Dow Jones Puts Itself on the Market
Important Details: Publicly, the Bancroft family, which controls 64% of the Dow Jones voting stock, had been steadfast. Despite a 67% premium offered for the company by Rupert Murdoch’s News Corp., the family had said “no, not interested.” As the family heard presentations about the Dow Jones’ increasing difficulty in competing as a standalone news player, though, enough members had a change of heart and agreed to meet with News Corp. this week. The family also said it would entertain other proposals that would both maximize shareholder value and pledge to continue the company’s storied journalistic traditions.
The news sent Dow Jones stock soaring on Friday, up another 14% to $61.20, a little above the $60 offer that News Corp. has on the table — a light year away from the mid-$30 range the stock had been trading in before the offer.
Implications: The Bancrofts’ acquiescence is further evidence of how substantially the media world is changing. It’s not that News Corp. is a better operator of print properties. In fact, its first quarter reported earnings showed the same woes as all newspaper companies reported, in declining print circulation and print advertising, and slowing online ad revenue growth. For its news division, operating income was flat, $156 million as compared to $153 million a year earlier. But News Corp.’s earnings are little affected by its newspaper properties, which contributed only about 13% of those earnings. What propelled News Corp. to 23 per cent earnings growth overall wasn’t traditional media, but rather filmed entertainment such as “Borat” and “A Night at the Museum” (up 82% in operating income) and cable (up 34)%.
The News Corp./Dow Jones saga is a lesson in diversification. News Corp., given Murdoch’s acumen, expanded into high-growth entertainment and cable businesses, while Dow Jones, and many other standalone news companies, failed to do so. Now, those news companies with market valuations in the low billion single digits feel small, and in need of protection. The Bancrofts looked at projections of how badly the legacy print business may fare in the next three to five years, and blinked. Their blinking has got to be a lesson for all news operators, even those with their own two-class share structures, like the New York Times, the Washington Post, McClatchy and Lee. These companies’ executives must look to their own protections, their own white knights perhaps, as they figure out how they may be able to survive the swirling waters ahead. Maybe it shouldn’t be this way, but the success of entertainments like “Borat” are, at present, determining the future of American journalism.
As all companies assess the News Corp./Dow Jones lessons, expect even more maneuvering. Expect new partnerships and ventures to arise, for instance combining the capital forces of private equity, the ultimate distribution powers of the Comcasts, ATTs, Yahoos and Googles, and the content-producing know-how of big daily journalism companies. Also, expect that as the carom ball of a News Corp. purchase of Dow Jones, should it finalize, rebounds, we’ll see disruptions in the news wire and aggregation business. A News Corp./Dow Jones combo may put Factiva in play, offering all kinds of interesting possibilities for the newly combined Thomson/Reuters or for Reed Elsevier. The business wire service itself means new challenges for Bloomberg, the Financial Times, Thomson/Reuters and AP. The ante is being raised in the Internet age. News players need to pony up and get resources one way or the other, if they want to be a top player.