Do Media Companies Get Better by Ditching Print?
Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
News Corp. (NASDAQ: NWS) recently spun off its video assets as Twenty-First Century Fox (NASDAQ: NWSA). That continues the trend of companies divesting their struggling print businesses to focus more heavily on growing assets. Is it the right move?
A dying business
Newspapers, magazines, and books are all in decline because of digital media. News Corp.'s move to free its cable, television, and movie assets from its print businesses was, thus, well received. Investors pushed the new company's shares up a meager 2%, but that left the company with a valuation in excess of media industry leader Disney (NYSE: DIS), according to Reuters' analysis.
Sum of the parts
The pure play Twenty-First Century Fox has notable assets, so it probably deserves a rich valuation. For example, it owns Fox News and regional sports networks that would be hard to replicate and succeed side by side with sports giant ESPN. Its movie and television library is also quite large at a time when such content is increasingly in demand online. And it owns cable and pay television assets.
Since the break only just occurred, there's no clean numbers to use as a comparison tool. However, it's hard to believe that the company is worth more than Disney. Investors should probably watch the shares for a pullback after the euphoria of the break wears off.
News Corp, meanwhile, is left with a large and challenged newspaper division. That includes the iconic Wall Street Journal and its loyal business customer base. In fact, the Journal is one of the few papers that's been able to charge for content and get away with it. It also has a number of valuable assets in foreign markets with a digital angle to them, like online real estate ads.
With investors focusing on Twenty-First Century's solid video position, investors might be interested in News Corp. Shares traded lower after the break and could continue to do so as investors view it as just a print company. However, based on the assets it owns, being tagged as a print company isn't exactly appropriate.
It's how you do it
Disney, notably, provides an interesting comparison to consider. The company's strength is clearly its video content. That led it to sell its Hyperion book business. However, it kept control of its kids books. In effect it only jettisoned its adult books. While this transaction probably got overlooked by many investors, it shows that the right printed media has value in the new world.
Disney shares trade with a price to earnings ratio of around 20 and are almost always afforded a premium in the market. The yield is about 1.1%. A bottom-line that's more than tripled over the past decade is a good reason for the positive view of the company. Growth investors should take a look and growth and income types should put Disney on their wish list. That it isn't giving up wholesale on print just because it's fashionable to do so speaks volumes about the company.
Gannett (NYSE: GCI) is another media giant bulking up its video arm. It recently inked a deal to acquire Belo for $1.5 billion. When completed, the transaction will nearly double Gannett's station count and increase its bargaining power with content creators. Investors sent the shares of both Belo and Gannett higher.
Gannett, however, has managed to succeed despite the struggles of its newspaper business. It had to retrench, slashing its dividend during the 2007 to 2009 recession. And earnings remain well below their pre-recession peak. However, the top and bottom-lines appear to be heading in the right direction again. And the dividend is on the mend, too.
While the company is clearly shifting its business, it might be a good fit for those who see value in a combination of print and video. A value priced PE of 13 and a 3% or so yield should interest income investors seeking a contrarian print play with a video safety valve.
Doubling down on print and its brand name is The New York Times (NYSE: NYT). The company is on track to sell off everything but its domestic and foreign Times businesses. The top-line has been in decline since 2005 and the bottom-line has bounced in and out of the red since that time. It's making a high-risk bet on its brand making the digital shift. While Disney and Gannett are probably better options, The New York Times is a high-risk, pure-print turnaround play with lots of upside if it works out.
So many companies
With so many companies dumping print outright, its worth paying attention to those that aren't. Disney, Gannett, and The New York Times all have interesting investment angles to them for the right investors. And, just because a company is labeled “print” doesn't mean it isn't moving with the times, which could make News Corp a buy if investors continue to shun the shares. Now separate Twenty-First Century Fox, meanwhile, is probably too dear right now because of investor enthusiasm.
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Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!