Philippa Kaur

BEFORE COVID-19 Hollywood was alight with franchise fever. All ten of 2019’s top-grossing films globally came from big studios and featured characters returning to the big screen. Directors such as Martin Scorsese fretted that Marvel’s superheroes would be the death of cinema. Cinema-owners would beg to differ. On March 10th AMC, the world’s biggest chain, which has recently become a darling of retail investors, reported a 77% fall in revenues last year, and a net loss of $4.6bn, in large part because Marvel and others have postponed releases until audiences come back.
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The dearth of blockbusters is reshaping box-office economics. Six of last year’s top-ten money-makers worldwide were not in English. Five were Chinese and one was Japanese. This reflects Asian countries’ ability to contain outbreaks more successfully than most of the West. It also points to another twist. As big productions have retreated, smaller ones have stepped in.
At least five of the ten highest-grossing films of 2020 had budgets under $100m, compared with one in 2019. Many of those lower down the charts did much better than their producers had hoped. In December IFC Films, an independent American studio, predicted that last year would be its most profitable ever. Its films, including “The Rental”, a horror flick, had longer theatrical runs in more cinemas than they would have had they been competing for screens with the Avengers. “After We Collided”, a romance distributed by Open Road Films, another indie studio, made $5m in Britain, ten times its expected haul (and nearly $50m worldwide).

The economics are changing for big studios, too. The handful of blockbusters released in the pandemic busted few blocks. Warner Bros’ “Wonder Woman 1984” had the best opening weekend in America last year, taking $17m, compared with the $103m that the earlier “Wonder Woman” earned in a comparable period four years ago. Warner’s parent firm, WarnerMedia (part of the AT&T telecoms group) plugged some of the gap with revenues from streaming the superheroine’s antics. According to Antenna, an analytics firm, WarnerMedia’s newish HBO Max platform gained more subscribers in the film’s first three days than any other streaming service gained in any three days of 2020.
Going straight to streaming could increase profits by cutting out cinema owners, who typically receive half the price of a ticket. It may also trim costs. With a quicker turnaround from big screen to small, studios save on marketing. Explosions and other special effects, a big reason why tentpole films cost between $100m and $200m to produce these days, lose some appeal when viewed in the living room. Sadly for Mr Scorsese, franchises are here to stay. Disney is planning more spin-offs for its Marvel and Star Wars characters—even if many never grace the silver screen. ■
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This article appeared in the Business section of the print edition under the headline “Go small” More

THE ABSENCE of vapour trails in a clear sky is an obvious sign that commercial aviation has been hit hard by covid-19. The upshot for the makers of the jet engines that create those ephemeral streaks—fewer planes sold, fewer flying hours and older aircraft retiring early as fleets are pruned—is a triple blow for an industry that mostly profits by keeping them in the air for years after they are sold.
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The immediate impact for the business, which is dominated by a handful of manufacturers, was on full display on March 11th. Rolls-Royce, a British company that competes with the aviation division of America’s General Electric (GE) to power long-haul wide-body jets, published grim results for 2020. The hit to commercial aerospace, source of half its revenues in 2019, led to an operating loss of £2bn ($2.8bn). It sold just 264 large engines, down from 510 the year before.
Rolls-Royce is likely to recover most slowly, because it makes engines only for the hardest-hit long-haul market. But Pratt & Whitney, a division of Raytheon, an aerospace-and-defence group, which vies with a joint venture between GE and Safran of France to make engines for short-haul planes, has also revealed a drop in revenues in 2020, of 20%. GE Aviation’s sales slipped by a third to $22bn and it is shedding 13,000 jobs, a quarter of the total.

The slump will have an impact for years. Engine-makers operate more like services firms than traditional manufacturers. They sell engines at cost (or even a loss) to build an “installed base”. For GE, the mightiest of the three, this amounts to 37,700 units. In an engine’s lifespan of 20 years or more, supplying spare parts and maintenance brings in three to five times the sale price, reckons Bernstein, a broker. Production cuts by Airbus and Boeing, which make the planes themselves, mean lower demand for engines. Capacity cuts by airlines are making matters worse. With early retirements and around a third of the fleet in storage, carriers can salvage planes for expensive spare parts or even swap entire engines due for a costly overhaul for those with fewer miles on the clock.
A merger between GECAS,’s huge plane-leasing unit, and Ireland’s AerCap, announced on March 10th, could also disrupt engine-makers. In recent years Airbus and Boeing have preferred to offer just one type of engine for new planes rather than a choice, which cuts their development costs. But it leaves airlines with less room to extract discounts from engine-makers by threatening to go with a rival. GECAS, with a fleet of over 1,000 planes, gave GE more power to insist that the two big planemakers opted for sole sourcing. Under new ownership its strategy may change.
Uncertainty over the next generation of aircraft is another headache. Last year Airbus said it is aiming for a net-zero-emissions plane by 2035, perhaps using hydrogen as a fuel. Boeing is looking into biofuels. Neither company has firm plans just yet. But such announcements worry Rolls-Royce, which has spent £500m on UltraFan, a more efficient engine but one that uses existing technology. If the planemakers are serious about going green, it could struggle to find customers. ■
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All our stories relating to the pandemic and the vaccines can be found on our coronavirus hub. You can also listen to The Jab, our new podcast on the race between injections and infections, and find trackers showing the global roll-out of vaccines, excess deaths by country and the virus’s spread across Europe and America.
This article appeared in the Business section of the print edition under the headline “Losing thrust” More

A BANKER TAPED a picture, drawn by one of his small children, to his office wall. When he arrived at work the next morning, he found the picture was covered by a large notice, saying he was in violation of company policy which required personal items to be put away at night. Such a reaction was not just petty, it risked demotivating the banker completely. In short, it defied common sense.
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Martin Lindstrom is a management consultant who spends his time battling the kind of corporate red tape that alienates customers, as well as employees. He has even persuaded some companies to establish special departments to fight this nonsense, sometimes dubbed “The Ministry of Common Sense”, which is the title of his latest book.
As Mr Lindstrom says, successful companies are able to put themselves in their customers’ shoes, and this leads to better service and sensible solutions. He once advised a credit-card issuer which had poor ratings for customer service. So he booked a restaurant for dinner with the executives, but got the fraud division to ensure their credit cards did not work. When one manager tried to pay for the taxi, he then watched their fury and embarrassment as they tried to get through to the call centre themselves.

The author came across another example of poor customer satisfaction at Maersk, a big shipping company. On investigating the matter, he found that call-centre employees were judged on the time spent per complaint. The firm changed the metric for judging success from time spent to other factors, such as issue resolution. Customer satisfaction nearly doubled. Later the company suffered a cyber-attack which meant that the headquarters lost contact with its ships. The chief executive issued a directive to staff to “do what you think is right to serve the customer”. This flexibility helped the company to survive the crisis and improved employee engagement.
Often the problem stems from new regulations being introduced without thinking through the implications. The pandemic has provided plenty of examples of new rules that lack common sense. On a flight last year, Mr Lindstrom flew from Zurich to Frankfurt. The crew asked passengers to fill in a form detailing where they were from and where they were going, in order that they could be traced in case others became infected. But there were only two pens on board so the writing implements were passed from hand to germy hand. When they left the plane the passengers were asked to keep six feet apart as they filed down the steps before they reached the bottom, whereupon they were crammed onto a packed shuttle bus.
When it comes to dealing with employees, budgeting rules are often the cause of frustration. Many companies insist that workers travel on a certain set of airlines, even when cheaper options are available, and insist they stay in certain chains of hotels, even though they may be many miles away from the site they are visiting. Mr Lindstrom recounts the story of a junior manager who had an executive shadow him for a day. To illustrate the problem, he decided to take the executive on a business trip. This required a 6.05am flight (the cheapest available); the executive agreed but took a business-class seat, which was against company policy. The executive then tried to read his emails on the plane—another breach of the rules, because the company required employees to access emails only when they were linked to a secure network. That regulation ensured they were out of reach for hours at a stretch.

Why can’t companies escape all this nonsense? Part of the problem is that bureaucracy has an innate tendency to multiply. Successful companies have only three or four reporting levels. Every reporting layer adds 10% to an employee’s workload, Mr Lindstrom estimates. And bureaucracy also means that employees’ time gets consumed by endless meetings, as Bartleby has often complained. Such gatherings should last no more than half an hour, says the author, who should clearly be hired by The Economist immediately.
In many companies, meaningful change could be achieved if the management just asked the staff. Most employees will be able to cite rules or practices that make it harder for them to do their jobs and to serve customers properly. Creating a special unit to push through the changes is a sensible idea, provided it has the support of senior management. That, of course, requires executives to have the common sense to appreciate that change is needed. Employees and customers can only hope they do.
This article appeared in the Business section of the print edition under the headline “When common sense fails” More

FOR A MAN of creative genius, monkish calm and austere wabi sabi aesthetic, Jack Dorsey is remarkably good at making investors mad. Scott Galloway, a podcaster and business-school professor, has raged on air to have him sacked from Twitter, which Mr Dorsey co-founded and runs, and in which Mr Galloway owns shares. Wall Street showed similar apoplexy on March 4th when Square, his other co-creation, offered almost $300m to buy a weak music-streaming service founded by Jay-Z, the rapper who is one of Mr Dorsey’s buddies. In one day Square’s value plunged by over $7bn. As Vox, an online news site, put it: “WTF?”
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And yet, like Elon Musk, another of his friends whom Wall Street loves to hate, Mr Dorsey has done rather well for his investors of late. A year ago, with activists such as Elliott Management (and Mr Galloway) baying for his blood at Twitter, the man dubbed a “part-time CEO” got stuck in. Since then the value of the social-media site has doubled to more than $50bn. That of Square, a digital-payments firm, has tripled to more than $100bn. (The chairman of The Economist’s parent company is a director of Square.) Moreover, the two companies have exemplified a powerful trend: that of Silicon Valley’s second-tier firms (think, as well, of Snap, Pinterest and PayPal) winning momentum back from the tech giants. All in all, it has not been a bad 12 months for Mr Dorsey, considering he once planned to spend half the year on a tour of Africa.

Less-big tech’s rocketing values have subsided in recent weeks amid rising bond yields and tech fatigue as the covid-19 pandemic ebbs. But these firms continue to show promise, few more so than Twitter and Square. That is partly because Mr Dorsey’s feet are still being put to the fire. It is also because, individually, each of his two firms has plenty of room to grow. And whispers can be heard in the Twittersphere of an even more tantalising prospect: merging the two to create a WeChat-like super-app. It would not be a perfect fit, and Mr Dorsey might have to step aside if the combination is to be pulled off. Then again, imperfection and transience are two of the hallmarks of wabi sabi.
Twitter and Square have different attractions. With 192m users compared with Facebook’s 1.8bn, Twitter punches below its weight in social media. It courts controversy; Mr Galloway chides it as an alliance between the elite and the mob. Its shares have serially underperformed those of tech rivals. Yet its name has global resonance. And it is at last building new services (such as Spaces, a digital venue for audio gabfests) and buying others (like Revue for long-form writing) that appeal to both users and investors.
Square started life as a cheap, white credit-card reader attached to mobile phones (one is exhibited in New York’s Museum of Modern Art). It has brought millions of small merchants into the payments system. Its Cash App business, enabling person-to-person cash transfers, as well as share and bitcoin trading, did the same for individuals; it now has 36m users. Though not a household name, Square’s share price has outperformed Twitter’s by ten times since its initial public offering in 2015. If the challenge for Twitter is to transform low expectations, for Square it is, if anything, to live up to sky-high ones.

One way of doing that in a single stroke would be to use Square’s highly valued shares to buy Twitter’s cheaper ones. The aim would be to create a supermarket-style platform of digital services. Twitter offers global name recognition, entertainment and engagement, a direct-messaging service (albeit not the best out there) and a roster of big brands that advertise on it. Square has minimal international presence, but offers cash payments and financial services, a customer base of small and medium-sized firms, and skill at tapping the unbanked that could extend to billions of the world’s poor.
Even Tidal, Jay-Z’s music-streaming service, could fit—at a push. As @JohnStCapital, a mysterious but astute financial pundit who has called for Twitter and Square to merge since 2019, put it on March 4th, imagine a monthly subscription service that encapsulates music streaming, share and cryptocurrency trading, personal-finance tools, newsletters, podcasts and Twitter—all without ads. “If @Jack tucks in $TWTR…it could be a real game changer,” @JohnStCapital tweeted.
Investors in both Square and Twitter may well recoil at the idea. A similar marriage of convenience between Mr Musk’s electric-car company, Tesla, and his energy company, SolarCity, did not inspire confidence, because it was seen as a bail-out of the latter. Square and Twitter do not necessarily need one another. Square is already morphing into a financial super-app, with or without Twitter. Twitter’s immediate priority is to complete its transformation into a company that reliably increases revenues. Mr Dorsey’s dedication to the boring minutiae of running companies has long been open to question. Investors might not be wholly confident in his ability to oversee such a transaction, even with so much of his own wealth at stake.
Still, do not count it out. Already both his companies are making complementary moves. If Twitter delves deeper into e-commerce, as it hopes to, a payments arm like Square would be useful. Furthermore, Twitter plans to launch an innovative service called Super Follows, in which users pay for premium content from members of the Twitterati with particularly large followings. Tidal could offer something similar to musicians via Square.
Squaring up for a fight
Whatever may be in the back of Mr Dorsey’s mind, the prospect of mergers and acquisitions among Silicon Valley’s challenger firms is worth considering anyway. So far they have done bolt-on takeovers. But if they really want to generate scale, they should do transformative ones. The heightened competition would be a big test for the tech giants. For Mr Dorsey it would be a big test of his naming skills: Squitter? Squatter? Twitcoin, anyone? ■
This article appeared in the Business section of the print edition under the headline “Jack Dorsey’s split personality” More

AS A BUDDHIST priest performed last rites at a temple in Tokyo, Naganuma Fumihiro, an entrepreneur, beamed. It was in fact a celebration: he and two colleagues had gathered to send scores of hanko, the personal seals that epitomise Japan’s analogue business practices, to the afterlife. “It’s not quite the Meiji restoration, but it’s a big turning-point, a paradigm shift for working culture,” Mr Naganuma said.
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Covid-19 has turbocharged digitisation around the world. But for all its technophile reputation, Japan has more ground to make up than other big economies in its embrace of information technology (IT). “Japan is a developing country in terms of IT,” Mr Naganuma laments, exaggerating only slightly.
Business culture displays a stubborn attachment to face-to-face contact. Bosses put a premium on staff’s presence at their desks. Firms invest little in IT compared with rivals in many countries, and only reluctantly adopt new technology to sell and promote products. Offices are stacked with paper and schedules packed with meetings. According to Morgan Stanley, an investment bank, “inefficiencies abound in numerous commercial practices.”

The pandemic provoked a reckoning. In the race to lead the ruling Liberal Democratic Party last year the traditional economic battleground of monetary policy faded into the background, notes Yamaoka Hiromi, a former senior central banker who now sits on the board of Future Corporation, a technology consultancy. Instead, he says, “the conversation has shifted to enhancing the efficiency of business practices.” All three candidates played up their digitisation plans. The winner, Suga Yoshihide, has made a priority of digitising government services to reduce the administrative burden on individuals and firms. “We need to develop a non-face-to-face model,” explains Nishimura Yasutoshi, the minister in charge of economic revitalisation. This week parliament began debating a bill to create a new digital agency.
One pre-pandemic government study found that firms which allowed teleworking were 60% more productive than those that did not. The direction of causation is unclear. The result could be a sign that hyper-efficient firms on the cutting edge are simply more likely to adopt whizzy technology. But such findings help persuade more companies to test the hypothesis that digitisation boosts productivity.
Firms that sell computer programs for things like secure electronic signatures, transcribing paper documents into digital formats or setting up online stores have seen their share prices boom. Sansan, a database-software firm, has high hopes for its electronic business-card service, which digitises the ritual most emblematic of the face-to-face business culture. “Trading business cards is something that everyone does,” says Kawamura Ryota, a product manager at Sansan. “Online business cards will gain traction as long as there are online meetings.” Mizuho, a big financial group, has eliminated paper documents at its bank branches.

Digitisation is also infecting industries that peddle in bits and bobs, not bytes. A hulking excavator fills the lobby of the Tokyo headquarters of Komatsu, one of the world’s biggest producers of construction equipment. But in the offices upstairs employees are digging through data to build the company’s smart-construction business, which digitises workflows at building sites. Covid-19 brought “a rapid decline in resistance” to such innovations, reports Chikashi Shike, head of the smart-construction division. Japan’s other champions of heavier industry are similarly keen. East Japan Railway Company wants to turn its popular digital transit cards into a payments platform.
A presence in the office is less vital, too. After having teleworking foisted on them, some of Japan’s largest firms, including Fujitsu and Hitachi, two industrial conglomerates, have announced that they will make flexible schedules permanent. Nomura, Japan’s biggest broker, recently announced a plan to allow employees to spend up to 60% of their time working remotely after the pandemic. Dentsu, Japan’s advertising giant, is said to want to sell its Tokyo headquarters.
The sentiment is not universal. Whereas some bosses have embraced more flexible working arrangements, others still want employees to be back at their desks, fearing that the productivity improvements of remote work are uncertain at best. Small and medium-sized businesses are often technological laggards. They account for over 99% of all firms and around 70% of jobs, but just 5% of spending on research and development, compared with an average of 30% in the OECD, a club of mostly rich countries. “You have some of the best services in the world, but they are wildly inefficient,” says Jordan Fisher, the American co-founder of Zehitomo, a Japanese startup that offers an online marketplace for offline household services from piano lessons to plumbing. At least, he adds, “because Japan is so far behind, it can actually leapfrog.” ■
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All our stories relating to the pandemic and the vaccines can be found on our coronavirus hub. You can also listen to The Jab, our new podcast on the race between injections and infections, and find trackers showing the global roll-out of vaccines, excess deaths by country and the virus’s spread across Europe and America.
This article appeared in the Business section of the print edition under the headline “Japan Inc goes digital” More

Editor’s note (March 11th 2021): This is an updated version of an article published in the print edition of February 20th 2021.
WANDER AROUND Seoul’s residential neighbourhoods at dawn and you will invariably encounter a Coupang delivery van. In the past few years South Korea’s mini-Amazon has parked itself in a choice spot amid a crowded e-commerce market by steadily expanding the range of products it offers to deliver in time for breakfast, so long as customers order before midnight. Some items arrive the same day. The strategy looked sensible before the covid-19 pandemic. After 2020 it looks inspired. Coupang’s revenue nearly doubled from $6.3bn in 2019 to $12bn last year. It employs 50,000 people, twice as many as a year ago, and controls a quarter of South Korean e-commerce, up from 18% in 2019, according to Digieco, a research firm.

The 11-year-old firm has yet to make money—its cumulative $4.1bn loss so far has been bankrolled by venture capital, notably SoftBank’s $100bn Vision Fund, which had acquired a 37% stake, according to estimates by Bloomberg. Cashflow has improved, says Kim Myoung-joo of Mirae Asset Daewoo, an investment firm in Seoul. But it needs more capital to grow.

Happily for Coupang, investors’ appetite for startups seems insatiable. On March 10th it raised $4.6bn in an initial public offering on the New York Stock Exchange. It was the biggest listing in America since Uber went public in 2019, and the biggest by a foreign firm since Alibaba, China’s giant e-emporium, listed its shares in 2014. The price of Coupang’s shares shot up by 81% when they started trading on March 11th. The company ended the day worth a cool $85bn—about as much as Target, a thriving retailer with revenues that are eight times higher than the South Korean firm’s.

Coupang is the latest in a generation of young e-commerce stars nibbling at the heels of Amazon and Alibaba, a Chinese titan. The incumbents are being challenged at home (by Shopify in Amazon’s American backyard, and Meituan and Pinduoduo in Alibaba’s), as well as in places like Latin America (by Argentina’s MercadoLibre) or South-East Asia (by Sea, a Singaporean group). The upstarts’ sales have soared of late (see chart). In the past 12 months they have more than quadrupled their combined stockmarket value, to $1trn.

With no known plans to expand abroad, Coupang’s prospects depend on fending off local rivals. These range from the e-commerce arms of big conglomerates such as Lotte and Shinsegae to internet platforms like Naver and upstarts like Baemin, a food-delivery service backed by Germany’s Delivery Hero. To extend its dominance Coupang must thus continue to nurture the customer goodwill it has garnered thanks to those pre-dawn deliveries. The firm prides itself on employing delivery workers directly, and has a newsroom section dedicated to correcting allegations, for instance over working conditions, that it deems false or distorted.

But it has not escaped scrutiny of the e-commerce industry. Earlier this month it had to apologise after a government commission classified the death of a young contract worker at one of its logistics centres as an industrial accident. This week a labour union in South Korea claimed that eight Coupang workers had died over the past year as a result of overwork, including two in recent days. The company said it would “actively co-operate in the processes of determining the cause of death”. It also said that it “will work harder to protect the health and safety of its workers”.

Even if it manages to keep consumers on its side, as seems likely, long-term growth could require looking beyond fulfilment and logistics, thinks Ms Kim. MercadoLibre and Sea owe significant chunks of their rich valuations to adjacent businesses, from e-payments to gaming. To thrive in South Korea’s isolated online ecosystem, Coupang may need to occupy more than one niche. More

ONE PORTENT of a meme stock being born is when the company gets a pseudo-ticker on WallStreetBets, an online forum on Reddit. Roblox, an American video-game platform, has earned the tag $SEARS. Redditors aren’t mixing it up with a stodgy old department store. Roblox’s digital currency, Robux, sounds like Roebuck, of Sears Roebuck fame. Get it?Roblox ticks other meme-stock boxes, too. The kids are into it, just as they were into GameStop, an ailing bricks-and-mortar gaming retailer whose share price soared earlier this year. Unlike GameStop, though, Roblox is all the rage with venture capitalists, Wall Street bankers and other supposedly hard-headed investors. The firm’s private valuation soared from $4bn at the start of last year to $29.5bn in January, when it raised $520m. It is so flush with cash that it has decided to go public via a direct listing, without drumming up fresh capital. As its shares debut on the New York Stock Exchange on March 10th its market value could rise further.Roblox provides sophisticated software tools to young, amateur developers. Those creators—Roblox has 8m of them—produce multiplayer games for other youngsters. The company makes money by issuing Robux, which players buy with real dollars and spend on extras such as avatar outfits and accessories. It keeps some of the revenue but forks as much as 70% over to the developers in the hope of incentivising more and better content.This, it hopes, will attract more players in need of more Robux. In 2020 Roblox’s developer community collectively earned $329m; 300 individuals brought in $100,000 or more. The approach has fostered loyalty among developers. Creators like Alex Balfanz, a student who made millions and paid his college fees with “Jailbreak”, a hit game, plans to create for Roblox for a decade or more.Use of Roblox soared after covid-19 cancelled school and real-world playdates everywhere. The site now boasts 20m gaming “experiences” that draw 37m daily active users globally. Three in four American children aged 9-12 are on the platform, as is one in two British ten-year-olds. In Roblox’s last fiscal year users bought and spent $1.9bn worth of the currency.Once the school gates open, as Roblox has warned, its rate of growth is likely to slow. By how much is anyone’s bet. Not that this will bother investors. Professionals like its growth story. Day-traders may like the meme-ness. Neither is much bothered about the company’s net losses, which swelled to $195m in the nine months to September 2020 as it invests in expansion. As a result, Bernstein, a broker, reckons that Roblox shares could fetch anywhere between $30 and $120 apiece when they start trading.Long-term success will depend on attracting an older audience. Roblox has already penetrated the 8-15 age range. “Ageing up” is a priority for Roblox’s co-founder and boss, David Baszucki. So is lifting the quality of games. Roblox’s exciting game play has pulled in a massive audience but even ten-year-olds can tell that visual realism of many games is not up to the standard of professional studios. Still, Mr Balfanz argues that it will take just one big hit for Roblox to get traction with 20-somethings quickly.Roblox holds interest for techies as well as investors. They want to see if the firm really is, as Mr Baszucki describes it, a shepherd for the “metaverse”, the idea of a persistent virtual world in which people meet, experience things together, make money and more. Futurists and techies have speculated about this possibility for years. The Roblox economy and its virtual music concerts, like one with Lil Nas X, a rapper, in November, could be a start. The firm may look like child’s play, says Herman Narula, co-founder of Improbable, a virtual-worlds company, but platforms like it may soon become “the primary way that many of us earn a living”. Perhaps. For the time being, it is likely to make tidy sums for its financial backers. More

Birthday parties in pandemics are dreary, even for billionaires. But Rupert Murdoch’s 90th, which he will celebrate on March 11th, should at least be less stressful than his 80th. Back then British detectives were burrowing into a subsidiary of his firm, News Corporation, then the world’s fourth-largest media company, for evidence that its journalists had hacked phones and bribed police. Several convictions later, and following the closure of the 168-year-old News of the World, Mr Murdoch was hauled before a British parliamentary inquiry on what he called “the most humble day of my life”.

A decade on from the near-collapse of his empire, things are going rather better for the Australian-born tycoon. The phone-hacking scandal has receded. The choicest assets in his collection have been sold to Disney at the top of the market. Fox News is America’s most popular (if also its most despised) cable channel. And in a coup last month, Mr Murdoch forced tech giants to pay for linking to his content. “He has the money. He has huge amounts of political power. He has it all,” says Claire Enders, a veteran media-watcher.
As he prepares to pass it all on, the outlook is clouding over. Cable television is in hastening decline. A looming legal problem could prove even costlier than the phone-hacking affair. And the succession question—a decades-long saga which HBO, a rival network, cheekily dramatised—lingers on. Mr Murdoch is still the force that holds together a formidable commercial and political project. It may not stay intact without him.
The humbling experience of the phone-hacking affair turned out to be a blessing. It forced Mr Murdoch to split News Corporation in two, putting the lucrative TV and film assets into 21st Century Fox (which analysts nicknamed “Good Co”). The scandal-hit newspapers were quarantined in News Corp (“Crap Co”). As the firms were modernised and power devolved to Mr Murdoch’s sons, Lachlan and James, investors returned. In his boldest move, in 2019, the great consolidator of the media business realised that it was time to become prey rather than predator, and sold most of the 21st Century film and TV business to Disney for $71bn. Ms Enders and colleagues calculate that since 2011 the holdings of the Murdoch family trust, which has nearly 40% of voting shares in each company, have appreciated more than six-fold.

The next chapter will be trickier. Start with Fox, the larger company, with a market capitalisation of $22bn. The pandemic has sped the decade-long decline of American cable TV. Last year cable subscriptions fell by 7.3%, to levels not seen in nearly 30 years. Fox, whose gross operating profit last financial year was $2.8bn, has been insulated from this trend by its focus on news and sport, which streaming companies have yet to snatch. But something has changed. Whereas Fox used to trade at a premium to ViacomCBS and Discovery, two cable rivals, it now trades at a 30% discount (see chart 1).
One reason is that the streamers are coming for sport. Amazon already covers the National Football League and is reportedly looking to acquire exclusive rights to some American-football games. Leagues want to reach young fans, and cannot get them on cable TV, where two-thirds of viewers are over 50. So cable companies are moving sport onto their own streaming services. Disney has ESPN+; Comcast announced in January that it would shut down its NBC Sports Network and shift programming to its Peacock service. Michael Nathanson, a media analyst, notes that without a streaming platform for sports, Fox is “the odd man out”.
Fox News, where Fox made about 80% of its money last year, has problems of a different sort. Its close relationship with Donald Trump’s White House generated record ratings, but alienated advertisers and some investors. “Any company you hold, you want to see behave ethically,” says one large shareholder. Fox is “in that grey area right now. It’s defensible, but it’s far less defensible than it was.” Smartmatic, an election-software company, is suing the company for $2.7bn for airing ludicrous claims that it rigged the presidential election. (Fox says it will fight the “meritless” lawsuit.) That sum would exceed the phone-hacking payouts.
Fox has reined in its support for Mr Trump, only to see viewers depart for ultra-conservative upstarts like Newsmax and One America News. Fox News remains the most-watched cable channel in primetime. But viewership in February was down by 30%, year on year, even as that of its rivals, CNN and MSNBC, rose by 61% and 23%. One former Fox executive observes that, like Mr Trump’s Republican Party, Fox News was trapped into “super-serving” an ultra-conservative minority of its audience. Now it risks losing it, without attracting less kooky viewers.

Ironically, “Crap Co” is having a better time. Newspapers in America, Britain and Australia provide the largest chunk of its revenue, followed by Australian pay-TV and HarperCollins publishing. But the biggest contributor to profits is its majority stakes in REA Group and Move, two online real-estate advertising companies (see chart 2). News Corp’s share price has nearly trebled from its trough last April, thanks in large part to a surge in REA’s shares.
Like Fox, the newspapers have had to deal with a global shift of advertising online. Ten years ago the Murdoch companies were collectively the world’s third-largest seller of ads, says Brian Wieser of GroupM, the biggest media-buyer. Now they are outside the top ten. But the newspapers are further along the digital transition than Fox is. Online subscriptions account for three-quarters of the total at the Wall Street Journal; even the New York Post, a perennially loss-making tabloid, reported a modest profit in the last quarter of 2020. A recent deal with Google will see the tech colossus pay News Corp for content as a result of a law passed by the Australian government, which News Corp’s papers have backed. “The terms of trade for content are changing fundamentally,” Robert Thomson, News Corp’s chief executive, said on March 4th.
Still, with a market capitalisation of less than $14bn, News Corp is worth less than the sum of its eclectic parts. Mr Thomson insists it is on a “course of simplification”, having sold assets such as Amplify, an online education business, and Unruly, a video-ad platform. Many analysts think it should go further and separate the news businesses from the real-estate ones. At the moment, investors seeking growth are attracted by the property portfolio but put off by the legacy news brands, whereas investors looking for value like the newspapers but not the real estate.
Some also see a case for breaking up Fox. Mr Nathanson has argued that the firm should sell its broadcast-TV assets and sports channels, which the market seems to undervalue. Perhaps even Fox News could be spun off, if a buyer could be found: the brand is so controversial that it is all but unsellable, Ms Enders believes. A full leveraged buyout of Fox could generate an annualised return on investment of roughly 25% over five years, calculates Morgan Stanley, an investment bank.

The biggest impediment to restructuring either firm’s portfolio may be Mr Murdoch himself. When power is eventually handed down, “a break-up story will gain momentum,” believes Brian Han of Morningstar, a broker. Will the next generation be willing to carve the empire up? And which of them will call the shots?
The son wot won it
Lachlan is already installed as chief executive of Fox and co-chairman of News Corp. At Fox he has backed Tubi, an ad-supported streaming service, sports-betting ventures and Credible Labs, a credit-scoring agency. None is an obvious fit with the core news business. Insiders think he would be reluctant to trim the legacy assets. Particularly in Australia, “there is a lot of history that [Lachlan] feels very deeply part of,” says a former News Corp executive. “It doesn’t lend itself to clear-headedness.” Lachlan has “stars in his eyes” and wants to build the family empire back up through acquisitions, believes one disapproving shareholder (who also fumes at Lachlan’s recent purchase of the most expensive home in Los Angeles).

Whatever he wants, Lachlan may not get his way. On Rupert’s death, control of the family trust will pass to his four eldest children. James, who now has little to do with his father and brother, has made clear his disapproval of the right-wing editorial line and does not seem attached to the legacy businesses. Elisabeth has warned of the dangers of “profit without purpose” in the media. With their elder sister Prudence, who keeps a lower profile, they could alter the course of both companies.
If the future of the firms is determined not just by commercial logic but by family politics, that would be fitting. The assets in play are political as much as they are economic. The purpose of the Murdoch empire has always been to wield power as well as to make money. “What is Fox News for?” asks a former executive. “Fomenting insurrection.” Both Fox and News Corp may yet face one themselves. More