News Corporation - Corporate Strategy

News Corporation Corporate Strategy Analysis – (1990 - 2011)

Table of Contents

Timeline - Acquisitions

Executive Structure

Summary - Corporate Strategy

Traditional vs 2 Sided Market

Performance - Stock, Industry

Rupert Murdoch – The Last Tycoon

Future – Growth, Risks

Bet on MySpace vs Facebook

Summary

• Corporate Strategy – Sharing of Activities

• Behavior Based Control - is used in an uncertain environment, where as outcome based control is used in

certain environment and is easy to implement and cheap

• Vertical Integration - Maintaining the content and distribution dynamics. Easy to manage the contracts. In

case of information goods its vital because managing contracts are very difficult

• Information Goods - 2 sided market for (digital/information) goods have infinite economies of scale, 2

sided or 1 sided market with physical goods have finite (diseconomies) of Scale

• Ownership – Minority economic interest with voting control (Other Example - Google)

• Internal SSP Remains Same - Entrepreneurial Structure & Rapid Decision Making, even though business

have grown globally and in different segments, but same structure and decision making style is used

• Dirty Digger Still Placing Bets - Direct TV, MySpace

• Rupert Still In Control – No Succession plan

Investment Strategy

Business Strategy

Corporate Strategy

Sharing of Activities

Transfer of Skills

Berkshire Partners

Manage Uncertainties Low Cost Low Value

Exploit Uncertainties High Cost

High Value

Corporate Strategy - Spectrum

Source: Google Search, Creating Corporate Advantage , David J. Collis & Cynthia A. Montgomery

Corporate Strategy (1990 -2011)

Restructuring Portfolio Management

News Corp Newell Textron

Corporate Strategy Resource Continuum

General Special

Wide Narrow Same content is used in different formats

Nature of Business

Scope of Business

Transferring Coordinated Mechanisms Sharing

Outcome Type of Control Behavior

Small Corporate Office Size Large

Source: Creating Corporate Advantage , David J. Collis & Cynthia A. Montgomery

Mar. 2011

Executive Structure

Source: News Corporation, Data Monitor 2010, Annual Report , 2010

Legend Present in 2004 New

Rupert Murdoch Chairman & CEO

(79)

Rupert Murdoch Chairman & CEO

Lachlan Murdoch Deputy COO

2004

Change in Responsibility

Arthur M Sikind Sr Advisor To

Chairman (71)

David F. DeVoe CFO (63)

Joel Klein Exec VP Office of

Chairmen

James R Murdoch Deputy COO, Chairman &

Chief Executive Europe & Asia (37)

Chase Carey Deputy Chairman, President & COO

(56)

Arthur M Sikind Exec VP to Chairman

David F. DeVoe CFO

Peter Chernin President & COO

Chase Carey President & CO -

COO

Natalie Bancroft Non Exec Director

(30)

Roderick I Edington Non Exec Director

(60)

Timeline - Post 2003

Source: Google Search

2003 34%of

Direct TV (Satellite

Broadcast Network) is Acquired in

US

Acquisition (118), Others

2005 Acquires My Space

(Intermix Media) for 0.77B in US.

Acquired IGN Entert.,

Community-based internet media &

services co. for Video Games & other forms of digital entertainment for

0.65B in cash

2011 Acquires Shine Group

International TV Production group for

0.67B (Owned by Elisabeth

Murdoch – Succession Plan in Play ??)

Becomes Carbon Neutral

Launched The Daily,

National US publication built specifically for the iPad

2010 Signs to acquire 90% of

Wireless Generation, Privately-held Education

Technology Company for 0.36B in cash

2006 Launched new general entertainment broadcast network MyNetworkTV

Announced $900 million deal with Google in 2006)

2007 Sale of Direct TV, Took 16% stake in News Corp (11B) back from John Malone (Liberty

Media) by trading 41% stake of Direct

TV

Acquired Dow Jones (WSJ) for 5.6B

2009 Restructured Fox Businesses

Consolidating Film &TV Production Businesses in a single unit and TV

Networks Biz into a single unit

Increased Stake in the German Pay-TV platform, Premiere, to 30.5%

Increased its stake in Sky Deutschland (formerly Premiere)

from 30.5% to 39.96%

Restructured its Asian broadcast businesses into three units, including

STAR India, STAR Greater China and Fox International Channels

2008 HarperCollins & WSJ formed 3-year publishing partnership to develop books written by the Journal's expert editors and

reporters

Voluntarily transferred its stock exchange listing in the US from NYSE

To NASDAQ Global Select Market

2004 Shifts Domicile to US

Company's shares were listed on the New York Stock

Exchange

2 Sided vs Traditional Market

Suppliers

(wholesale) Create

Price

(Retail)

Advertise or

Promote Move Distribute Service Customers

Value Chain Upstream Downstream

Cost Revenue

• Value moves from Left to Right and Information flows from Righto Left

• Growth beyond some point usually leads to diminishing returns. Maximum Profit Contribution when MC

= MR, that is it suffers from diseconomies of scale

Source: Strategies for 2 Sided Markets, Thomas Eisenmann, HBR

Overview – Traditional Market

Price Content (News)

News (Paper Based) Traditional Market

Distribution Customers Create

Content (News)


• Value moves in both direction from Left to Right and Right to Left

• Marginal Revenue and Profit contribution is always increasing as user base grows, Network effect leads

to infinite economies of scale (for information goods only)

Customers Customers

Revenue

Source: Strategies for 2 Sided Markets, Thomas Eisenmann, HBR

PLATFORM

Revenue

Upstream Downstream Value Chain

Overview – 2 Sided Market

Co

st

Co

st

Advertisers (Ads,

Classifieds)


News (Paper Based) 2 Sided Market – Old Model


Content (News)

• No economies of scale as this is not a digital good


Source: STL Partners, Telco2.0 , Strategies for 2 Sided Markets, Thomas Eisenmann, HBR

Advertisers (Ads,

Classifieds)


News (Digital/Online) 2 Sided Market - New Model


Content (News)

• Economies of scale are infinite as this is a digital good, because Marginal Cost for distributing to an

additional customer is nearly zero

Company Industry Type Platform Type

Google Web Search/Advertising Audience Builder

Amazon (ebay, Trading Post) E-Retailer Matchmaker

Monster (Seek) Recruitment Matchmaker

iTunes Music Matchmaker

Betfair Gambling (betting) Matchmaker

AP Moller-Maersk Logistics Cost Sharing

Other Examples

Low Cost Per Transaction

Google Platform

Free Product for End Users

(Subsidised)

Cheap Adverting for Brands

• Massive investment in Google Platform

• Google Indexes 34B+ pages

Google Model

2 Sided Markets

Source: STL Partners, Telco2.0

Network Effect - Google vs Vodafone

2 Sided Markets

Source: STL Partners, Telco2.0

$-

$2

$4

$6

$8

$10

$12

$14

$16

$18

1 2 3 4 5 6 7 89

Google, $17b

Vodafone, $3b

Bil

lio

ns

Years After Inception :

• Network Effect - Six Times larger in 9 years in comparison to largest mobile operator

Myspace Failure – Old Media Model

MySpace vs Facebook

Source: The Australian, Google Search

• Identified an opportunity with Myspace (Social Media), but couldn’t leverage it

• Turned out to be a losing bet, in discussions to sell for $100M

Reason

• Applied Old Media Model in a 2 a Sided Market

• Locked in Advertisers (via Google Search) on Upstream Side, and let the Customers Create Content

(primarily blogs). Didn’t let/opened Upstream Side to other Customers

• Networks effects on Downstream side are not leveraged on Upstream side – leading deterioration in asset

and momentum shifting towards other platform (Facebook)

Only 1 Customer

(Advertisers)

Content Distribution Customers

(Subsidised)

Revenue

MYSPACE Platform

Upstream Downstream

Co

st

Facebook Success – New Media Model

MySpace vs Facebook

Source: The Australian, Google Search

Reason

• Applied New Media Model in a 2 a Sided Market

• Opened Platform for various Upstream Customers – Hosted Content from various players, Ads, 3rd

Party Application Developers

• Opened Platform for various Downstream Customers – Market Research Companies, Subscription (soon)

• Networks effects on Downstream side are leveraged on Upstream side – built mass and momentums

Various Customers

Content Distribution

Customers

Paid Data Research

Revenue

FACEBOOK Platform

Upstream Downstream

Co

st

Revenue

Revenue

Stock Market - Trend

Performance

Near Bankruptcy

Global Financial Crisis

Competitors – Disney, Warner

Source: Google Finance

FY 2010 Rev. By – Division, Region

Performance

Filmed Entertainment

23%

Television 13%

Cable & Network

Programming 21%

Direct Broadcast Satellite

Television 12%

Integrated Marketing

Services 4%

Newspapers and

Information Services

18%

Book Publishing

4%

Other 5%

Source: News Corporation, Company Profile, Mar 2011, Data Monitor

United States and

Canada 54%

Europe 30%

Australasia and Other

16%

Attributes Industry

News Corp.

Walt Disney

Time Warner

Viacom

Revenue in Billion by 2010 (Size)

781.7 32.778 38.063 26.888 9.34

Growth (CAGR% 2006 -2010) 1.7 5.9 2.2 (7.69) (-20)

Expected Revenue Growth by 2015 913.3

Expected Growth (CAGR% 2010 -2015)

3.2

Status & Trends

Industry & Competitors

FY - 2010

Products & Services

Source: News Corporation, Company Profile, Mar 2011, Data Monitor

Filmed entertainment:

• Production and distribution of motion pictures

Television and cable:

• Television programming

• Cable and satellite network programming

• Direct broadcast satellite television

Magazines, inserts, books and newspapers

• Interactive programming guides

• Magazines

• Newspaper publications

• Book publishing

Others:

• FM radio

• Production and distribution of promotional products and services

• Online programming

The Last Tycoon

Rupert Murdoch

Source: Times Magazine 2007, The Last Tycoon, Google, Forbes

• A lot of people claim they have ten-year plans or five year plans. But basically, the most successful businesses are

the opportunistic and you take your opportunities when they come — Rupert Murdoch, 1985

• The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow — Rupert

Murdoch, 2008

• Probably the most inventive, the bravest deal-maker the world has ever known – Andrew Neil, Sunday Times, 2002

• For better or for worse, our company is a reflection of my thinking, my character, my value - Rupert Murdoch, 2004

• I just want to live forever— Rupert Murdoch, 2007

Future

Risks

Source: Business Spectator News Corporation, Company Profile, Mar 2011, Data Monitor

Increasing Competition:

• Operates in a highly competitive business, Leads to Pricing Pressure, impacts Rev. & Market Share

Piracy:

• May adversely affect the company's revenues derived from films, television shows, books

and DBS (Digital Direct Broadcast Satellite )programming

Legal Disputes:

• The company is involved in various legal disputes – Shine (2011), Valassis Comm. (2006, resolved in

2010)

• Lawsuits may adversely affect the market reputation of the company, which in turn will negatively

impact its growth and investors' confidence

Growth

• Digital Economy - As more and more content of various formats are digitised, more opportunities

will be available to grow at minimal cost

• Sports League, Formula One Racing – buying a sports league will give necessary information and

direct access to contents and its rights

Succession:

• News Corp is managed centrally and predominantly by Rupert, to this date there is no succession

plan being made public

Thank You End of Document