News Corp’s Australian arm is digesting the news of its first quarter-to-quarter fall in subscriber offerings. As confidence in unlimited blue-sky growth crashes into the hard ceiling of reality, it is time to ask: has the company in Australia reached its Netflix moment?
The market seems to think so. Shares in the US company slid about 7% in New York on Friday, more than undoing the tick-up out of January’s announced axing of plans to re-merge News Corp with Fox Corp.
The Australian arm seems most troubled. For the first quarter in a decade, subscriptions for its mastheads (The Australian and the capital city tabloids) are down on the previous quarter. So are subs to its legacy pay-TV and streaming services it’s trying to spin out of the Foxtel wreckage.
Most reporting on the company’s end-of-year report has focused on the profit dip — down 30% on the December quarter in 2021, largely due to exchange rate fluctuations (that is, a stronger US dollar and a significantly weaker British pound). Deeper analysts would be concerned about the slip to cashflow negative due to falls in operating income.
Australians should be looking at local subscription numbers. They not only foretell the company’s financial future but also how its political and cultural power will evolve.
The modern News Corp was spun off from Fox Corp in 2013, almost as a grab-bag of legacy assets, propped up by the cashflow-strong REA Group (and Fox’s commitment to underwrite the continuing drain of the UK hacking scandal — by 2020, costing about $1.6 billion).
Under CEO Robert Thomson, News Corp transformed itself with a pivot to a consumer-facing subscription business to replace lost advertising dollars.
Pat on the back: News Corp pulled it off, second only to The New York Times (where, we learnt this week, success seems to have been built off a beef stew recipe).
Quarter by quarter, News Corp’s Australian digital news mastheads grew through two distinct offerings: The Australian and the city tabloids. Last September’s quarterly earnings reported total subscriptions for the two had peaked at 929,000.
Looked good — until it didn’t. Suddenly, this past December quarter, it teetered, sliding to 924,000.
It may not seem like much, but it came matched with a slide over at Foxtel, with the legacy pay-TV and streaming services Kayo, Binge, Foxtel Now and Flash between them sliding about 136,000 subscribers in the quarter.
It contrasted with the continued digital subscription growth at the company’s Wall Street Journal (now about 4.14 million) and the London Times (now 489,000). More seriously, it came with recession fears and a corporate warning of hard times, which flagged a 5% cut to its global workforce.
Expect those cost cuts to drive the continuing shift in the internal balance of power in the Australian arm. Before the pivot to subscriptions, the tabloids held the power, while The Australian was a largely loss-leading luxury. Now it’s the other way around.
Although the company doesn’t release masthead-by-masthead figures, about a third of News’ total subscriptions are thought to be for the Oz. Expect the bulk of the impending cuts to be borne by local news, further turning the city tabloids into franchises of the company’s national tabloid product.
News Corp has also foreshadowed rises in the cover price of the print papers. Reduced print sales are likely, as well as a hurrying on of print’s eventual end.
Like the Netflix slide last year, the market will read News Corp’s subscription stutter through the business metaphor of the S-curve: the idea that innovations (like News’ pivot to reader subscriptions) trace an S. They start slowly, grow rapidly, then slow to maturity as the curve flattens as they saturate the market.
News Corp hurried its rise along the curve by increasing its Fox-like appeal to the grumpy old man demographic. The trouble is these subscription numbers make it look like that market is not only saturated but declining — literally, dying. The result? News Corp needs to run faster — become more hysterical — just to stand still where it is at the top of the S-curve.
Meanwhile, its streaming push is taking it into a market already saturated by players like Netflix, Stan and Disney, as well as niche competition like Optus Sport with the English Premier League.
It leaves News Corp in a tricky place, at least in Australia. Suddenly it seems its survival depends on finding a new idea, a new curve, to get it out of its demographic dead-end.
