Foxy Deal For News Corp. Helps Drive Stock To $20

News Corp. is Glee-ful

News Corp’s 20th Century Fox Studios recently signed a deal with NCR’s Blockbuster Express to delay DVD rentals by 28 days for new releases. This follows a similar deal that NCR signed with Universal last month.

Fox studios signed similar deals with Netflix earlier this year and Sony and Time Warner have also announced similar deals with distributors. At its root, studios are trying to protect potential sales from new releases in exchange for offering content to distributors like NCR or Netflix.

For News Corp, we estimate that Fox Studios constitutes about 18% of the stock and majority of that value is derived from DVD sales.

We currently have a $19.91 price estimate for News Corp, which is about 30% ahead of the current market price.

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Rentals, Streaming Replacing DVD Sales

As a result of increased digital distribution, a shift towards rentals and streaming content and increased piracy, the global demand for DVDs has been declining. Additionally, lackluster adoption of the new Blu-Ray disc format has not offset DVD declines.

According to a research report published by the Strategy Analytics earlier this year, global DVD sales decreased by 9% in 2009 amounting to $33 billion and are expected to further decline by 12% in 2010. While global Blu-Ray sales are predicted to reach $6.50 in 2010, they are not expected to offset drop in DVD sales.

New Distribution Necessary

News Corp must find new ways of monetizing its content in view of declining DVD sales. More digital distribution deals with online platforms like Netflix, Hulu etc. as well as pay-per-view and on-demand business are likely to help.

If DVDs sold per household drop to 5 per year by the end of Trefis forecast period, our price estimate can see a downside of 5%. We did not factor in additional pricing pressure on DVDs due to reduced demand in this scenario but include the chart above for you to make your own estimates.

You can see the complete $19.91 Trefis price estimate for News Corp’s stock here.

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2010-12-03 17:36:00

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