different media channels including Internet. This growth will be driven by the improvement in ad pricing, which has picked up since the recessionary period of 2008 and 2009. The overall U.S. advertising market is growing and advertisers, especially automotive companies, are willing to spend more on advertisements. TV still remains the biggest medium for advertisements and thus News Corp should benefit from this broad level improvement.
In addition to this, the phenomenon of cord cutting could somewhat aid revenue growth. Cord cutting refers to pay-TV subscribers dropping their subscriptions in favor of alternative methods of viewing. We believe that if customers choose to do so, they are likely to resort to a combination of free antenna-based programming and online streaming service offered by Netflix or Amazon. Broadcast networks are available that way and that might continue to support their ad revenues.
The flip side is that over the past few years, cable networks have risen in popularity owing to their specific focus. This has helped them create a loyal audience base and consequently broadcast networks have suffered in terms of viewership. The decline in viewership has a direct negative impact on ad revenues.
Our price estimate for News Corp stands at $30, roughly in line with the market price.