Rupert Murdoch’s complicated legacy

In November, Rupert Murdoch will pass on his communications empire to his son Lachlan Murdoch. Unlike the plot twists in the HBO series Succession, the transition has been smooth, at least for now. The final chapter will not be written until the patriarch passes away, transferring the voting shares he controls through a Reno-based company to his four eldest children (Prudence, Elisabeth, Lachlan, and James). The maneuvering for a new balance of power will certainly trigger battles and alliances for control. Succession is not a priority for Fox Corp and News Corp, which are two independent sister companies with television, newspapers, publishing, real estate brokerage and pay television holdings in the U.S. and Australia. Inheriting a business is complex.

The empire’s companies are both profitable and well-capitalized, with assets of the highest quality. But some declining or transforming businesses are facing aging audiences for their linear TV channels, while newspaper sales are dropping. The company as a whole is dwarfed by the likes of Comcast, Netflix, Disney, and Charter Communications. Rupert Murdoch’s 2022 proposal to merge News and Fox, with a combined stock market value of about $25 billion, was roundly rejected by investors.

Although News Corp has diversified its income and 50% now comes from digital sources, it experienced a drop in gross revenue in four of its five divisions in the fiscal year ending on June 30, 2023. Dow Jones, publisher of the Wall Street Journal and Barron’s, was revived and has seen an increase of 4.5 million digital subscribers (+12%) while also expanding its service businesses. It had $2.1 billion (+7%) in gross revenue and $494 million (+14%) in earnings before interest, taxes, depreciation, and amortization (EBITDA).

The division that encompasses The Times, The Sun, the New York Post and several Australian newspapers, experienced a 6% decline in revenue to $2.26 billion. The decline in print has caused a 28% drop in EBITDA to $156 million, making these newspapers much less profitable, as subscriptions and digital advertising don’t compensate for it. Harper Collins, with gross revenue of $1.98 billion (-10%), faced a worse fate in the publishing business with a 45% drop in EBITDA, down to $167 million.

News Corp owns Realtor.com, the second-largest American real estate portal, and REA, its Australian equivalent. Additionally, it has Australian streaming TV channels like Kayo sports and Binge entertainment. But turnover and results also fell in both divisions. News Corp’s revenue dropped 5% overall to $9.88 billion and EBITDA fell 15% to $1.42 billion.

Despite changes in audiovisual consumption habits, U.S.-based Fox Corp remains strong and is the most valuable pillar of the empire. Following the sale of 21st Century Fox’s entertainment assets to Disney, public trading of Fox stock began in 2019. The last fiscal year saw Fox’s revenue rise to $14.9 billion, a 7% increase. Despite paying a $787.5 million settlement to Dominion to avoid a defamation trial, Fox’s financial results still improved by 3% to $1.24 billion.

The sports, news, and finance channels are available in multichannel packages via cable TV, satellite and internet, and also through affiliated stations and streaming services. Revenues from cable dropped by 1% to $6.04 billion, with $4.17 billion coming from by distributors and $1.40 billion from advertising. The television segment, with gross revenues of $8.7 billion (+13%), tripled its EBITDA to $1 billion, driven by a successful advertising year due to the Super Bowl and the World Cup.

“You’ve heard me say this many times, Fox’s strategy is different from our peers. It’s uniquely good. Nowhere is that more evident than in the current environment, where Fox’s leadership position is proven,” Lachlan Murdoch told analysts at the 2023 year-end earnings call. Fox News, the primary source of influence and controversy, is surpassed by Fox Sports when it comes to audience and revenue. “Fox’s broadcast of Super Bowl LVII was the most watched TV show of all time. Our Thanksgiving Day game was the most watched NFL regular season game of all time and the U.S.-England match was the most watched U.S. Men’s World Cup match of all time,” said Murdoch. Its financial channel has surpassed CNBC, and the 75-million Fox website user base is 10 times larger than the runner-up — The Washington Examiner conservative media outlet.

Its streaming service, Tubi, has achieved “surprising” success, says BofA Securities analyst Jessica Reif Ehrlich. Lachlan Murdoch bought it for $440 million in 2020 and calls it “spectacular.” It has grown by 79% and is now the leader in advertising-financed video-on-demand services.

Despite this success, business threats persist. At a conference sponsored by BofA Securities, Reif Ehrlich highlighted the enormous changes in the media sector, subscriber declines and how “it’s pivoting towards direct-to-consumer and streaming.” Lachlan Murdoch assured analysts, “As consumer tastes change, we will endeavor to put our content and our brands in front of consumers in whichever manner makes the most sense for them […] When you leave a pay-TV universe and quickly transition to a direct-to-consumer universe, we think you’ll enter a phase where both are important. You’re not choosing between one or the other […] But we’ll be well positioned in any distribution mechanism.”

The overall sectoral trend is compounded by the splintering of conservative audiences, thanks to an expanding array of podcasts, blogs, networks and TV alternatives, such as Newsmax. In 2020, Fox embraced Donald Trump’s unsubstantiated claim that the election was stolen from him, as a subset of its viewership found refuge in Newsmax. Fox served up the lies their viewers wanted to hear and are now facing defamation lawsuits, including one that ended with a settlement payment of $787.5 million to Dominion and another from Smartmatic seeking $2.7 billion dollars.

With the presidential elections less than a year away, Fox’s dependence on Trump presents another risk. Various Murdoch-owned media outlets began boosting Florida Governor Ron DeSantis after the November 2022 midterm elections, but his campaign has deflated recently. There is clearly a love-hate relationship between Trump and Fox, one that is explored in The Fall: The End of Fox News and the Murdoch Dynasty, a recently released biography of Rupert Murdoch by Michael Wolff. The prologue is an obituary of the media tycoon with the date of his death left blank. The 92-year-old Murdoch surely doesn’t have many more years left, but an obituary for Fox News seems somewhat premature.

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