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Online Media Divisions: Should I Stay Or Should I Go?

Should traditional media giants like News Corp and Fairfax have separate Online divisions? What makes sense in the climate of today?

At the height of their optimism, the moguls lined up at the doors of investment banks - eagerly waiting to roll up their Online interests and float it off onto the stock exchange. The argument being that if they spent $X million on forming the company and investors were willing to pay $X+100 million, then it was a good deal.

Perhaps through savvy business acumen, many wisely decided not to bite the apple. Alternatively, and just a tad more cynically, perhaps the decision was made for them when the markets crashed and the 12-18 month US lag had not expired.

Now that the lure of fast money has eroded, is there a business case for why online divisions should be separate?

The most compelling reason is organisational culture. Simply, many traditional companies don't possess the skills and talent to manage the change brought about by the Internet. Moreover, there are more than a few examples where traditional staff have shown a definite hostility to 'dotcom employees' of the business.

It makes sense in these cases, then, to form a separate organisation to help retain employees and manage the clash in cultures.

By no means a media mogul but a salient example is Woolworths. It has pursued a strategy of separation, somewhat, through their investment in GreenGrocer.com.au. If the hindrance is organisation culture, then Woolworths stands to benefit through pureplay GreenGrocer.com.au.

The primary disadvantage of having a separate operating arm are the overheads. In many cases certain economies of scale are sacrificed for the nirvana of separation. The question remains, though, if these overheads are tolerable.

News Corp certainly doesn't think so - moving this month to integrate its digital subsidiaries back into its main operations and in the process cutting around 200 jobs globally and 50 locally.

Many are also finding that separating out the online division means reporting separate financial results - something Fairfax knows all too well. Its share price has been beaten down over the past year, with a significant driver being the large losses incurred by f2.

In the context of online media, there is definitely a hostility towards the online division by traditional employees, however spinning the division out into a separate entity may not provide the solution - something more fundamental may have to change