Sunday, July 24, 2011

The Likely Demise of News Corp's Education Division

The NY Times coverage of Joel Klein's involvement at News Corp focuses on human interest. We learn, for instance, that Klein dropped his notorious Blackberry brick-breaker habit, often on display at Panel for Educational Policy meetings, because his stress levels had fallen. We're more interested here in the fate of Klein and Murdoch's efforts to make big profits off of public education. On that note, here's why News Corp's education division is likely doomed:

The "Education Division" can't be one company and acquisitions will be impossible.

Wireless Generation is the only entity within News Corp's Education Division, which itself sits off in an area with the unimpressive title of "Other Assets". News Corp stock is down, making acquisitions harder to finance and the management is preoccupied with legal challenges and stabilizing ad revenues. Potential acquisition targets will take one look at News Corp's problems and find them quite an unattractive suitor. The division is not about to get bigger anytime soon.

Costs are high

The Education Division has gotten very top-heavy with the addition of an expensive layer of executive management. Klein's package is reported by the NY Time to be potentially $4.5 million or more. He's hired two executives, Kristen Kane, a former NYC DOE educrat and Peter Gorman, the former head of the Charlotte-Mecklenburg, NC, schools. With only one company in the division, it seems Kane and Gorman will have little to do but keep an eye on Wireless Generation.

Profits are likely slim to none.

News Corp paid $360 million for its stake in Wireless Generation. In a column at Fortune, Rafael Corrales says WG wasn't profitable in 2007 with 250 employees. It's now up to 400. With revenues under pressure due to the scandal and costs escalating, it is unlikely the Education Division is a star in the News Corp portfolio. For more insights on how poorly WG fits within News Corp see the Fortune column News Corp deal for Wireless Generation Is Great But It Doesn't Make Sense.

New business will be a challenge.

Much of the Wireless Generation's work is currently data systems and consulting. District superintendents and the school boards above them will likely blanch at the prospect of handing over student data to a News Corp subsidiary. The NY State Comptroller has made clear News Corp's business ethics are fair game in considering whether to accept the State Education Department's proposed $27 million no-bid contract to build a student data repository. Wireless Generation has some tough sledding ahead as a News Corp subsidiary.

What happens next?

Look for News Corp to eventually get around to realizing education is not "core" to its journalistic mission and give up on Education Division and its ambitions in for making money off public education. Meanwhile, Wireless Generation's two founders will chafe under News Corp and look to exit, with our without their company.


Leonie Haimson said...

I hope you're right, but Murdoch has supported Klein's vanity projects to the tune of millions before (EEP, Fund for Public Schools, apparently now ERN) so I don't see why he wouldn't do it now. He apparently adores the guy and now he owes him big besides for acting as his consigliere in this whole phone hacking/bribery scandal.

Anonymous said...

You are correct the future for Wireless Generation and News Corp is NOT bright. There will be too much explaining about ethics violations and back door deals. Mostly the biggest prize--the $1 Billion Klein moved to fund IZone schools will become a major focus as the 1 year anniversary of his resignation gets closer. That would be when the money was expected to flow--all bets are off now.

Anonymous said...

I wish I could agree that this effort is doomed. I just don't see that. I don't think Murdoch would have hired Klein at such a high salary if he was not fairly certain he was embarking on a very, very profitable venture.

Not to be a loony conspiracy theorist, but I do think that for Klein, Bloomberg and Murdoch, at least, the endgame is to put end public education as we know it. Their backing of establishing mandates that are impossible to achieve through small, poorly-funded and managed schools will, they hope, prove that this model will never work, and that virtual and distance learning, planned and implemented through software they manufacture will replace the current model.

This, of course, cannot happen overnight, but I think they believe they can engineer this to happen over the next two decades, I would imagine.

I am curious to hear what others have to say on this.