News Corp's (
NWS
) $2 billion bid for Consolidated Media holdings last week will
give the company control of Fox Sports in Australia and 50%
ownership of Foxtel, which has near monopoly in the Australian
pay-TV market. The company's current structure includes Fox Sports
in the U.S. and some other countries along with the control of Sky
Italia, which is a dominant pay-TV subscription service in Italy.
The publishing business is going to separate soon and News Corp
will focus entirely on media networks, films and pay-TV services
internationally.
See our complete analysis for News Corp
The Strategic Advantage Of The Deal
Sports programming is a lucrative business and ESPN represents
gold standard in the industry. Despite Disney (
DIS
) being a diversified media giant in terms of businesses it deals
in, ESPN alone contributes close to 45% to Disney's value. This is
due to high pay-TV penetration and high fee per subscriber charged
by ESPN. Similarly, Fox Sports is critical to News Corp. Just in
the U.S. alone, Fox Sports earns approximately $2.5 billion in
annual revenues from subscriptions, thus contributing close to 15%
to News Corp's stock.
Therefore, it makes sense for the company to aggressively pursue
the sports programming market and getting full control of Fox
Sports in the Australian market is the right move. A multitude of
international media networks are result of joint ventures between
big media companies from the U.S. and local media players. Wherever
it makes sense, News Corp will try to convert these joint ventures
to full ownerships. Sports programming is one such area given the
high fee per subscriber potential and sustained demand among the
viewers.
As far as Sky Italia is concerned, the value contribution is
low. However Foxtel's story could be different since the company
almost has a near monopoly over the Australian pay-TV market. News
Corp could use this to its advantage given that it owns content as
well, and continue to maintain that monopoly. It could also push
on-demand content from its library and thus charge additional fee
from subscribers.
Australian Market Is Small
Even though upscale, the overall market is small in Australia
given its low population. The Australian population is less than
10% of the U.S. population and that renders the overall revenue
potential a little low in comparison to many other potential
markets. Additionally, it is not yet clear whether News Corp will
be able to actually acquire Consolidated Media with its bid and it
is likely that it may face some challenge from other bidders.
Our current price estimate for News Corp which
stands at $26.50
, implying a premium of about 10% to the market price.
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