Can paywalls save News Corp?

Advertising revenue declines as TV revenue boosts profit.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

News Corporation (ASX: NWS) on Tuesday reported its results for its first three months of trading as a separate company to 21st Century Fox (ASX: FOX).

News Corp generated revenues $2.07 billion, earnings before interest, taxes, depreciation and amortisation (EBITDA) of $141 million, and net profit of $38 million for the three months to September. The result represented a 3% drop in revenue, but a 58% rise in EBITDA and a $121 million turnaround in net profit.

Prior to the release, a survey of analysts by Bloomberg predicted consensus revenue of $2.18 billion and EBITDA of $128.4 million. The failure to hit the revenue target caused a sell-off. News Corp shares dropped over 5% during intra-day trading and closed down 3.26% for the day.

The company attributed the turnaround in profit primarily to the impact of its recent acquisition of Fox Sports Australia TV and reduced costs in its newspaper division. Meanwhile, the reduction in revenue was primarily due to a broad-based decline in sales and advertising in the news and information services division.

A 22% drop in revenue from the Australian newspaper division was the prime culprit, accounting for the majority of the $171 million decline in the broader newspaper segment. Segment advertising suffered a 12% fall due to ongoing weakness in the Australian and UK markets, as well as unfavorable exchange rate movements.

News Corp is attempting to shift newspaper revenue from physical sales and advertising to paid subscriptions.  The company has recently launched digital subscription packages on a number of popular Australian websites include the news.com.au network, Foxsports and The Australian.

News Corp CEO Robert Thompson did not answer specific questions about the success of the paywalls, opting instead to note that it was still 'very early days'. In a discouraging sign for News Corp, circulation and subscription revenue fell by 6% in the period, though the fall was attributed mainly to lower print volumes and a decline in institutional revenue in the US.

Foolish takeaway

News Corporation's future earnings will largely depend on how well it can execute its strategy of reducing the newspaper division's reliance on advertising and physical sales. In a similar vein to the issues faced at Fairfax Media (ASX: FXJ), News Corp faces the challenge of adapting to structural changes in the way news is consumed.

The current paywall system is not yet a compelling buy. While the state-based news websites such as adelaidenow.com.au and heraldsun.com.au have paywalls in place, the Australia-wide News.com.au website has no paywall and carries roughly (anecdotal evidence) 70% of the same stories as on the state-based websites. The paywall for The Australian is a more compelling buy but does not have as wide an appeal due to the more 'serious' nature of the paper.

News Corp currently has the viewership to command a significant revenue stream from subscriptions if it can find a way of successfully monetizing a paywall in Australia.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »