By Byron Kaye and Rishav Chatterjee
SYDNEY (Reuters) -Rupert Murdoch's News Corp (NASDAQ:NWSA) said it may sell Australian cable TV and streaming unit Foxtel after receiving an approach, a deal that would end its involvement in a high-overhead asset that has struggled to adapt to the Netflix (NASDAQ:NFLX) era.
News Corp said it was considering the deal in a trading update in which the division posted a 5% profit decline for the June quarter. Overall profit at News Corp, which split from Murdoch's Fox Corp in 2013, rose 11% in the period, led by its real estate listings business.
A review of the News Corp business units had "coincided recently with third-party interest in a potential transaction involving the Foxtel group", CEO Robert Thomson said in a statement.
"We are evaluating options ... with our advisors in light of that external interest."
A sale of Foxtel would relieve News Corp, which holds most of the Murdoch family's print mastheads like the Wall Street Journal and book publisher HarperCollins, of a business that looms large on the Australian media landscape but has faced disruption from cheap, narrow-margin streaming rivals.
With its set-top boxes installed alongside people's televisions, Foxtel once dominated Australian pay TV but it has shed subscribers who pay about A$100 ($66) a month for that service since Netflix, Disney and Amazon (NASDAQ:AMZN) began rushing out streaming offers for a fraction of the price.
Foxtel started its own streaming service in 2020, alongside the set-top boxes. That has offset a decline in higher-paying traditional subscriber numbers but not in subscriber revenue, which was up 1% in the June quarter.
"Selling it would eliminate a strategic dilemma that still haunts traditional media companies: how to milk the still-fat cash cow that is pay TV while trying to manage its decline," said Morningstar analyst Brian Han.
A drawcard for Foxtel subscribers, sports, leaves the company beholden to rapidly increasing costs to pay for broadcast rights, Han added.
News Corp's Australia-listed shares closed up 7.6% as investors cheered a better-than-expected result and the prospect of a resolution to questions about Foxtel's future ownership. U.S.-listed shares of the company were up 4% premarket on Friday.
The company didn't put a valuation on a sale of Foxtel. Using a valuation of four to six times gross annual profit, as suggested by Morgan Stanley in 2021, Foxtel would be worth between $1.24 billion and $1.86 billion based on its 2024 profit.
A spokesperson for Australian telco Telstra (OTC:TLGPY), which owns 35% of Foxtel, acknowledged the News Corp statement but declined to comment further.
($1 = 1.5168 Australian dollars)