Fox News High? Why Rupert Murdoch is bullish on digital education

Rupert Murdoch is media’s ultimate contrarian, with a reputation for plunging into new businesses well before others agree on their promise. So could his newfound enthusiasm for education startups give the sector a boost?

Last week, New York was abuzz with Joel Klein’s move to step down as chancellor of the country’s biggest public-school system to join Murdoch’s News Corp. empire. While some ideologues may grouse about the notion of Fox News High, the move could signal good things for technology-infused education startups.

According to New York magazine, Klein “makes clear that he believes the ‘huge transformation in the field of education’ that is coming is ‘going to be driven by private markets’—by a wave of digital-learning start-ups now swelling around the country. And that, whether through investments or acquisitions, Murdoch intends to ride this wave.”

To date, investors have been skittish about education technology. Some money has gone into test-prep services like Knewton and Grockit, and a few teaching platforms like EduFire and Udemy. EduPath, an online-education startup designed around tablets, won the MobileBeat 2010 Startup Competition. But VC portfolios are for the most part education-free.

Mark Heesen, president of the National Venture Capital Association, says the problem is that few big companies are willing to buy startups. “In K-12 education the buyer is predominately state and local governments, as well as school districts,” Heesen wrote in an email. “None of these entities are awash in money to spend on new educational technology, no matter how forward thinking they are.”

Murdoch’s move may help, but Heesen doesn’t think it counts as a tipping point. “Potential acquirers certainly help a venture capitalist decide to invest in one space over another, but there has to be several major potential acquirers to really get their attention.”

That guarded optimism is the same reaction I got from Elizabeth Corcoran, former technology editor at Forbes and founder of e-learning startup Lucere. Corcoran, who’s been studying the sector in depth for the past two years, says Klein’s move may be more a sign of his personal goals than a sign of a coming windfall for edutech startups. Corcoran said:

The number of education-technology startups percolating is clearly on the rise. […] I’d agree that Klein’s decision to move to Murdoch’s camp amounts to him voting with his feet. Whether or not investing in these companies will benefit Murdoch’s “bottom line” seems like a declaration of faith at this point. The number of education-tech ventures which have hit the classic VC gold standard of a “10x” return are shockingly small.

When I asked Bill Gurley of Benchmark Capital about the sector a few months back, he said there’s a market for education technology in places like Korea, where online tutors are treated like rock stars and take out billboard ads to boost their following. But there, parents are willing to spend their own money on supplementary education; not so in the U.S., Gurley said. Earlier this year, SoftTech VC’s Jeff Clavier likewise told me he just didn’t see the market to justify the early-stage investments his firm makes.

Still, Murdoch’s move his hard to ignore. He has an eye for undertapped revenue streams, like the underserved audience that religiously watches Fox News and the opportunity for satellite television overseas. It can’t have been lost on Murdoch, who famously watches the competition, that the Washington Post Co., whose flagship newspaper rarely sides with Fox News and with whom the News Corp.-owned Wall Street Journal is increasingly competing with in national political coverage, is minting money in the education market through its Kaplan subsidiary.

Jumping into education is a gamble, but one that could pay off, Corcoran says: “You can argue that education is one of the last huge sectors of the economy to take advantage of digital technology, and so there will be fortunes to made — but history suggests this is difficult ground to harvest.”

And News Corp. has a mixed record when it comes to harvesting difficult ground. Take its MySpace subsidiary. When Murdoch bought it for $580 million in 2005, it was hailed as a visionary purchase — and a bargain. Now it’s losing money and News Corp. executives are talking about dumping it. Klein should take a lesson: Whatever he does had better make money fast.