Felix Salmon of Portfolio Blogs a Bit More of Our Afternoon Coffee at Strada, at Bancroft and College

Felix muses on Murdoch's acquisition-to-be of Dow Jones and the Wall Street Journal. I interject comments:

Finance Blog - Market Movers by Felix Salmon: Why Murdoch Can Make Money On His Dow Jones Investment - Portfolio.com: Brad DeLong and Paul Krugman both cogitate today on the implications of Rupert Murdoch buying the Wall Street Journal. Krugman is unenlightening: his argument is basically "Fox News is bad, therefore Murdoch is bad, therefore Murdoch buying the WSJ is bad"...

Paul Krugman may be boring, but that doesn't mean he is wrong. Fox News is bad. Murdoch is bad. Whether his acquisition of the Journal is good or bad from the standpoint of those of us who want to see a flourishing Habermasian public sphere of thoughtful and well-informed citizens depends on the exact form his badness takes, and whether it does more to undermine the good or the bad aspects of the Journal. And I think it more likely than not that the acquisition is bad news for those of us who want to see, et cetera.

Felix goes on:

DeLong is more interesting. Is Murdoch basically just a multibillionaire buying himself a new toy? If that's the case, then watch out.... Is Murdoch, on the other hand, a multibillionaire buying one of his sons a new toy? If that's the case, "then the Murdoch purchase is probably good news.".... And there's a third possibility...

the one that Salmon likes, and that he argued for. As I put it:

Rupert Murdoch thinks that in the age of new-media convergence the Wall Street Journal has the brand and the authority and the staff to make it an excellent launching pad, worth a $2 billion bet. Can Murdoch synergize the Journal's brand on TV and via new media in a way to further boost his fortune? Perhaps.... Why, Murdoch may be asking himself, should the biggest fortune be made by Michael Bloomberg and not by him?...

But, I say:

if Murdoch had a real chance at the synergies, there would be other bidders by now.

Felix Salmon parries:

DeLong's an economist, which means he's naturally predisposed to arguments which say that if some course of action is profitable, then the market would have done it already. But I think there's a strong case to be made that News Corp is one of the very few entities capable of turning the WSJ into a powerful global electronic platform.... Why? One answer is... Roger Ailes. Much as the likes of Paul Krugman despise him, the fact is that he's a visionary and a genius.... News channels are a dime a dozen; only one has managed to beat CNN....

The other answer is that the WSJ needs to be run by a newspaper company... [which] simply don't have the cashflow to invest in... domination of the electronic world.... [P]ublic companies who don't own newspapers don't have Murdoch's time horizon... as NBC Universal CEO Jeff Zucker told the FT.... It's a bit embarrassing, but true, that the 76-year-old Murdoch has a longer time horizon than a public company which will almost certainly exist in some form for many generations yet.... Yet it explains why Murdoch can profitably spend $5 billion on Dow Jones even when no one else can.

Well, I am an economist. And I am naturally predisposed to arguments which say that if some course of action is profitable, then the market would have done it already. It does seem possible that $5 billion ($2 billion net, after selling off the pieces of Dow-Jones Murdoch doesn't really want) is low enough that it makes it profitable for Murdoch but high enough that it makes it unprofitable for everybody else. But is it likely? What, exactly, does Rupert Murdoch do with the Journal to make new-media synergy money that nobody else could do in his stead?

Comments

[Barry]

ISTR reading an article (WJS? NYT) mentioning that private equity firms are now doing $20+ billion deals. This suggests that a $5 billion deal would be rather doable.

[Lee A. Arnold]

I think the error is in Salmon's idea of a "powerful global electronic platform" for "domination of the electronic world." That sort of branding may only be possible for less than 10 more years.

After that time, you won't be able to have editorial control. Partly because you won't have editors in the same way. There is no print page to need fitting onto.

Imagine a subscription website in which reporters and writers are paid directly by the number of eyebalIs. They are known to be good reporters (perhaps they are old Journal writers!) and because they tell the truth, you keep coming back for more. The writers receive the revenue directly, and so they make more money. The "editor" merely allows writers to list on the site, and makes categories for the pieces.

The future will be something like this: an ultimate information democracy between editor and writer, with comments on the truthfulness of both by the readers, and more readers to rate their comments to keep everybody honest. This is where the world is already heading.

If your objection is that you need the "brand" to tell you it's honest and reliable, there will be ways to do that too.

The Roger Ailes example does not apply. That was television -- a high cap startup that broadcasts only one way. That model is ending.

The bottlenecks allowing mogul ownership were newsprint and airwaves. They are just about finished. Murdoch buys the Journal at the beginning of its eclipse. Yes, there is a little time still remaining to cause mischief -- he must at all costs defeat "net neutrality."

[Bruce Wilder]

"What, exactly, does Rupert Murdoch do with the Journal to make new-media synergy money that nobody else could do in his stead?"

Maybe, he does not know exactly that he needs to do, but he's better position to hedge his bets, to insure a series of trials, because he already has a portfolio of plausible channels for distribution and relevant corporate competences

In other words, it's not just that he's in the select club, who have the odd $2 billion to throw around, but he's in that club and also owns television networks, newspapers, and satellite and substantial web properties. He's in a position to try and try again to get it right, if it comes to that, and to throw a great mass of pasta at the wall, to see what sticks.

[ken melvin]

Why did god make Murdochs?

[ken melvin]

Why did god make Murdochs?

[ken melvin]

Why did god make Murdochs?

[John Emerson]

I think that the possibility that Murdoch will not do harm is about the same as the possibility that a pencil you drop will land standing straight up balanced on its point. I don't understand why anyone is arguing about this. The guy has a track record, doesn't he.

I have argued that the problems with American news media can be parsimoniously and reasonably explained by assuming that management is responsible. I also believe that the increased influence of finance on management exacerbates the problem, and that the owners and managers of most major media are committed to a low tax agenda and to an interventionist foreign policy. And there's no reason to believe that they'll change. In this context, Murdoch is more of the same, and worse.

This argument of mine has found no traction at all. Either it sounds too Chomskyite, or else the entire blogosphere is afraid of Sulzberger, Graham, and the rest of them.

And to repeat, it's not a conspiracy theory to say that management manages, or that finance pressures management.

[julia]

Roger Ailes didn't provide the money which guaranteed that FNC would lose money for an extended period in return for gaining a monopoly on a lot of eyes.

Murdoch made a long-term, and very profitable, investment in media deregulation with FNC, and as a side-effect he has a news channel. I can't quite see how that relates in any way to the Wall Street Journal.

Except that their editorial policy is roughly the same. Sadly, the news side appears poised to join it.

[Michael Cain]

"What, exactly, does Rupert Murdoch do with the Journal to make new-media synergy money that nobody else could do in his stead?"

What is it worth to be able to say on the various Fox news outlets that "Tomorrow's WSJ will report..." as compared to the same statement on NBC? Given the differences in the audiences, the same statement will have different values in those two settings. What are the relative values for having a consistent series of editorial pieces in the WSJ and on Fox during a week? It seems to me entirely possible that there are synergies between the WSJ property/brand and Murdoch's other holdings that are not available to others.

[rod]

Mr. Murdoch has a television network. There are only three others with its reach. He has another New York newspaper. No owner of a TV network also owns a New York newspaper. He owns media properties globally. No other American television network has anything remotely resembling his media properties globally. The Wall St Journal is an asset paralleled only by perhaps the Financial Times, the NYT business page, and probably no one else. No network/newspaper/global media owner resembles Mr. Murdoch and no asset he could acquire remotely resembles the Wall St. Journal. And you ask why this deal was foreordained? And why only non-economic considerations can stand in its way, as of course they are unlikely to do for long.

[foo]

Brad: And I am naturally predisposed to arguments which say that if some course of action is profitable, then the market would have done it already.

Same logic holds at any point in the past so nothing profitable ever happens. Like a priest, a true economist must believe three impossible things before breakfast: zero transaction costs, complete information availability and zero reaction time.