Dow Jones/News Corp. Deal: We'll Be Watching

Now that the controlling shareholders of Dow Jones have voted in favor of News Corp.’s buyout offer, there’s a tendency to think that deal is done – and that Rupert Murdoch will be able to steal away quietly with one of the crown jewels of international journalism. 

Maybe yes.  Maybe no.   The News Corp. acquisition of Dow Jones is a singularly complex deal which we’ll be living with for some time.  It raises a host of questions about journalistic values, local media, media consolidation – and, in the end, whether stakeholders in both companies might be hurt as the result of a deal driven largely by the ego of Murdoch. 

Consider, for example, the shareholders of News Corp., who have seen the price of their stock trend slightly downward over the last five days as the Dow Jones deal approached a close.  Yes, Dow Jones is a trophy.  But as The Economist notes: 

Mr Murdoch has, however, paid a high price for Dow Jones—at least $1 billion, and perhaps $2 billion more than appears justified by the fundamentals of the business—so News Corporation’s shareholders may come to regard his victory as pyrrhic. Mr Murdoch’s tougher management will no doubt squeeze out some cost savings. But his plans to generate strong growth, by expanding the Wall Street Journal and linking it with his other online and broadcast properties, do not seem terribly convincing. Which is why some News Corporation shareholders suspect that they are just excuses, and that Mr Murdoch has put his longtime desire to own the one of the world’s great newspapers before any serious consideration of value for money. 

The arguments in favor of a Dow Jones/News Corp. merger focus largely on the familiar “synergistic” benefits of most big mergers.   In an interview yesterday with Frank Ahrens of the Washington Post, Journal publisher Gordon Crovitz pointed to the advantages of News Corp.’s greater international distribution and - believe it or not - its ownership of the My Space social networking site. 

"We believe that social networking is a very important part of our online future; News Corp. obviously has the same point of view," Crovitz said. He added: "There should be opportunities between sports and business, as well, given that the demographics of the audiences are quite similar."

But as Ahrens notes:

Whether such synergies lead to new revenue is debatable.  The New york Times Co. paid Discovery Communications $100 million in 2002 to help launch the Discovery Times Channel, as a way of showcasing Times talent, such as columnist Thomas Friedman.  After four years, the Times Co. did not see the sizzle it wanted and sold its half of the channel back to Discovery, taking a loss of $8 million.

Wall Street analysts agree, almost unanimously, that Dow Jones has been a sleepy, poorly-managed company over the last 30 years.  (Full disclosure: this writer spent a total of 17 years at Dow Jones, as both a journalist and executive, and left in 1999; I have no financial interest in the outcome of the News Corp. deal.)  The big question is how Rupert Murdoch will wring savings from Dow Jones operations. 

If you were able to get someone to take the bet, you’d be safe in predicting that News Corp. will sell off the Ottaway newspapers, the local media group of Dow Jones, which owns community media franchises in California, Massachusetts, Maine, New Hampshire, New York, Oregon and Pennsylvania.  The Ottaway family, owners of 7% of Dow Jones stock, were led by Jim Ottaway’s vocal opposition to the Murdoch offer.

As Ron Grover writes in Business Week online:

Then there are the things you don't really need..find a nice home for your local newspaper group, where advertising is off by 6%. Who needs the headache of a tiny chain of 23 small-town papers in places like Nantucket and southern Oregon?

And while few believe that the Dow Jones/News Corp. merger will get derailed on either regulatory or antitrust grounds, it will almost certainly be scrutinized.  Federal Communications Commissioner Michael Copps said yesterday that completion of the deal “is no slam dunk.”

Copps, a well-known champion of safeguarding the FCC's local media ownership rules, said that the takeover "specifically impacts the local market in New York City.""What's good for shareholders of huge media conglomerates isn't always what's good for the public interest or our civic dialogue," said Copps.

And then, of course, there’s the question of bias and whether Murdoch will seek to use the Wall Street Journal as his bully pulpit.   The New York Times notes today that Republican presidential candidate Rudolph Giuliani is a close friend of Fox News president Roger Ailes and, coincidentally, a prominent feature on Fox News.

So far this year, one political journal found, Mr. Giuliani has logged more time on Fox interview programs than any other candidate. Most of the time has been spent with Sean Hannity, an acknowledged admirer of the former mayor, according to the data compiled by the journal, known as The Hotline. 

But bias is always in the eye of the beholder.  Columnist Michael Graham, writing in the Boston Herald – a News Corp. publication – puts it this way: 

There is a significant bias at work in the Murdoch story. It’s the mainstream media’s bias against capitalism. And there’s a word to describe journalists who refuse his business lessons in the future.

Unemployed.

It will be interesting to see how the market forces play out.  We’ll be watching.