Wall Street sours on Dow Jones buy
When Rupert Murdoch successfully bid for the Dow Jones Co., many in the media dreaded his ever-grasping tentacles, while Wall Street gave him the benefit of the doubt.A year later, it’s the reverse: Wall Street has gone negative, while some in the media are offering words of praise to the mogul. At the very least, he hasn’t unleashed a massive series of cutbacks that have plagued the rest of the industry. The change in attitude toward Murdoch reflects the shifting conventional wisdom about Dow Jones and the future of print media itself. Some wonder whether he could have negotiated for a lower price had he held out — or whether he should have bought the company in the first place. With declining newspaper circulation, online migration by readers and advertisers and an emerging recession, News Corp.’s purchase of Dow Jones appears to be a drag on the company’s stock price: Hovering around $14, the stock has plunged 40% from its 52-week high last fall. “Investors have penalized Rupert for his acquisition of Dow Jones, which continues to be hampered by the deteriorating fundamentals of the print newspaper business,” says Lehman Bros. analyst Anthony DiClemente. In the bigger picture, there are doubts about the long-term prospects for print media. Anxiety bubbled over in mid-July, when Gannett, the parent company of USA Today, reported a 36% drop in quarterly profits, and announced a write-down of at least $2.4 billion on the value of its newspapers. CEO Craig Debow’s look ahead was bleak. “The economy has severely dampened the demand for advertising, and that could continue for some time,” he said. UBS media analyst Michael Morris says, “Given the decline in newspaper valuations since the acquisition, it appears (News Corp.) could have gotten it a lot cheaper. What was the rush?” Besides the negative newspaper trends, Morris doesn’t feel News Corp. has outlined a clear strategy of how it will integrate the Dow Jones businesses into its television, Internet and international platforms. He says expansion in these areas is key to realizing the value of the transaction. He and others hope for some clarity when News Corp. announces its fiscal fourth quarter and full-year results Aug. 5. To be sure, there are other concerns within News Corp. that extend beyond Dow Jones. Weak advertising is hitting local and national broadcast businesses along with newspapers. On the Internet front, Fox Interactive Media, led by social networking site MySpace, created a stir a few months ago with the news that it wouldn’t meet its $1 billion revenue forecast for 2008. Investors also fret that Murdoch will be so tempted by cratering values for other media assets around that world that he will go on a shopping spree. For example, there are frequent Wall Street rumors that News Corp. is eyeing broadcast and cable assets overseas. The mogul and his company always generate strong reactions. In good times, Murdoch is a global visionary. In bad times, he’s a willful chief of an overly complex and confusing conglomerate. Some say the worry over the News Corp. empire is overstated, given that newspapers can’t make or break a global behemoth. (It could be worse: News Corp. could have ended up with Newsday. Murdoch lost a bidding war earlier this year.) “While we cannot defend the price paid for Dow Jones … nor can we fathom why News Corp. has continued to operate/own the money-losing New York Post for years, understanding the components of News Corp.’s (business) highlights stark differences with pure-play U.S. newspaper stocks — which should drive a less negative view,” Pali Research analyst Richard Greenfield wrote in a recent note to his clients. In other words, “Newspapers are simply not a reason to avoid owning (News Corp.) shares, particularly at today’s valuation,” he adds. Murdoch himself chided the public obsession with the Journal, pointing to other units of Dow Jones that are now reaping the benefits of expansion with a deep-pocketed parent. “Dow Jones is not just a fantastic global newspaper,” he stressed during News Corp.’s last earnings call. Dow Jones’ big profit center is its Enterprise Media Group, which includes the newswires, the ubiquitous Dow Jones Indexes, Dow Jones Financial Information Services, and the massive publication database Factiva. When Murdoch talks about boosting Dow Jones revenue to 75% digital from 50%, EMG will be the primary growth driver. For the third quarter of 2007 — the last time Dow Jones reported as a stand-alone public company — EMG’s operating income surged to $43 million, compared with a $4.2 million loss at the Consumer Media Group, which includes all things Journal and Barron’s. An additional $12 million came from the Community Media Group, comprising 15 daily and 19 weekly local Ottaway newspapers. This is the odd duck. News Corp. considered selling it, then decided not to. Wall Streeters speculated that no serious bidders emerged. Revenue for the quarter came out $253 million for Consumer Media; $181 million for Enterprise Media; and $61 million for Ottaway. Clare Hart, president of Enterprise Media, says she sees her group as News Corp.’s business franchise, standing alongside the media giant’s footprint in entertainment, news and publishing. “We’re really excited that we’re owned by News Corp. It’s a very diverse, global operation,” she tells Variety. “As a standalone, Dow Jones was a $1.8 billion company. Access to capital was limited. Now access is still not easy, but we would not have been able to make the acquisitions we just made.” Hart is referring to the purchase of Dutch wire service Betten Financial News, and of a Maynard, Mass.-based company called Generate. Both deals were announced in the spring. EMG created a division around Generate called Business & Relationship Intelligence. Generate has “patented extraction and aggregation technology” that harvests company and executive data from the Web. It maps the relationships among the people and organizations, including information on 4 million companies and 6 million execs. It also searches for “trigger events” of interest to business and financial types — like M&A, exec shuffles and venture financing. “When an executive leaves a business, he probably has money to invest,” Hart says. Or when a company is leasing a new office space, maybe it will need new computers — a fact of interest to computer makers. Hart indicated that more acquisitions are on the way. While these deals aren’t likely to swell Dow Jones to anywhere near the size of its much larger rivals, recently merged Thomson Reuters, and Bloomberg, they could reinforce the company’s key niches, and strengths and keep it a vibrant player in the business. As it expands, Enterprise Media just added a commercial managing director in India, where News Corp. has a large foothold. Hart says EMG recently entered Bulgaria, facilitated by a News Corp. presence there. The Dow Jones newswires are taking on a higher profile under new ownership. While everyone else is cutting, the wires plan to add 95 reporters around the world. It made some high-profile hires this summer, including former Business Week editor Kathleen Madigan, and Denver Post business editor and columnist Al Lewis. And the Wall Street Journal’s news publisher Robert Thomson will also be the top editor of the wires, the first time that’s been the case. In short, many of the worst fears about Murdoch, and what he would do to the Journal, have yet to be realized. In fact, Murdoch has stood out in an economic climate where some 6,000 newspaper jobs have vanished nationwide this year alone, showing faith in a shrinking business. The Journal has yet to see the massive layoffs of other publications, and there are plans to expand coverage in some areas. Bucking the industry trend, subscriptions actually went up for the six months ended in March. Since the Dow Jones deal closed last December, Murdoch installed a new CEO, Les Hinton. They’ve been making some small but significant tw
eaks at the Journal. The paper has added pages, including sports, and a feature section called Currents that focuses on religion, education and science. Murdoch’s stated goal is to expand general news coverage, especially in politics, to compete with other papers (in particular the New York Times) while keeping its lock on the business reporting that has been the paper’s pride. Murdoch flirted with the idea of taking the lucrative subscription-only WSJ Online from paid to free, but seems to have dropped the idea, at least for now. News Corp. did raise the price of the print Journal to $2. That followed a hike in the newsstand price of the New York Post to 50 cents. And in news that shocked Gothamites, the company confirmed that it was exploring a kind of modified joint operating agreement between the Post and archrival the New York Daily News. A home delivery deal could also include the Journal. September will see the launch of a high-end lifestyle magazine called WSJ, edited by Tina Gaudoin, formerly editor of the Times of London Luxx Magazine. In May, the magazine announced a handful of hires, including Janelle Carrigan, travel editor of the Weekend Journal; Jeffrey Podolsky, the New York editor of Tatler; Sasha Wilkins, a writer for British Harper’s Bazaar and Elle; and Kate Auletta, from House & Garden (and daughter of Ken). The magazine will go to 960,000 Journal subscribers in the U.S. and abroad, quarterly first, moving to monthly in 2009. The company calls it “a celebration of the lifestyle of its readers. From cars to fashion, from property to philanthropy, from personalities to travel.” Dow Jones has also started to sell the Journal’s U.S. edition at newsstands in London alongside the Wall Street Journal Europe. “The more time I spend working with the company, the more opportunities I see improving and expanding their current businesses,” Murdoch said recently. But he cautioned: “This is destined to be an extra-inning game, and to use an overly used metaphor, we’re only in the first inning.” So it’s a few innings too early to call the deal: smart move, or a big stub of the toe? Vanity play, or, as one columnist suggested, Murdoch’s present to himself for the day he steps back from the day-to-day grind of running a global empire? Sighs one investor: With Murdoch, “at the core it’s always a leap of faith. You say, ‘I’m going to give this guy my money, and he’s going to do what he wants with it,’ and you hope it’s good.”
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