News Corp (
) is a media conglomerate that competes with New York Times (
), Time Warner (
), Disney (
), Viacom (
) and CBS (CBS) in a variety of businesses ranging from
broadcasting and cable networks to filmed entertainment and
publishing. Our price estimate for News Corp stands at
, which is about 15% above market price.
We wrote an article recently discussing Facebook's ability to
outpace News Corp's MySpace in the social networking arena (see
$1 Billion MySpace Valuation Highlights Facebook's
Dominance, But News Corp Stock Still Cheap
). But the competition from social networking sites like Facebook
can extend far beyond the social network realm. Below we examine
certain aspects of social networking that can threaten the more
traditional businesses of media companies.
Social Connect - Increasing Time Share
The time spent by an average U.S. Facebook user is steadily
increasing. Facebook has roughly 500 million active users out of
which 30% reside in the U.S. That puts U.S. users close to 150
million, almost half the U.S. population. According to June 2009
data from Nielson, U.S. Facebook users were spending on average
about 4.5 hours per month on Facebook. This metric has been
increasing rapidly and reached more than 7 hours per month per
person in January 2010. Still, this number lags well behind the
amount of time people spend watching TV, at about 2.8 hours per day
according to 2009 data from the Bureau of Labor Statistics.
The key point here is that social networking is fueling the
growth of time spent by people on the Internet. As this development
gains momentum, we are likely to see more information like news,
product launches, videos related to news and entertainment being
consumed on social networking websites like Facebook. The social
networking environment of close connection and engagement promotes
the easy flow of information and opinions.
In the years ahead, it is possible that the amount of time
people spend watching TV could decline due to cannibalization from
social networks. Many networks that rely on advertisement-based
revenue streams, could be threatened by lower viewership, a key
metric in determining sales of ad slots.
Profiling Leads to Better Ad Targeting
Take Facebook, for example. The profile that users create for
themselves, the information exchange they take part in, the pages
they view, the comments they make, the groups they join, the videos
they watch and the links they accessall generate heaps of data that
can be analyzed to create a detailed individual character profile.
This data is valuable for advertisers who can better target
individuals and improve sales.
Television still lacks this capability and generic
advertisements are thrown at all kind of viewers, meaning a
significant portion of them are irrelevant to individual viewers.
Thus, there is an incentive for advertisers to increasingly shift
their marketing spend to social networking websites, which could
hamper ad pricing for media companies.
Drag the trend line in the modifiable chart below to see how
reductions in ad pricing on the Fox News channel can affect News
Corp's stock value.
On the other hand, one can argue that television offers a more
engaging ad experience where individuals focus their attention on
the commercial segment - ads on social networking websites are
often avoided or ignored by users. Still, the effectiveness of
well-targeted advertisements should not be overlooked. User
engagement for online ads will likely increase over time alongside
increased fluidity of information exchange, bringing more ad
dollars to high-traffic sites.
Ultimately, Media Companies May Need to Collaborate with
Social Networking Sites
Social networking is a powerful tool beyond social purposes - it
creates real business opportunities for large corporations and
advertisers alike. Can media companies better collaborate with
social networking sites to ride this momentum?
One can imagine a scenario where a media company collaborates
with Facebook to combine a user's character profile with his/her
location, and aggregates this data across users to identify which
areas may be suited for particular types of advertisement. Media
companies can then direct relevant ads these geographical areas
(with cooperation of cable service providers).
You can see
the complete $20.17 Trefis price estimate for
News Corp's stock here.