What Does Rupert Murdoch Think that He Is Doing?

Felix Salmon thinks that Rupert Murdoch is crazy like a fox--like Fox News, that is. Salmon contends that Rupert Murdoch must intend to grow and enlarge rather than cut back the Wall Street Journal:

Finance Blog - Market Movers by Felix Salmon: In Defense of Rupert Murdoch - Portfolio.com: over at Salon, Gary Weiss has an anti-Murdoch screed which seems borderline unhinged, but is worth reading to try and understand what Rupert is up against. His main problem seems to be with cutbacks:

If and when Murdoch gets Dow Jones he is going to make money on it, and that will require drastic cutbacks -- entire "inefficient" divisions shuttered, employees thrown into the streets. Employee union negotiators, who had thought current management was hardheaded, are likely to look back on the pre-Murdoch days with nostalgia. "He's paying 40 to 50 times earnings, and he is going to get a return on that. He is going to crank down on costs," said one longtime Dow Jones journo who knows his way around a balance sheet.

This simply doesn't make sense. No one has ever paid 45 times earnings for a company and then got a healthy return by cutting costs. That kind of multiple can be justified only by future growth – and Murdoch has made it very clear that he wants to invest in the Wall Street Journal and turn it into a strong international brand. Cutting back is what current management has tried, with zero success. Weiss sees Murdoch not as the lifelong newspaperman he is, but rather as someone who sees the Journal as a wasting asset:

[James] Cramer nailed down the shareholder value view of the newspaper biz a few weeks ago, when he said, "These are diminishing assets. They don't need to exist. Younger people rarely read them."... Remember that newspapers don't need to exist from an investor standpoint... My Dow Jones journo friend recognizes the inevitable: Newspapers, he says, are in a "contracting industry, and in a contracting industry you want a rat bastard who will restructure the costs." That is likely to mean integrating the company's far-flung operations with the rest of the News Corp. empire. Or it could mean "restructuring" in the traditional Rust Belt slash-and-burn sense of the word.

Have Dow Jones journalists really been so beaten down by mismanagement and underinvestment that they can't recognize an optimist when they see one? Murdoch understands that in a world with an increasing appetite for financial information, the Wall Street Journal could be one of the strongest brands in the media universe, and hugely valuable for it. But Dow Jones management – and, it would seem, some of its employees, too – are so caught up in diminishing profitability that they can't even understand that vision when it's spelled out to them...

It seems pretty clear to me that Murdoch would like to take the Wall Street Journal as a brand and expand it--new-media-ize it (and, perhaps, old-media-ize it through broadcast and cable TV as well). But it seems very likely to me that that is perfectly consistent with cutting back large parts of the current journal--cutting back the news reporters who write the long articles that bore Rupert Murdoch, and expanding the red-meat-to-those-who-hate-that-communist-Roosevelt audience. Worldwide the next generation is going to see a lot of rich people who will be willing to pay to be told that they deserve their money and that anybody who wants to tax or regulate them is an enemy of human freedom. And, as Murdoch has said before, that is a market opportunity--the opportunity he has tried to seize with Fox news, and may well try to seize further with a more propagandistic and less reality-based Wall Street Journal.

Can Murdoch make the financials work to make the Journal a good way for News Corp. to spend $6 billion? I doubt it. Can he find enough synergies to make the financials not be a total disaster? I think so. And in the meantime will it give him a platform on which he can play global statesman for a decade? Yes.

Comments

[Rob]

Really, it would be one thing if Fox News even tried to do news. But its basically talking heads looking at satelite feed when news breaks. Murdoch doesn't do news. He does media.

[Homechef]

What is the value of WSJ's news capabilities? I can think of two parts - a. increased credibility and viewership for the editorial pages, and b. advertising. Advertising is essentially a linear business, whereas editorial credibility causes non-linearities: "lock in", increasing customer lifetime value, referenceability, etc.
The latter, advertising, is linearly related to audience. Can Fox dramatically increase the size of the audience for WSJ content? Not enough to justify the cost.
This leads me to think that the former is where the action is. Can WSJ news make Fox editorial more credible? What is the effect of this on the value of news corp? Far from being too high, 10% of the value of News Corp might be too low. Fortunately, News Corp doesn't need to pay WSJ's true value to them, they only have to pay WSJ's value to the next highest bidder.
I'm in no doubt as to who gains the most from credibility endowed by WSJ... and I think that pretty much determines who gets it.

[Pol]

I think you can be more optimistic. The rich like having their egos stroked and prejudices confirmed, but they like accurate financial news even more.

The Unique Selling Point of the WSJ is not rightwing drivel on the editorial pages - if it was, Instapundit and Kausfiles would be worth billions. The reason why the WSJ (and the FT and (more arguably) the Economist) find their way onto the desks of the famous is the depth and quality of the news reporting. This is particularly true here in the UK where the gap between the FT and the rest is far wider than it is in the States.

Murdoch has always understood the importance of content, and been willing to pay for it. Sky TV worked because he threw a mind-boggling amount of money at football (soccer to you) rights. I understand he did something similar with sports rights in the US.

[SERO]

"the next generation is going to see a lot of rich people who will... pay to be told that they deserve their money and that anybody who wants to tax or regulate them is an enemy of human freedom."

Yes, and it is rightly the economists' task to do this. They don't need journos working out how the trick is done.

[anne]

Felix Salmon is a Wall Street consultant with a Wall Street consultant's motive and the motive is be nice, be especially nice, to Rupert Murdoch who can be ever so helpful to a Wall Street consultant. No disinterested academic here, not even close, but a Wall Street consultant whose interest in showing Rupert Murdoch proper obeisance.

[anne]

Imagine, the Rupert Murdoch ingratiating duplicity of Felix Salmon who is worried, yes, worried, oh, so worried, that we might even have some depth of reporting, some objectivity, in the Wall Street Journal. What we need is more of the Republican journamalism * of Rupert Murdoch, no doubt featuring Felix Salmon.

* Brad DeLong's adept coinage.

[anne]

http://www.nytimes.com/2007/05/07/business/media/07carr.html?ex=1336190400&en=0be32360fe406ce7&ei=5090&partner=rssuserland&emc=rss

May 7, 2007

Once Again, Murdoch's Siren Song
By DAVID CARR

Rupert Murdoch, the thrill-ride version of the modern media mogul, delivered a particularly head-snapping jolt last week when the News Corporation said it intended to buy The Wall Street Journal and the rest of Dow Jones & Company for $5 billion. Now that some of the commotion has eased, it might be worth a few minutes to examine the proposal bearing in mind Mr. Murdoch's unique business DNA.

¶ First, the deal will be made at some point, regardless of what the Bancroft family said last week. Brute-force capital, like flood waters, always finds a way to break through.

¶ Despite his allaying words to the contrary, Mr. Murdoch would operate The Journal, including its editorial operations, as he sees fit. As Mr. Murdoch himself has said throughout his relentlessly acquisitive career, he buys things to run things.

¶ There is business synergy in the deal — between the News Corporation's proposed Fox Business cable TV channel and The Journal, for example. But far more important is Mr. Murdoch's own version of synergy, which puts business, media and government all in a single vertical. Owning The Journal would give him a powerful leverage in all three.

¶ The price that Mr. Murdoch is offering — $60 a share — is a multiple of ego, not earnings. He may have some other super-secret plan to squeeze more value out of the company, but the deal would give him something that, for all of his stellar business achievements, he's never achieved in this country: a seat at the gentlemen's table.

The rest is details, juicy ones to be sure. For the time being, Mr. Murdoch's task is a retail one, persuading the family to meet with him in a kind of creeping tender offer. Until he can tell rather than ask, he will assure them that his reputation as a meddler in newspapers is vastly overstated. He went so far as to suggest that an independent editorial board might be just the thing to calm jangled nerves.

He'll need to do some soothing of the newsroom, too....

[anne]

Ah, I am so sorry. Felix Salmon writes that he was only a consultant for a couple of months and that not actually on Wall Street.

Whether Felix Salmon is a Wall Street consultant as such or simply works for Wall Street, * whichever is the current case, and therein has a Wall Street interest as has been shown in writing on writing I care little. I know where the rationale for Rupert Murdoch is pointed. Also, the conservative Republican is Rupert Murdoch, and I do not know or care in the least what Felix Salmon is other than in wishing to assist conservative Republican Rupert Murdoch and finding it too trying, poor dear, to read an in depth article.

* Wherever situated, I like the Wall Street reference in this instance since the point is serving a prime Wall Street interest which is what Felix Salmon at portfolio.com is assiduously doing.

[anne]

Yes; as Brad DeLong pointed out so well, with the editor of the Wall Street Journal being told of the offer by Rupert Murdoch and then choosing not to treat the telling as news, serving Rupert Murdoch comes in many flavors. The Los Angeles has been pressured and slanted in coverage for years, finally sold. Wall Street has been pressuring the New York Times, fortunately because of family to no avil, while fortunately the Washington Post is protected by family and Warren Buffett. I am not interested in serving the radical Republican interests of Rupert Murdoch, which are so well served already.

Poor dear Felix Salmon, all those long articles to read or not.

[Ginger Yellow]

"And, as Murdoch has said before, that is a market opportunity--the opportunity he has tried to seize with Fox news, and may well try to seize further with a more propagandistic and less reality-based Wall Street Journal."

Well if it's any consolation the editorial pages couldn't get any more propagandistic or less reality based.

[Barry]

Felix Salmnon: "This simply doesn't make sense. No one has ever paid 45 times earnings for a company and then got a healthy return by cutting costs. That kind of multiple can be justified only by future growth "

How often does somebody pay 45 times earnings, and then gets a healthy return, no matter what they do?

[anne]

As for Rubert Murdoch playing at being a global statesman, the emphasis should be on "playing," playing the way the voices of Murdoch media play at slanting the news to Murdoch interests which are wildly conservative Republican interests. Quite the sort of statesman responsible for the disastrous global policies we have adopted. Yuch.

[nemo]

"How often does somebody pay 45 times earnings, and then gets a healthy return, no matter what they do?"

The answer is in the David Carr piece in the NY Times that Anne just quoted:

"The price that Mr. Murdoch is offering — $60 a share — is a multiple of ego, not earnings. He may have some other super-secret plan to squeeze more value out of the company, but the deal would give him something that, for all of his stellar business achievements, he's never achieved in this country: a seat at the gentlemen's table."

At the end of the Carr article, Murdoch claims:

“All newspapers are run to make profits. Full stop,” he said. “I don’t run anything for respectability. The moment I do, I hope someone will come and fire me and get me out of the place — because that’s not what newspapers are meant to be about.”

He either doesn't say what he believes (a safe working assumption with the rich and powerful), or he may be too blind to see through his own baloney. The WSJ is an ego trip, a status symbol, and a prize bauble to Murdoch, what other rich men reach for when they buy a race horse.

Although the WSJ is a bauble that will almost certainly lose Murdoch money in itself, it will help produce a lot of money and power when added to his other holdings. He probably doesn't expect to make money on the WSJ alone. He probably expects its respectability to rub off on tawdry grubby Fox, increasing the overall value of his holdings.

[me]

Fair and balanced, brought to you by Murdock, Hannity and O'Liar. I will not subscribe. I have Fox News blocked on my cable and I will block the WSJ.

[Barry]

Thanks, Nemo. This says something about Felix's honesty.

[christofay]

Rupert used to be a good name for somebody who brewed beer, but I would be sounding rusty. Rupert Moloch with his 11% ownership or abouts of News Korps, ha, ha, is placing other peoples' money, the best, into this image builder. Adding the $6 bil purchase of this trophy to the $60 bil (bush dollars) market crap of the company were a minority owner gets to place his son on the CEO throne is priceless as the master cadre say.

[christofay]

Donald Trump the hair piece against the WWF impresario McMahon the hair implants in a no holds bar knock-down fight would be a good free market match. Then for a second match, Bill O'Reilly against "I'm free of the drugs" Rush Limbaugh fight were only knees to the groin score.

This is too good for a one night stand, this easily could be a weeks running reality series that could be broadcasted globally. Enter Fox News Entertainment.

Off the major media screens the Roubini radars pick up more of the impending economic disaster. The Fortune Five Hundred have started their stealth, IBM, and non-stealth, Circuit City, lay-offs. Go out the door and come back later, maybe, at lower hourly pay. More of the firings will be step three. Cringley Factor.

[anne]

Darn, now I really am sorry and not angry other than with myself. I did not read correctly and mixed Brad DeLong with Felix Salmon in several instances. I was wrong from the beginning, having never separated the column of Felix Salmon from the argument by Brad DeLong. The lesson is always read the original entry when possible.

Felix Salmon has been right, and I have been wrong and not the least objective. I am sorry for having unfairly criticized Felix Salmon.

[anne]

Brad DeLong keeps teaching me to read properly, and I will eventually learn. Again, Felix Salmon was right, and I was not only wrong but completely unfair in my argument.

[christofay]

Felix Salmon will survive to swim another day.

[John]

I think Murdoch is a metastasized cancer now invading the WSJ. Once the tumors kill enough organs the News Corp dies.

[vtcodger]

As it happens, I had the TV on last night tuned to Charlie Rose on PBS who turned out to be interviewing Warren Buffett. The subject of Murdoch and the WSJ came up. I was really more focused on spell checking the names of a bunch of obscure fossil mollusk genera (not as easy as it sounds) than the interview. But I think that Buffett said that Murdoch is a first rate newspaperman and almost certainly knows what he is doing. Buffett added that WSJ parent company Dow-Jones has been seriously deficient over the past several decades in failing to maintain its market share in the financial information sector and that the WSJ could be more effective (and profitable) than it is.

Buffett is, as we all know, often correct.

Did anyone who was more fully engaged than I watch the interview? Do I have the content right?

BTW, does anyone seriously think that Murdoch is going to make the WSJ editorial page more conservative than it already is? Short of calling for a restoration of slavery it wouldn't seem possible to drag the WSJ editorial board to the right.

What concerns folks is that he will politicize the news section. Maybe. But why? Doesn't seem on the surface like what you would do to increase profits from the paper.

[dave]

Don't forget what he did in London 20 years ago with another trophy title: he'll be looking to see which operations can be merged with other bits of his empire. And of course his new acquisition will have to play its part in promoting his other activities. I'd expect lean, mean and even less trustworthy wherever a Murdoch interest may be even indirectly affected.

[Neil B.]

Good Lord, and the WSJ is already bad enough in the editorial department.