How Is News Corp’s Print Media Business Trending?

News Corporation‘s (NASDAQ:NWSA) publishing business has suffered significant losses in the past few years primarily due to asset writedowns. The division’s cash flows are still positive, but management is aiming to counter the secular declines in the publishing industry and revive sales. The company’s News And Information Services division has seen revenue declines over the past few years due to lower circulation and subscriptions. As free online information becomes more abundant, customers are becoming less likely to pay for the same information, which has resulted in a decline in the company’s subscriber base. Lower readership has in turn led advertisers to spend less on print ads. We expect this trend to continue in the coming years driven by the the growth in Internet penetration.

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Print Industry Decline Weighs On Advertising Revenues

The News and Information Services segment consists of products and services targeting consumer and enterprise customers, and includes The Wall Street Journal (WSJ) and Barron’s. It is an important segment for News Corp, and accounts for more than 40% of the company’s value, according to our estimates.

The segment derives its revenues primarily from two sources – advertising and circulation & subscription. Advertising revenues increased from $3.86 billion in 2009 to $4.4 billion in 2012. However, revenues declined to $3.71 billion in 2013. ^[1] Free online sources have put pressure on its paid products, while stagnation of print services remains a concern. For the time being, growth in digital publishing has not been able to offset the decline in print media. However, in the long run, digital publishing should help the company revive its advertising and circulation pricing. Accordingly, we expect the revenues to continue to decline in the near term and stabilize thereafter driven by growth in digital sales. We forecast revenues to be around $3.7 billion by the end of our forecast period.

Circulation And Subscription Revenues Also Face Headwinds

Circulation and subscription revenue has been on a downtrend in the past few years, declining from $2.5 billion to $2.3 billion between 2008 and 2013. ^[1] This can be attributed to the challenging print industry, which is facing headwinds from higher Internet penetration. As Internet penetration continues to expand, users increasingly access information online. This continuing trend has put downward pressure on circulation prices. However, some of News Corp’s brands, including WSJ, are considered to be among the best media to reach business decision makers and affluent consumers. An affluent readership base implies a lucrative audience for advertisers. WSJ’s quality of content and brand value should help support subscriber growth, which may offset some of the losses at the company’s other print media products.

We expect circulation and subscription revenues to decline in the coming years, to a little over $2 billion by the end of the decade. However, a growth in digital publishing should boost EBITDA margins from 6.4% currently to an estimated 12.5% by the end of our forecast period, translating into segment EBITDA of $785 million by 2021. This is because digital publishing offers higher EBITDA margins due to the costs associated with traditional printing and delivery of print content.

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1. News Corporation’s SEC Filings [↩] [↩]