This week, we heard the news that Rupert Murdoch will be splitting News Corp. into two separate entities: a publishing company and an entertainment firm. I have several reactions:
1. The News Corp split follows a familiar pattern. In the 1990s, we saw a number of media companies engaging a great deal of both horizontal and vertical integration (Viacom merges with CBS, AOL mergers with Time Warner, Disney buys ABC, etc) Now, we have seen the reversal of many of these strategies. I'm not surprised. Disney always had the strongest case for horizontal integration, because they leverage a highly valuable resource (the characters) across many business units. Other entertainment firms had far less synergy across their businesses.
2. One might argue that the media conglomerate phase of the past was a case of herd behavior. They all imitated one another in strategies of horizontal and vertical integration, without necessarily questioning the merits closely enough.
3. News Corp may not have a great deal of difficulty breaking up into two firms because of how they manage the business units. Murdoch always ran the units in a fairly decentralized manner. That always puzzled me, because it meant that they really weren't pursuing major synergies. On the other hand, that unit autonomy makes breaking up much easier, given the lack of strong interconnections.
4. One wonders how much cross-subsidization occurred in the past, with cash flow from the profitable, but mature publishing businesses to the higher growth entertainment businesses that needed cash to grow. If a great deal occurred, then it will be interesting to see how the entertainment business funds its growth moving forward. Meanwhile, investors may be very happy to see the cash flow from the publishing business returned directly to them (perhaps via strong dividends), for people to invest as they choose.