In a move designed to reduce its reliance on advertising revenues, Editor-in-chief of Dow Jones and managing editor of The Wall Street Journal (WSJ, a subsidiary of News Corporation [NWS]), Robert Thomson yesterday unveiled plans to introduce a “sophisticated micro-payments service” for access to individual online articles later this year. The announcement is consistent a number of key personnel changes, which point to a greater emphasis on the company’s digital media assets going forward.

News Corp. recently reported lower-than-expected net income of $2.7B, effectively flat y/y, compared with $2.7B in 3Q08. Total operating income decreased 48% y/y, primarily due to a 97% y/y and 99% y/y decline in Newspaper and Film division contributions respectively.

In the company’s conference call, Chairman and CEO Rupert Murdoch provided a slightly more optimistic outlook than 2Q09 on medium term earnings prospects suggesting that advertisers were slowly returning to the marketplace. Despite a 21% increase in subscription premiums since taking ownership of WSJ in 2007, advertising revenues have declined dramatically over the past 6 months as a result of the economy.

We remain cautious on the impact of the “micro-payment” model at this stage pending further details regarding pricing given the risk for potential cannibalisation of its own subscription member base.

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