(By Mani) News Corp. (NASDAQ:NWSA), (NASDAQ:NWS) splitting in to two entities is a positive move, perhaps the biggest one in the company's 90-year history. However, the company may need to address several concerns over its publishing business and the ongoing phone hacking incident.
The media giant will split its publishing and media and entertainment businesses in to two different entities. The move came after an embarrassing phone hacking scandal that led to the shutdown of its 'News of the World' tabloid in July 2011and forced the company to drop its proposed takeover of pay-TV group BSkyB (LON:BSY).
Another factor is that the company is making less money in its publishing unit as its cable network and filmed entertainment divisions accounted for a major chunk of revenue and profits in the last quarter.
The separation would create a new global media and entertainment company that would consist of News Corp's highly-profitable Fox Broadcasting cable network, Twentieth Century Fox Film studio, and pay-TV assets in Europe and India.
As a pure-play content producer and distributor, the company should benefit from its strong, premium content for distribution, industry's leading movie and TV production and distribution assets.
In addition, the entertainment company would benefit from its rapidly growing, high-margin cable network and pay-TV business, and the distribution capabilities across North and South America, Europe and Asia.
On the other hand, the publishing business would house leading brands such as Dow Jones, The Wall Street Journal and HarperCollins. The company hopes that the unit would leverage its brands for innovation and value creation across all traditional and digital platforms. Notably, investors would benefit from strong and consistent free cash flow generated by these businesses over multiple platforms.
However, skeptics are concerned that how the company would turnaround the publishing unit amid sagging newspaper industry that is facing tough competition from online newspapers and free content in internet. Also, the newspaper business relies a lot on cyclical events such as elections for ad revenues.