Rupert Murdoch's $1 billion bet on digital education is slated for a reorganization.
Known as Amplify, the digital-education unit within Murdoch's News Corp (NWSA) - Get Report has been hampered by the slow adoption of its mobile device known as the Tablet computer. After having been embraced by only one U.S. school district, that of Guilford, N.C., the Tablet is expected to be officially discontinued when the New York-based owner of The Wall Street Journal reports its financials after the close of trading on Wednesday.
The tablet's future was said to be riding on Amplify's ability to sell the device into districts for the 2015-2016 school year. That effort appears to have fallen short of expectations made five years ago after News Corp, with great fanfare, hired former New York City education commissioner Joel Klein and then paid $360 million for a 90% stake in Amplify's predecessor, Wireless Generation.
Financially, the deal has yet to bear fruit. While Amplify accounted for just 1%, or $88 million, of News Corp's $8.6 billion in annual sales for its fiscal year ended June 30, 2014, it was responsible for a loss of $193 million, excluding some expenses. In the quarter ended March 30, Amplify lost $21 million.
According to a June report from Bloomberg News, Amplify is winding down sales of its custom-made Tablet, having ceased to order new tablets from its Asian manufacturer. In May, Amplify Chief of Staff Justin Hamilton hinted that such plans might be in the offing when he said that "we will always be responsive to the marketplace."
Considering that News Corp has already spent nearly $1 billion on its digital education business, plans to streamline its operations to focus on the unit's well-respected teaching and testing software appears to be nod to investors clamoring for an end to the bleeding.
"We expect to hear an update on the business on [Wednesday's investor conference] call as the spring sales season continues without any major new contracts of scale (which are publicly reported)," JPMorgan media analyst Alexia Quadrani wrote in a July 14 investor note. "We look for details on reduced investment spending in fiscal 2016, with the company committed to achieving profitability at the digital education business."
Wall Street is keen for Amplify to turn a profit, given that "advertising remains challenged" particularly in the U.K., added Quadrani.
Shares of New York-based News Corp have lost 12% in 2015 amid declining advertising sales and an adverse currency exchange that has cut into profits at its U.K. and Australian media properties, which includes Foxtel, Australia's largest pay-TV provider. As part of its cost cutting, News Corp in May said that starting in September it would publish a single global edition of The Wall Street Journal rather than separate versions for Europe, India and Asia.
Shares were dropping 1.1% to $13.81 on Wednesday.
Eager to drum up enthusiasm for his company's sagging stock price, New Corp CEO Robert Thomson is likely to emphasize the success of Harper Collins' Go Set A Watchman, which was released in July, making it a chief driver for the company's 2016 fiscal year, according to Merrill Lynch analyst Jessica Reif Cohen.
Both JPMorgan and Merrill Lynch have a hold rating on News Corp, reflecting uncertainty about the company's ability to grow as spending on advertising becomes increasingly fragmented.
Thomson is expected to shed light on Amplify's performance during the recently-concluded spring selling season while reaffirming his commitment to a business that sells teaching and testing software for teachers, administrators and children in grades K-12.
For News Corp, manufacturing its own mobile device had become an obstacle when competing with rivals including Houghton Mifflin Harcourt (HMHC) - Get Report , Pearson Education and McGraw-Hill Education, which is controlled by investment funds affiliated with Apollo Global Management (APO) - Get Report. While Amplify's software also runs on Apple (AAPL) - Get Report and Google (GOOG) - Get Report Android devices, the company has attempted to sell its services in conjunction with its own tablet computer, which proved to be an albatross.
Regardless of News Corp's future plans for the Tablet, Thomson has remained steadfast in his support for Klein and News Corp's entrance into education technology. Indeed, the education technology market, which includes online learning, testing, assessments and related apps, is as large as $8.3 billion, according to the Education Technology Industry Network of the Software & Information Industry Association.
That's too large of a market for News Corp to pass up even if its Tablet may not be along for the ride.