News Corp's (
) profit margins from its cable programming business, which
includes cable networks like Fox Sports, Fox News, Fuel TV and FX
Network, have increased despite a slowdown in economy. This is
mainly because of cost saving efforts and pricing control exerted
by News Corp on cable & satellite providers for its
content. News Corp competes with other media conglomerates
like Time Warner (
), Disney (
), Viacom (
) and CBS (
We maintain a
price estimate for News Corp's stock.
Comcast-NBC Merger A Concern
As a condition for regulatory approval of its merger with NBC,
Comcast will have to sacrifice its day-to-day control (voting
rights and board representation) of Hulu.com, an online video site
jointly owned by NBC, News Corp and Disney. However, News Corp
still has worries about program access-related merger conditions
dealing with online video providers since the FCC proposed a
condition that would allow Comcast to provide its programming to an
online video service if rivals such as Walt Disney Co.'s ABC or
News Corp.'s Fox were also supplying content to it.
News Corp's Control of Content Pricing
Cable, satellite and telecom operators like AT&T, Dish and
Time Warner Cable continue to battle each other over providing
quality content to their subscribers and, content providers like
News Corp can exert pricing control and leverage this ability to
drive revenues and margins.
News Corp's Fox blocked its programming, including two World
Series games, from Cablevision's 3 million subscribers for two
weeks in October 2010 until Cablevision agreed to pay what it
called an "unfair price."
We expect News Corp's cable programming margins will increase in
the short term and then stabilize at around 35% by the end of our
forecast period. However, Trefis members are more skeptical,
forecasting the margins to fall below 25%, representing a downside
of 4% to our price estimate for NWS stock. We can attribute some of
this skepticism to the Comcast-NBC merger and concerns that control
on content creation as well as distribution will affect cable
networks and cable operators alike.