Dire situations sometimes call for bold measures. Just ask News Corp. (NASDAQ:NWS) chairman and CEO Rupert Murdoch.
After News Corp. announced Wednesday after market close another disappointing earnings result, Murdoch -- hobbled once again by continued slowness in advertising while also hurt by a write-down made on acquisitions from the high-flying deal era of just a few years ago -- declared his media conglomerate would go full throttle into charging for all online content of his newspapers and television news channels.
The commitment to the pay strategy was a shift by Murdoch when he said in May that his company would test the pay model on certain stronger media properties.
But that initial desire to test charging some readers went out the window when News Corp. realized that its fourth-quarter bottom line would show no improvement. The company posted a brutal fourth-quarter that resulted in a $203 million loss and a full-year net loss of $3.4 billion.
A large chunk of that quarterly loss was attributed to a $680 million write-down related to several divisions it added over the last couple of years to beef up its Fox Interactive Media division. Part of that write-down was a $180 million restructuring charge from its MySpace social networking site where it cut more than 700 jobs in the quarter. News Corp. CFO Dave DeVoe pointed out in the earnings conference call that while Fox Interactive Media's fourth-quarter revenue dipped 15% to $192 million compared to a year ago, the decline was due to a 22% ad revenue fall "primarily because of reductions of ad revenue at MySpace."
News Corp. acquired MySpace.com in June 2005 for $580 million. The deal was expected to give News Corp. a strong entrance to the growing social networking sector, potentially translating to a bevy of growing advertising opportunities. That hasn't necessarily happened yet at MySpace. The Web site has been hampered by a slowdown in online advertising as well as competition from Facebook Inc., which has leapfrogged MySpace by reaching a wider Web audience. According to comScore Inc. (NASDAQ:SCOR), Facebook has passed 300 million unique visitors in April 2009 while MySpace has flatlined at 123 million unique visitors.
Overall, Fox Interactive Media lost $136 million in the quarter, but it can't blame MySpace alone. The company also acquired Internet and media services company IGN Entertainment Inc. for about $650 million in 2005, Photobucket for around $300 million in 2007 and ad targeting firm Strategy Data Corp. in 2007 to bolster that division in the height of the market. But with ad revenue falling over the last several quarters and expectations continuing to be soft, those additions obviously haven't materialized the gains News Corp. had expected. In the meantime, News Corp. is hoping its pay strategy will somewhat offset its M&A misses.
"If we're successful, we'll be followed by all media," Murdoch told the Financial Times, predicting "significant revenues" from charging for various tiers of online news. But if that strategy flops, Murdoch may have to admit defeat and consider offloading some its losing additions to turn the tide from a sea of red to save his wallet as well as please his investors. - Gerald Magpily
