News Corp, the media behemoth synonymous with the Murdoch name, has been quietly undergoing a dramatic transformation, one that has largely slipped under the radar of analysts fixated on the company's ongoing structural review. The whispers of potential spin-offs and asset realignments have drowned out the powerful hum of a digital engine that has fundamentally reshaped the company's revenue composition. While the world waits with bated breath for the next tectonic shift in the Murdoch empire, a seismic change has already taken place, one that points towards a future far more dynamic and explosive than anyone anticipates.

News Corp's Q3 2024 earnings transcript reveals a startling statistic, one that unveils the magnitude of this silent digital revolution. In a mere decade, advertising revenue, once accounting for nearly half of the company's total, has plummeted to a paltry 8%. To put that into perspective, imagine a media titan willingly shedding its reliance on the very lifeblood of traditional media, a move that would have been deemed unthinkable just a few years ago. This deliberate shift away from the often-volatile world of advertising towards a more stable, recurring revenue model signals a fundamental understanding of the evolving media landscape, one where digital subscriptions and information services reign supreme.

But this is not a mere retreat from a fading model; it's a calculated advance towards a future where data, information, and premium content hold the keys to unlocking immense value. This shift is exemplified by the ascent of Dow Jones, the segment housing the Wall Street Journal and a burgeoning professional information business (PIB). Dow Jones, once synonymous primarily with financial news, has emerged as a powerhouse earnings engine, driven by double-digit revenue growth in its PIB segment. This segment, characterized by high margins and a remarkable 90% customer retention rate, is on track to become the largest contributor to Dow Jones' profitability, a testament to the strategic brilliance of pivoting towards high-value, specialized information services.

"As mentioned by Robert Thomson, CEO of News Corp: "It is also worth noting that for more than a year, digital revenue has accounted for over half of our total revenues and we believe that trend is destined to continue. We are in the midst of an exponential digital revolution and our own company has continued to change significantly and profitably.""

Shifting Revenue Streams: From Advertising to Digital

The following chart, derived from News Corp's earnings transcripts, illustrates the company's strategic shift from advertising to circulation and subscription revenue.

The strategic brilliance doesn't stop there. News Corp's global footprint and diverse media portfolio offer unique leverage in this digital age, creating a synergistic ecosystem that amplifies the value of its premium content. Consider the recent rental agreement between Realtor.com and Zillow. This landmark deal, while on the surface a straightforward content-sharing arrangement, speaks volumes about News Corp's ability to navigate the intricacies of the digital real estate market. By partnering with Zillow, Realtor.com streamlines its rental offerings, allowing it to focus on its core buy-sell segment while simultaneously reaping financial benefits. It's a strategic maneuver that leverages existing assets to optimize resource allocation and drive growth in a key market.

The audio book revolution, quietly unfolding within HarperCollins, offers another glimpse into News Corp's astute understanding of evolving consumer preferences. Fueled by a unique partnership with Spotify, HarperCollins' digital revenues, particularly in audio books, are experiencing exponential growth. Spotify's recent expansion into new markets further amplifies this potential, promising to unlock new consumer bases and drive digital revenue to new heights. This strategic partnership highlights News Corp's ability to forge alliances with digital giants, leveraging their reach and technology to expand its own audience and revenue streams.

The narrative becomes even more compelling when viewed through a financial lens. News Corp's free cash flow in the first three quarters of FY 2024 has surged by an impressive 53% year-over-year, reaching $491 million. This robust cash flow generation, coupled with a robust balance sheet and a $1 billion share buyback plan, underscores the company's commitment to returning value to shareholders.

However, the market seems to be missing the forest for the trees, fixated on the potential for near-term structural change while overlooking the underlying revolution that has already taken place. This disconnect is reflected in the persistent "sum-of-the-parts" discount that continues to plague News Corp's valuation.

Here's the hypothesis: the market is undervaluing News Corp's transformative digital journey, focusing on the potential for near-term structural changes while ignoring the already realized digital revolution. This undervaluation, reflected in the persistent "sum-of-the-parts" discount, presents a compelling opportunity for investors with a long-term perspective.

Consider this: while the market remains preoccupied with structural speculation, News Corp continues to refine its product offerings, expand its digital reach, and forge strategic partnerships. The company is not simply reacting to the changing media landscape; it is actively shaping it, laying the groundwork for sustained growth and value creation.

This subtle yet powerful narrative, hidden in plain sight within the company's earnings transcript, offers a compelling perspective on News Corp's future. While the world awaits the next big move by the Murdoch empire, a silent revolution has already unfolded, one that is poised to drive explosive growth and redefine the media landscape for years to come. The Murdoch Code, hidden in plain sight, is already being written, and those who decipher it stand to reap substantial rewards.

"Fun Fact: News Corp owns the rights to the book "Life: My Story Through History" by Pope Francis, published in eight languages. This ownership of such a high-profile and enduring title showcases the company's reach and influence in the global publishing market."