Film Business Could Lift News Corp Stock by 5%

| About: News Corporation (NWS)

News Corp (NASDAQ:NWS) posted banner results in filmed entertainment during its 2010 fiscal year, which ended last quarter. The growth was driven by successful releases like like Avatar and Alvin and The Chipmunks: The Squeakquel.

News Corp’s Fox Studios division includes 20th Century Fox, Fox Searchlight and Blue Sky Studios. It competes with divisions of Disney (NYSE:DIS), Time Warner (NYSE:TWX) and others. Based on the company’s generally strong results for fiscal 2010, we have raised the Trefis Price estimate for News Corp’s stock from $18 to $19.91.

We see an additional 5% upside for the stock if the filmed entertainment division manages to regain its historic 2006 market share levels over the course of our forecast period. Our analysis follows below.

Market Share Gains

Over the past four quarters, News Corp gained share in both the DVD and box office markets. We expect News Corp’s box office and DVD shares to decline in 2011 and recover gradually thereafter.

You can drag the trend-lines in the charts below to create your own DVD and box-office share estimates for Fox Studios, and see how they impact the company’s stock price.

Blockbuster Releases

Last year News Corp benefited from successful releases like Avatar, Alvin and the Chipmunks: The Squeakquel, Ice Age: Dawn of the Dinosaurs, Date Night, X-Men Origins: Wolverine and Night at the Museum: Battle of the Smithsonian. As the most successful theatrical release in cinema history to date, Avatar drove steep growth and market share gains for News Corp. It was also the best selling blue-ray title of all time.

Outlook

Fiscal 2010 was an exceptionally good year for News Corp, thanks in large part to the the extraordinary success of Avatar. As a result we expect the company’s box-office and DVD market shares to decline in fiscal 2011.

Nobody can predict whether News Corp will be able to produce more blockbusters like Avatar. But given the breadth of the company’s film production, we do think News Corp’s market share can return to 2006 levels over the course of our forecast period. If this happens, we see a potential 5% upside for News Corp’s share price.

Disclosure: No positions