Thursday, May 10, 2007

On Murdoch's Bid for Dow Jones

There was a very interesting piece in Monday morning's Wall Street Journal. It detailed the Ottaway's and retired Wall Street Journal executive Peter Kahn's opposition to Rupert Murdoch's offer of $60/share to buy Dow Jones.

On the surface, it appears to be a rather complex situation.

On one hand, Kahn, Ottoway et. al. sound antiquatedly quaint in defending journalistic integrity and independence. That's the sort of thing we used to hear from broadcast newsrooms, before cable television put them under.

In this case, blogging and cable TV have pressured print journalism. Why else the tie-up between CNBC and the WSJ?

Further, as a letter to the editor in today's Journal noted, the Bancrofts and The Wall Street Journal are all for capitalism, until it comes home to roost at their poorly-performing, partially publicly-held company. In that case, however, they argue for morals, standards, and eschew the same free market winds that they claim must blow throughout the economy.

For the record, the closing price of Dow Jones Inc. rose from $36.33 on April 30th, to $56.20 on May 1st. That's a 55% increase in the market price, nevermind Murdoch's promise of $60, which would be a 65% increase in the value of the stock. On an economic basis, it's clear that the time has come for someone else to create value with the Dow Jones stable of assets.

The nearby Yahoo-sourced chart of the Dow Jones stock price, versus the S&P500 Index for more than thirty years, tells a sorry tale indeed. The media firm has barely managed one-third the return of the market over this time, and has been flat for the last five years and declining over the last seven years.

On the other hand, there is the argument of journalistic independence. Critics say Murdoch will sell out the vaunted Journal staff that has won Pulitzer's for covering investigative stories in China. Kahn was reported to be concerned that, under Murdoch, the WSJ would not have earned those two Pulitzers for covering stories critical of China and its government.

Now, that sounds like something to consider. Kahn pointed to Murdoch's many actions calculated to placate the Chinese, so that his BSkyB service could beam into the country. He is reputed to have eliminated BBC from the satellite service, cancelled Chris Patten's last book deal, and sold the South China Morning Post, all to remove material offensive to the Chinese government.

Such accommodation worries Kahn.

At first, it worried me, as well. Do you force private equity to afford such ethics? Can Dow Jones afford this, on behalf of its shareholders, independently? Or is this something capitalism will simply cost out and, if necessary, eliminate as too expensive? Trusting someone else to do the investigative reporting and write the needed criticisms of China.

Then, while discussing this issue with my consultant friend, S, I stumbled upon the real answer. Murdoch's answer, actually.

The reality is that print is a dead, bygone medium. The CBS franchise program, 60 Minutes, breaks tons of stories. How? By using television, not print. Do you think for a moment that the same program, as a print medium, could ever have lasted? Not a chance.

What Murdoch understands is that by marrying the Dow Jones assets and brands, particularly The Wall Street Journal, to his existing multimedia empire, he will enable those brands to actually create more value while doing even more investigative journalism.

The Dow Jones board's recent Chair has been trying to goose the company's performance, to little avail. My guess is that most investors understand that the old media pond within which Dow Jones lives is going to overwhelm the effects of any one firm's individual efforts. It's time for a more modern media vehicle to properly invest in and use the Journal's brand franchise.

No, the narrow version of the journalistic independence argument won't work for a publicly held company. Maybe if Ottoway and the Bancrofts wanted to take the firm private. But that's not what they want. They want top dollar and journalistic immunity from any economic realities.

The likely best outcome for the Journal and the rest of Dow Jones' media assets is to join a modern, global multimedia entity which can leverage their values further than is possible currently, while affording investment in them to retain their current competitive attributes. More than anyone else in media, Murdoch fits this description.

The crocodile tears over a potential loss of editorial independence and a standalone media presence are misplaced. This is about a too-small, old media company which has failed to properly take advantage of its best brands to create shareholder value. It's time for the Bancrofts to put up or sell. Either commit to investing in Dow Jones to enable it to consistently earn superior returns and realize its brand values, or sell it to someone who can.

No comments: