Sunday, September 9, 2007

Rupert Murdoch Buys The Wall Street Journal....Ut Oh

The Fox And The Journal

Dennis Kneale, 08.01.07, 3:25 PM ET

The lamentations begin: The Wall Street Journal, bastion of objectivity and insight in business news, has fallen into the clutches of wily Rupert Murdoch, the tabloid-mongering, arch-conservative Australian press lord and chief of the omnivorous News Corp.

Murdoch will impose his views and his business agenda on the hallowed news pages of the Journal and its high-minded, mission-motivated scribes. This, after the Journal had spent a century in the protective cocoon of the Bancroft family, four generations upholding a solemn promise to insulate the newspaper from the harsh vagaries of business pressures and Wall Street whims. Brace for the updating of résumés and a supposed exodus of noble Journal staff.

The lamenters have one thing right: It is, indeed, a sad day in journalism. But the rest of it is just plain wrong. It's a sad day in journalism not because Murdoch's conquering hordes have had their way with the Journal and its parent, Dow Jones & Co. (nyse: DJ - news - people )--it's sad because the greatest financial-news brand in the world ended up unable to stand on its own in the next media age.

Video: Wall Street Journal Under Murdoch

And that tragedy owes not to Rupert Murdoch or the rise of the Internet. It owes to the same precious, sanctimonious attitude that has been on display at Dow Jones since the bid emerged. It owes to some of the same pious and self-absorbed people who so regret this deal: some Bancrofts; longtime Dow Jones brass who presided over a multitude of miscalculations and miscues in 20 years; and, to a lesser degree, self-satisfied Journal-istas who fooled themselves into thinking they were doing God's work. How else to explain their desperate search for another bidder and reportedly trying to entice billionaire oilman T. Boone Pickens and billionaire grocer Ron Burkle. Rupert, at least, knows a bit about journalism.

None of these insiders were evil or even stupid, and all of them meant well. But hey--they blew it, they lost and now they should be kissing Rupert's ring, or something else, to thank him for saving their collective hide.

By The Numbers

It is painful to say this, for my career owes so much to the Journal, where I started at age 24 and didn't quit until age 41 (to join Forbes). My admiration and affection for the paper, and for my former colleagues, are undiminished, eight years after my exit. For a time I nurtured far-off fantasies (read: delusions) of returning one day, MacArthur-like, to run it.

But 20 years ago Dow Jones' market value was at $2.6 billion, and News Corp.'s (nyse: NWS - news - people ) was at $3 billion; today News Corp., at $67 billion, is worth more than 10 times the market cap of Dow Jones, which will disappear into the Murdoch machine for all of $5.6 billion in cash. In 25 years, Dow Jones shares rose an embarrassingly low 57%, as the S&P 500 surged 1,181% or more than 11-fold, and the Dow Jones industrial average soared 1,447%, up 14-fold.

Dow Jones stock was at $30 or so in 1983, a year after I joined; after a 3-for-2 stock split, it was at only $36 on the day before the Journal finally broke the news of Murdoch's $60-a-share bid on May 1. (The paper, whose integrity gets a lot of ink lately, held back the scoop for a week or two after word of the offer leaked into the newsroom; this, no doubt, served Dow Jones' business agenda. If Rupert tries that, he will be hanged.)

So maybe none of this is Dow Jones' fault: It struggles amid decrepit dinosaurs in the newspaper industry, blah blah blah. But this company botched myriad opportunities. And a primary reason is that Dow Jones was always run by journos, not by business executives. This quaint bent, always a strength of the Journal, weakened Dow Jones. Its chief executives were past Journal scribes, until Richard Zannino succeeded the affable and honorable Peter Kann last year. Other editors were seeded into jobs running units throughout the company--circulation, the Wall Street newswire, the thriving indexes business, the entire overseas operations, new desktop data ventures, a failed desktop-video service and more.

The flaw of this is that journalists, bless our corn-pone hearts, make decisions based on what's good journalism, not what's good business. And to get real about it, the former can't survive and thrive without the latter.

Bad Business

At Dow Jones, many decisions in pursuit of good journalism came unabashedly at the expense of profits. We ink-stained wretches celebrate this, blind to the financial withering that ensues over the long term. The Journal has kept its Asian edition alive through 31 years of tepid performance; it recently shrank to a tabloid. It has kept plugging at a struggling European edition that, in 25 years, posted spotty profits and frequent losses and failed to challenge the Financial Times.

Amid a terrible downturn in print ads a few years ago, the paper added staff to broaden coverage of softer fare and personal how-to advice. And it swallowed a likely 20% increase in distribution costs to add a Saturday edition that has been poorly received. (Let's hope Rupert kills it, if he dares. We have too much to read as it is.)

Outside the newsroom, other moves fared even worse. Years ago Dow Jones blew two chances to create a business-news cable channel, in one case losing out to General Electric (nyse: GE - news - people ), whose CNBC now has pretax profits of $300 million a year. DJ ran up losses of more than $1 billion on financial-data wire service Telerate, then earlier this year had to sell off six of its local papers to raise cash to pay $200 million to settle a related breach-of-contract suit. The Journal fared better with, with its audience of a million paying subscribers, but, a free site, reaches 15 million users a month worldwide.

At many other companies, such a lengthy litany of screw-ups would ignite a shareholder revolt, but at Dow Jones the Bancrofts reigned, and the rest of the shareholder base--the unlucky gene pool--was powerless to rebel. The controlling family owned only 38% of DJ shares but held 64% voting control, a structure shareholders had approved in the early 1980s.

So why didn't the Bancrofts themselves revolt? A laudable sense of duty, sure--but another reason has to be the steady flow of dividends funded by the Dow Jones brass. The company paid out hundreds of millions of dollars over the years in shareholder dividends instead of reinvesting the cash in new businesses. Even as earnings struggled, DJ raised its dividend 25% in 12 years. In the past decade, Dow Jones earned all of $377 million in net income after charges and restructurings--but it paid out $858 million in dividends. Debt covered part of the tab, almost doubling in 10 years to $447 million.

Some $330 million of that dividend largesse went to the Bancrofts, an average of $33 million a year--a payoff, of sorts, for keeping their hands off the business and letting the pros run it. One key factor in clinching this deal was News Corp.'s agreeing to pick up $30 million in personal advisory costs the Bancrofts ran up. In the end, it was always about money.

That the Bancroft family's cozy arrangement was disrupted so quickly, and the relatives so riven, by Murdoch's $60-a-share bid raises questions about other stumbling companies with two separate and unequal classes of stock. Memo to the New York Times Co. (nyse: NYT - news - people ): You may be next.

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