It’s hard to tell where the financial fallout of Rupert Murdoch’s media woes could end. The phone-hacking scandal over British tabloid News of the World last week caused a whopping 15% drop in the company’s stock price. Now the FBI has jumped into the fray by opening its own probe into whether News Corp employees hacked into the private calls of 9/11 victims and their families. The stock rebounded Wednesday, after Murdoch withdrew his bid for British broadcaster BSkyB in response to public backlash. But that hasn’t eased the minds of many nervous investors who fear the company’s tabloid troubles could continue to spread. At this point, those concerns still seem overblown, and here’s why:
It’s clear that Murdoch has failed to contain the scandal in Britain. His shuddering of the 168-year old newspaper News of the World, followed by his decision to scrap the company’s $14 billion plan to buy full ownership of BSkyB, is bound to hurt NewsCorp’s UK ambitions. But let’s say Murdoch were forced to sell off all his British newspapers in an attempt to put out the fire. Would that be so bad? It’s worth remembering that British newspapers aren’t the crown jewels of Murdoch’s media empire. Far from it. After media flop the New York Post, they’re the least profitable business on News Corp’s books, accounting for a mere 3% of the company’s operating income.
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Whether the scandal could extend to Murdoch’s U.S. publications, like the Wall Street Journal and the Post, is also — in the corporate sense — no big deal. News Corp’s newspaper operations in the U.S., UK, and Australia combined make up only 10% of the company’s business, which, in the grand scheme of News Corp’s future, makes their downfall small potatoes. “The perception is this is a big newspaper business, but that’s just not the case anymore,” says RBC Capital Markets analyst David Bank. In fact, the tabloid scandal could actually be a boon to investors if it “gives News Corp an excuse to get out of those bad businesses,” says Bank. Most investors have been itching for News Corp to ditch its newspaper endeavors, which, while close to Murdoch’s heart, offer little in the way of growth.
The crown jewels of News Corp are its cable networks, worth $2.8 billion of the company’s nearly $5 billion in profits. And they’re doing just fine. The networks’ 57% share of the company’s profits has more than doubled from 20% just two years ago, thanks to growing demand for paid TV abroad, especially in emerging markets like Brazil. That growth is only expected to continue as more emerging consumers sign up for paid TV. “They get in markets very early, they have scale, and they’re growing very quickly,” says Bank of America analyst Jessica Cohen. In fact, much of the company’s growth isn’t in the U.S., where cable providers have already nabbed the bulk of cable viewers. Whereas roughly 90% of U.S. consumers have already caught onto cable, in Brazil, only 20% can say the same (and that’s up from 15% in just one year).
As for Murdoch’s remaining 39% stake in BSkyB (worth roughly $7.8 billion), the jury is still out on what will happen there. British regulators have yet to decide if Murdoch is “fit and proper” to continue owning it. But even if News Corp were forced to sell, the $7.8 billion it would get back in cash has plenty of other uses (see India, China, Eastern Europe and other cable markets abroad). And in the meantime, News Corp still has a boatload of cash to throw investors’ way to keep them from jumping ship.
Now, if Britain’s unsavory reporting practices happened to spread all the way over to Murdoch’s highly-profitable Fox Network, that would be bad. But you’d have to find wrongdoing high up on the corporate ladder for that to be the case. Until then, stakes in News Corp are looking cheap.
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Roya Wolverson writes for TIME. Find her on Twitter at @royaclare. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.