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Is there more to Rupert Murdoch's bid for Dow Jones than an old man's vanity?
Economist Staff, The Economist
May 3, 2007
There have been mutterings in recent months that Rupert Murdoch is starting to show his age — which, as he has just turned 76, would not be all that surprising. But his friends contend that the media tycoon has always been prone to long, rambling sentences and to repeating himself. If there is an occasional lack of clarity in his explanation of News Corporation's strategy, particularly its embrace of new media through acquisitions such as that of MySpace, a social-networking website, there can be no doubting the excellence of that strategy in practice.
And if actions speak louder than words, Mr Murdoch's recent behaviour shouts that he is still the bold, innovative big spender, bent on global media domination, that he has always been. On May 1st it emerged that News Corporation had offered $5 billion for Dow Jones, a media firm with assets including the Wall Street Journal and a respected newswire. Although Dow Jones has long suffered from well publicised managerial difficulties, it had been widely assumed that the Bancroft family, which owns a controlling stake through special voting shares, would not sell — not to some johnny-come-lately like Mr Murdoch, at any rate, though perhaps to the owners of the New York Times or Washington Post.
The family's initial response to Mr Murdoch's bid was no. Investors seemed unimpressed, too: News Corp's share price fell when news of his offer emerged, wiping $3 billion off its market valuation. But Mr Murdoch's audacious bid could yet succeed. At the very least Dow Jones is "in play" — and Mr Murdoch is in a position to scare off most plausible rivals.
For one thing, his offer is extremely generous. At $60 per ordinary share, it is 65 percent above the closing price on April 30th, before news of the offer emerged. That values Dow Jones at over 16 times its expected pre-tax profits for 2007, a far higher multiple than other newspaper publishers. That must be tempting to some of the younger descendants of Clarence Barron, the "father of financial journalism". They will soon be in the majority within the family, and are said to be lobbying their elders to swap shares for Mr Murdoch's cash. (Some 80 percent of family's votes are opposed to his offer, but this represents only 52 percent of the total votes, so a small number of defections could tip the balance.)
Nor, more fundamentally, is the outlook for newspapers particularly good. Indeed, as advertising migrates rapidly to the internet, there have been predictions, including in The Economist, that the paper end of the newspaper industry is destined to suffer a severe pruning. The younger Bancrofts look at the Chandler family's failure to get a good price for the Tribune Company — owner of the Los Angeles Times and Chicago Tribune — which was eventually sold cheaply last month to Sam Zell, a property mogul, and the company's employee share-ownership plan. They conclude that they should grab Mr Murdoch's money before he changes his mind.
Which raises the $5 billion question: why does Mr Murdoch want Dow Jones? There are two main schools of thought, neither of which suggests that his offer should be viewed as sending a message about the valuations of other newspaper publishers, though their shares mostly jumped at the news of his bid for Dow.
The first school sees the bid as the latest evidence that Mr Murdoch is one of the few old-media bosses who "gets" new media. Forget the print edition of the Wall Street Journal and focus on its lucrative online edition. Content is king, and the key to success is supplying it through lots of channels, old and new. Look at how News Corp uses websites to generate additional income for its "American Idol" television show. Mr Murdoch is launching a business-television channel in the autumn. All that Dow Jones content would fit right in.
News He Can Use, Perhaps
Yet the new business channel is a risky launch that has generated little enthusiasm within News Corp, where it is seen by some top executives as Mr Murdoch's vanity project. He has apparently spotted a lucrative niche for a pro-business channel, much as his Fox News channel found plenty of viewers who prefer its "fair and balanced" coverage of politics to the bleeding liberal hearts of CNN. But CNBC, America's incumbent business channel, is hardly anti-business, and it is far more in tune with what viewers want (namely, accurate information about the things affecting their investments) than CNN was when Mr Murdoch launched Fox. Moreover, Dow Jones has a contract to supply content to CNBC until 2012, by which time the fate of Mr Murdoch's rival channel will surely have been decided.
That is why the second school tends to dismiss the new-media arguments being offered by News Corp to justify buying Dow Jones as a sop to shareholders who feel that Mr Murdoch's company is over-reliant on newspapers, some of which are underperforming. He finally managed to get rid of one of the most truculent of those shareholders last month by acquiring the stake held by Liberty Media, a conglomerate run by his old friend, turned thorn-in-the-side, John Malone. That freed him to pursue his old dream of owning a global business newspaper.
Mr Murdoch has long coveted the Wall Street Journal and the Financial Times. In January talks with private-equity firms at the World Economic Forum about a joint bid for Pearson, the owner of the Financial Times (and part owner of The Economist), apparently ran out of steam. So he turned his attention to Dow Jones instead.
Inevitably, given Mr Murdoch's reputation as a hands-on proprietor, there are fears that he would undermine the editorial independence of the Wall Street Journal's news coverage. But he is certain to understand that excessive interference could tarnish the paper's brand, the value of which comes from having wealthy readers who value honest journalism. Still, should he wish to install a loyalist as editor, he has one on hand in Britain: Robert Thomson, editor of the News Corp-owned Times since leaving the Financial Times after he was passed over for the editorship in 2001.
Some News Corp shareholders are privately furious about Mr Murdoch's willingness to pay such a high price for what they see as the media equivalent of a trophy wife. Yet if the deal goes ahead, it might turn out better than they fear. There are some synergies between News Corp and Dow Jones, as well as fairly similar cultures. Dow Jones has bungled its international expansion and at the same time failed to cut costs at home. Mr Murdoch may indeed "get" new media, and may have spotted lucrative opportunities within Dow Jones. If so, and if his bid succeeds, it would not be the first time that he has proved his critics wrong.