Foxtel to drive new News Corp

News Corp’s 50% stake in Australian broadcaster Foxtel will be the single largest contributor to the earnings of the firm’s newly separated publishing arm, according to a bullish report from broker Credit Suisse.

The new News Corp’s pay TV assets, including the wholly owned Fox Sports Australia, 61%-owned online real estate advertiser REA Group and the Foxtel stake, will account for 57% of the group’s earnings before interest and tax, it said.

“We expect growth in these areas to outweigh declines in the traditional publishing business,” said Credit Suisse analyst Samantha Carleton, who predicted pay TV will account for 73% of group earnings by fiscal 2018.

She described Foxtel as “virtually unique among rich world pay TV platforms as a true monopoly in an underpenetrated market.”

Pay TV penetration in Australia is a relatively low 30%, which Foxtel aims to address in the middle of the year by launching Foxtel Play, a package of channels and movies pitched at non-subscribers. It will be available on multiple internet-connected devices for a monthly fee starting at A$25, with no lock-in contracts.

The broker valued News Corp’s entertainment arm 21st Century Fox at A$30 per share and the new News Corp at A$6 per share. Both new businesses will have strong balance sheets and are likely to continue to invest organically and via acquisition, Carleton said. They will increase returns to shareholders in the form of a buyback for 21st Century Fox or a higher payout for New News Corp.

News Corp split into two companies in October, one operating as a newspaper and book publisher and retaining the News Corp name, while the group’s entertainment interests now come under 21st Century Fox.