Media Chess – Murdoch Style
For all the reporting on the planned $5b buy of Dow Jones there doesn’t seem to be much insight into how Murdoch can make the numbers work.
In a post last week we decided that it was likely that adding TV and some of the group synergies with online properties controlled by Fox had to be part of the answer.
The weird thing is people seem to treat this like rocket science and that somehow Murdoch is a magician. In my view it is much more simple than that. You go for growth and follow the money and then leverage, leverage, leverage.
Murdoch has an insiders strategy which is clear to him; not surprising considering how long he has been around the media industry. He understands that newspapers, TV and web are all parts of the same content machine and much of that comes down to having the best traffic and resulting ad revenues.
We don’t have the same level of inside information that Murdoch has but the trends are clear. Leveraging the resources of Dow Jones and the Fox television empire will make for a powerful combination. Is it going to answer the $5b question?
This chart of comparative 2006 returns was presented by Dow Jones CEO at a recent briefing. It shows McGraw Hill, Dun & Bradstreet and Thomson achieving better than 20% returns. Dow Jones is shown at 10% return (which seems better than the published figures) NY Times is running at a 5% loss and a whole raft of other newspaper based groups are shown to be marginal.
Note: The Tribune announced a 27% drop in cashflow recently and given that they show as having a 4% return rate on the graph above they must be in serious trouble as is the planned $8.2b public float.
Jon Fine has asked the question Which American newspaper will be the first to kill its own print edition? which is an indication of how tight margins are for the newspaper focussed groups. (In fact it has started to happen with the announcement that “Scripps (SSP) said it would close its newspaper in Cincinnati on December 31. The daily in Savannah said it will shut down circulation in areas out of town.” See here for more on actual newspaper closings and reconfiguration plans.)
Fine mentions 3 scenarios and one of them fits this story.
It makes sense to do this (drop print edition) in a top-tier market full of affluent, wired professionals, in which the daily paper is inexplicably tanking. This is the “Boston Scenario” or the “San Francisco scenario;” rich cities, tough times at the daily newspaper, perhaps these places are where the flight to the Web is making itself apparent.
His prediction “within two years, maybe even less, a major newspaper company will go all-digital with one newspaper.”
There will be some newspapers within the Dow Jones group where this scenario could be tested if the Murdoch bid succeeds.
Now that the October launch date of the new Fox Business channel has been announced – it does help to make much more sense of the $5b offer. The new network would be able to use anchor content from the Wall St Journal and that would go a long way towards improving profit margins at DJ and improving the advertising revenues and rates at the new channel.
CNBC is now linking more closely with the FT as noted by 24/7 Wall St.
The FT, owned by Pearson (PSO), and CNBC, a unit of GE (GE), don’t want to buy anything. So, they are forming a joint venture. At first, CNBC will be able to put FT articles at its website and the FT will run CNBC content at FT.com. Of course, if someone bookmarks both sites the content is available with a key stroke.
The new channel has been in planning mode for some years. First mooted in 2004 planning has been ramped up in the last year. Some of the business numbers were mentioned in this background piece from November ’06.
NewsCorp can only buy DowJones because it doesn’t own a local TV affiliate in New York City. Cross ownership rules mean that this is a unique opportunity of size that Murdoch can’t resist and while Fox Business can work without Dow Jones – if the deal is completed it becomes much more lucrative.
News Corp.’s new Fox Business Network will launch on October 15, Fox said on Wednesday, in a bid to rival business cable channels CNBC and Bloomberg Television.
Fox Business has secured distribution agreements with leading US cable operators that will make the channel available to 30 million subscribers, a company statement said. Read more here (from Yahoo News).
Meanwhile, this announcement is likely to speed moves by Sky News to establish a similar 24-hour pay-TV business channel in Australia. Read more here
So about that $5b here is one final comment from 24/7 Wall St. Murdoch paid $565m for MySpace. Its revenues are apparently only around $200m. Douglas A. McIntyre used those numbers to suggest that Facebook is worth $zero because its revenues are estimated at less than $50m – despite an estimate as high as $10b by another organisation.
The Future of Media 2007 conference is on now and many of these ideas will be reviewed at length. On page 4 of that (Future of Media) pdf is a chart that shows Quarterly Online ad spend has now reached $5b from almost nothing in ’97. (Global ad spend $446b)
As the DJ negotiations are continuing, it now looks as if Murdoch will get his deal despite serious reservations on the prospects for editorial independence as covered by John Nichols in this summary.
For some ideas on what happens next check this analysis.