The Newsonomics of Rupert Murdoch, American Publisher
First published at Nieman Journalism Lab
State governments finally cracked down on Amazon’s sales tax exemption, and Jeff Bezos found a workaround: same-day-delivery of retail (“The Newsonomics of Amazon vs. Main Street“). European governments and the European Community have tried every which way to crack down on Google, and still Larry Page has found a way to continue to dominate the continent’s digital business. Scotland Yard, Parliament, and the Guardian have exposed the crimes and abuses of journalistic power of News Corp. in the U.K. — and now it looks like Rupert Murdoch may be moving the family — lock, stock and barrels of ink — to the U.S.
Of course, it would be hyperbole to compare the move of the Murdochs, père, fils and the rest of the brood, to the Corleones. In that case, it was son Michael, seeing the difficulties of doing business in New York who moved the family enterprise to Vegas. In this case, it’s father Rupert — who became an American citizen in 1985 in order to buy into the TV business — who is paving the way. It’s son James, now taking over direction of the Fox Networks Group, who is taking firm control of the western move. It’s the 2010s now, not the 1950s. Oh, and one’s fiction. Power now can be exercised far more subtly.
Yes, London has become inhospitable to the Murdochs, pushing him to vow to invest in the U.S., his comments not so much sour grapes as a recognition of reality. He could lie low and try to regain the awesome sway he once held over U.K. media, but that will take time. Besides, America is still the power of this century, with Britain in relative decline. Why not build the next generation of business in the U.S. — and build political power far beyond the programming of Fox News and the editorial pages of The Wall Street Journal? It’s not a new trend, but one that’s been building over the past year.
It is within that context that we can place Rupert’s L.A. Times reported (“Rupert Murdoch, other potential buyers eye L.A. Times“) and Reuters-confirmed interest in two of the most distinguished nameplates in the American journalism, the Chicago Tribune and the Los Angeles Times. News Corp. denied the interest over the weekend, but the story, backed by multiple sources, says the Times is more than plausible.
While it is undeniably true that the U.S. metro dailies are the sickest specimens in the global newspaper trade, Murdoch’s interest in the press is beyond any immediate market value and often beyond long-term market value as well. The newsonomics of this potential deal go well beyond dollars and into the murkier count of political capital. Given what democratic havoc the Murdoch empire wrought in the U.K., and the fact that it dominates the Australian press (with 70 percent ownership of the daily trade), it’s not too early to push into the open the question of who might buy these papers.
Murdoch’s game is the long game, and his long, wily career has shown his patience. Now as the U.S. newspaper industry continues its breathtaking implosion — and its under-covered shifts in ownership — it’s a perfect time to pick up both prestigious names and the influence that still accompanies them. That’s the landscape into which the Tribune auction of newspaper properties will enter. That auction is already quietly in process, as we wait for the Federal Communications Commission to okay the transfer of Tribune Company broadcast licenses to the three owners — investment companies Oaktree Capital and Angelo Gordon and bank JP Morgan Chase — approved by the bankruptcy court. Pending FCC approval, the final end of the Age of Zell should come before year’s end. While newspaper stocks have enjoyed a nice run-up, you can still pick up papers the size of The Tampa Tribune for the price of the best real estate in town (“The Newsonomics of Near-Term Numerology“).
Tribune’s own market assessment of all its eight newspaper properties, part of the bankruptcy proceeding, came in at $623 million, compared to $2.85 billion for the broadcast business. Without competitive bidders, that amount may be optimistic. With competitive bidders — especially in L.A. and Chicago — it may be low. For round numbers, let’s say a competitive bidding process prices the Chicago Tribune and L.A. Times at a combined $600 million. That’s a pricey number given the cash flows of the two papers, especially given that those meager cash flows have only been achieved with continuous cost-cutting. It’s an above-market price, and the owners would need a heedless-to-market buyer to pay it.
Enter Rupert Murdoch. He won his prized Wall Street Journal and Dow Jones from the Bancroft family. He paid $5.6 billion, and then wrote down about half that value within a couple of years. He knew he was overpaying — but it was what he needed to do to get what he wanted.
So, first question: Can Murdoch buy these papers?
Well, he’s got the money and control of News Corp., even if investors have been making increasing fuss over that family control. The company should end the year with cash of something less than $9 billion after it completes planned Foxtel TV acquisitions in Australia.
There is the little matter that News Corp. is in the process of splitting in two. Pressured both by Hackgate and those restless investors tired of the drag the newspaper holdings were having on profits, Rupert agreed to split News Corp. into two companies, one essentially TV- and entertainment-oriented and one largely newspapers. That split, though, isn’t scheduled until roughly mid-2013.
The Tribune properties will come on to the market earlier, probably around the beginning of the year. So pre-division, how exactly does Rupert take about five percent of his remaining cash to put it into the old business? You can bet News Corp. finance people are readying that analysis and argument.
Certainly, investors will still raise the specter of the Dow Jones purchase — but that cost was almost 10 times what this one would be. Besides, Murdoch can point to another savvy investor, Warren Buffett, who is now getting intonewspapers.
The fascinating thing here to Murdoch watchers is the split — and perhaps the consequence that many missed in the split announcement.
Once the newspaper company is separate, the whining of those entertainment investors about musty old newsprint should go away. Murdoch will control the new newspaper company as well as the entertainment one. What better to do in his senior years than return to the newspapering — and the influence, in America and in Australia, that such ownership still conveys?
The company split makes it easier to pursue titles like the Times and the Tribune, not harder.
So if Murdoch can buy — will the owners sell it to him?
That’s the other wrinkle of our times. In the past, newspaper people sold to newspaper people. It’s just what you did — in part keeping them within the fraternity, and in part the sense that newspapers have a special community tie.
But for these banks and investment companies, community appeals will mean little. Their sole goal is profit maximization. It’s not only Tribune that investors now control; it’s also MediaNews and Journal Register, led by Alden Global Capital.
Bottom line: Now that newspaper properties are dirt cheap, and sellers are giving no preference to community ties, papers — and their evolving online business models — can be bought by those who have more journalism on their mind.
Call it Citizens United for journalism.
Yes, other buyers will emerge — the Times names Austin Beutner, the former venture capitalist and ex-deputy mayor of Los Angeles, as leading a group there — but will they be able or willing to match a Murdoch bid?
There are to be sure other complications. Among them is cross-ownership of TV stations, given Fox holdings in Chicago and Los Angeles. One question soon to be answered: The presidential election will determine whether the FCC remains Democratic-controlled or turns Republican, the latter likely to be friendlier to Murdoch and cross-ownership interests.
Certainly, if Rupert were to get these prizes — or even one of them — the impact on the journalism is curious.
He might well treat them like The Wall Street Journal, modernizing technology and investing in journalism — that’s an undeniable fact of the News Corp. era. It would also help him build The Wall Street Journal’s network, video and text, as business news finds new bigger city digital outlets.
The wild card, of course, is a further gain in influence. Political influence. The kind of early 19th-century make-or-break-politicians influence that went on — largely uncovered until recently — in U.K., the world’s oldest democracy. This is of course the age of unchecked big money, and media checks and balances seem like an idea hanging on by its fingernails. The Fox News game is indicative, driving big profits for News Corp. as it drives a stake into the body of “fair and balanced,” purposefully confusing the political discourse to the advantage of those who know how to play it.
David Brock’s new book, The Fox Effect: How Roger Ailes Turned a Network into a Propaganda Machine, isn’t just a good telling of the brilliance of Roger Ailes, who just got a new four-year contract. It may be a cautionary tale for the next stage of the plans of Rupert Murdoch, American publisher.