Rupert Murdoch splits empire but keeps faith in tomorrow's newspapers

Rupert Murdoch's News Corporation will be split in half on Wednesday as the mogul hopes to build two new empires out of his vast portfolio of assets. It is likely to prove the octogenarian's final major corporate move, and once again he is betting he has seen an opportunity others have missed.

The profitable entertainment assets – including the 20th Century Fox movie studio and the Fox broadcast network in the US – will form 21st Century Fox.

The company's publishing assets, including HarperCollins and its troubled newspaper division, will trade under the old News Corp name.

Shareholders have long pressed for a split, disenchanted with the returns from publishing, particularly newspapers, as the shift to digital readership eats into profits. Murdoch resisted but caved in after the phone-hacking scandal shook his company to its foundations, leading to the arrest of senior executives and the closure of the News of the World.

Now he argues that the future for newspapers is bright. The collapse of print advertising, he believes, is a bump on the road to a digital future from which his assets, including Dow Jones, the Wall Street Journal and the Times newspapers, will emerge stronger than ever.

Technically, both companies will be listed on New York's Nasdaq stock market on Wednesday, on a "when-issued" basis, but the split is not formal until 28 June and shares will not start trading properly until 1 July, when Murdoch's decision will face its true test.

Analysts and shareholders are overwhelmingly in support of the split because it delivers a standalone 21st Century Fox, home to The Simpsons, Avatar and the X-Men film franchise. In the quarter ended 31 March, News Corp reported operating income of $1.36bn (£871m), nearly all of it from 21st Century Fox assets.

Cable television generated $993m in operating income, up 17% on the same period a year earlier. Filmed entertainment pulled in operating income of $289m thanks to films including Life of Pi and Ice Age: Continental Drift. Broadcast TV suffered as American Idol's ratings collapsed but operating income of $196m represented a 14.6% rise on the same period last year.

In publishing, the tale of woe continued. Operating income collapsed nearly 35% to $85m (£54m) and News Corp spent another $42m dealing with the ongoing legacy of the hacking scandal. That bill is only likely to increase as the company works to settle a US justice department investigation under the Foreign Corrupt Practices Act (FCPA). The new News Corp will start with $2.6bn in cash but the expected FCPA fine will wipe out a substantial portion of that.

"Rupert has a very bullish view of newspapers. He says he's ready to do it all again," said Rich Greenfield, analyst at BTIG. "He's got a lot to prove."

Other analysts predicted a sharp selloff for the new News Corp when shares start trading. "It's the bit no one wants anyway, and it faces considerable legal uncertainty in an industry in secular decline," said one. Rival newspaper groups such as the New York Times have been slimming down their assets.

Others such as Gannett have been diversifying away from publishing by buying other media assets. News Corp is making a bold bet that it can go it alone as a dedicated publishing company.

Not all analysts are negative. In a note to investors, Bernstein's Todd Juenger was "bullish" about the near-term. Murdoch had struck an "unsurprisingly optimistic tone, declaring that 'knowledge is the most valuable commodity in the world'". He noted that Robert Thomson, the spin-off company's chief executive officer, had promised a "permanent start-up mentality" and saw "opportunity everywhere".

But Juenger was most struck by the interest in the split from investors and analysts at a presentation in New York. "Standing room only in a huge ballroom. It was a clear sign many investors are seriously considering holding (or adding to) their New News shares," he wrote.

Whatever happens, from today Murdoch is back to his roots as the chairman of a business he loves, and gambling – perhaps for the last time – that his vision can beat the naysayers.