News Corp., Dow Jones Deal Sets Stage for More Industry Re-Ordering
Important Details: After two months of public posturing and private negotiating, News Corp. is poised to complete its $5 billion purchase of Dow Jones. The terms of the offer – $60 per share – remained largely unchanged during the negotiation, but News Corp. did agree to an editorial review board, intended to maintain the company’s storied reputation for independent journalism. On Tuesday night, the Dow Jones board voted in favor of the deal, which now awaits the assent of a sufficient number of super-voting shares held by the Bancroft family, parts of which have actively opposed the bid and are still seeking alternatives. The family is expected to make its final decision next week.
For News Corp., the deal is a bet on the future value of business and financial content, similar to longer-term bets the company has made in its satellite expansion. While U.S. newspaper valuations are in the range of 9-12 times EBITDA, this agreement values Dow Jones at closer to 18X, or a more than billion-dollar difference. News Corp. CEO Rupert Murdoch has been clear in how he intends to yield that value, making Dow Jones content the foundation of a worldwide business and finance news business, delivered through the Fox Business News Network brand (slated to launch in November) and through the pipes of internet, cable, and satellite. Murdoch would take over a company that already has a strong digital foundation. It is the leader among daily newspaper companies in making a digital transition. While most newspaper companies still pull no more than 10% of their revenues from digital businesses, Dow Jones has moved its share to 40%, on the basis of online subscriptions, high-CPM digital advertising, and associated businesses, including Dow Jones Wires and Factiva.
Implications: Outsell believes the fallout from this acquisition will roil many newspaper companies in the months ahead. Among the key early takeaways are these:
- Stand-alone newspaper companies are endangered: Early on, Bancroft family opposition looked like it would topple the deal. When family members saw presentations on the state of the business and near-term prospects, they re-considered. Today, News Corp. draws about 15% of its revenue from newspapers; that percentage will rise above 20% with the purchase. Like Cox, Scripps, and Hearst, it derives a minority of its revenues from print newspapers. It will take large, diversified companies – finding growth outside news operations – to most easily sustain them. Public companies like Gannett and McClatchy, largely or wholly dependent on news operations, will find independence more difficult.
- The ante in the Business/Finance news vertical is raised: The Financial Times and CNBC have already been moving on increasing cooperation, to share content. Outsell expects to see more moves, involving both FT and CNBC (as it resolves legal issues with News Corp.) and such key players as Forbes and Time Warner on the consumer side and Bloomberg and Thomson/Reuters on the B2B side. These companies (and partnerships) must strive for primacy in this high-value sector.
- News Corp. is emerging as a major – not a niche – internet player: The company’s savvy has been building, from IGN gaming to MySpace social networking. Now with Dow Jones, its portfolio is a major one. Though its audiences are diverse, the efficiencies it can gain in advertising targeting are just beginning. Look for News Corp. to use its beefed-up presence to make more deals with major search aggregators, around advertising maximization and preferential content placement.
- Factiva’s future may bring further re-ordering of the search aggregation business: In October 2006, Dow Jones paid Reuters $160 million for the half of Factiva it didn’t own. It eliminated redundant costs (almost 100 jobs). But now, Factiva may not fit within News Corp., a consumer-focused company. As Thomson/Reuters reconfigures itself, and both it and Reed Elsevier tackle the issues of Google-driven, free-to-consumer, ad-monetized content world, we may see further consolidation.