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Analysts: News Corp.’s Web Plan Carries Risk

Sep 19, 2005  •  Post A Comment

When it comes to gaining a foothold in the Internet space, the easy part for News Corp. might have been writing the checks.

The Rupert Murdoch-controlled media giant has been on a tear in recent weeks, spending well over $1 billion to buy three Internet companies, which almost immediately vaults News Corp. into the Internet big leagues. But as Mr. Murdoch realizes his dream of being a player in the Web space, questions exist regarding whether the company will be able to execute on its Internet plan and allow the assets to take advantage of the rapid growth in online advertising.

What’s more, the company has paid what some analysts consider a rather high price for entry into the Internet space, which only heightens the risk.

In the past few weeks the company has purchased Intermix Media, a company that owns more than 30 Web sites, including the popular social networking Web site MySpace.com, for $580 million; IGN Entertainment, an owner of male-oriented video gaming Web sites, for $650 million; and Scout Media, a college sports Web company for a sum that News Corp. won’t reveal but that some market observers have pegged at $100 million.

Each gives News Corp. a front-row seat in several areas the company has expressed interest in dominating, including entertainment, news and sports. But each business is unique, and the combination might not readily mesh well.

“[News Corp.] has bought relatively disparate assets through Intermix and IGN, and now has to integrate these, build a common culture, and also drive their core content from traditional media to Internet platforms that can achieve incremental revenue,” said William Drewry, a media analyst at Credit Suisse First Boston. “That is a tall order and unprecedented in the media sector.”

To be sure, News Corp. is not alone in trying to make a Web play. Nearly every major media company is looking to increase its presence online, and for good reason: Merrill Lynch estimates online advertising will grow to $25 billion in 2010 from $9.6 billion in 2004.

Furthermore, with an ever-growing number of consumers spending more time online, executives at traditional media companies are looking to gain a foothold on the Web to stay relevant with consumers.

What’s more, there’s a financial motivation: Merrill Lynch pointed out that so-called new media stocks outperformed traditional media stocks by 370 percent since mid-2001, and most executives at traditional media companies have been doing everything they can to improve their companies’ stock price, which have stagnated in recent years.

For its part, a News Corp. spokeswoman said the company has no plans to integrate its recently purchased Internet assets beyond placing them under the umbrella of the company’s online unit, Fox Interactive Media. She added that the companies purchased will remain independent, with each business operating separately.