Friday, August 17, 2007 9:14 AM
Many people know the name "Jim Cramer" from the Mad Money cable show or TheStreet.com. However, he also pens monthly columns for New York Magazine under the more formal "James J. Cramer" and The Bottom Line. I have increasingly found these monthly columns to be required reading.
Earlier this Summer, Mr. Cramer wrote a column about Rupert Murdoch and The Wall Street Journal, Rupert’s Eleven-Year Hunt. The column was informative on a variety of subjects, not the least of which was the business risk inherent in standing still.
Mr. Cramer began Rupert’s Eleven-Year Hunt by reflecting on a meeting he held with Mr. Murdoch in 1996, in which Mr. Murdoch asked him what he thought Dow Jones Inc. was worth.
When we met, the man asked me what I thought Dow Jones was worth. At the time, the stock was trading in the mid-30s. I said the franchise could be worth $73 to $74 a share. Before I could even present my backup, I remember him saying, “I’ll pay that.” No blinking—$40 more than the stock was trading at. He even talked about the possibility of getting a line of credit from Chase to do the deed.
I told him that the family had no desire to sell, and that the family’s law firm might not even show a bid from him to the Bancrofts. He sneered and informed me that one day they would.
Flash forward to 2007 and Mr. Murdoch's apparent prediction has been realized.
Eleven years after our meeting, the hunter had come back for his prey. And from the looks of things, he might get it, and for much less than he was willing to pay back then.
So, what happened during those eleven years that resulted not only in Dow Jones being sold, but at a lower valuation than that estimated eleven years ago? According to Mr. Cramer, Dow Jones was much too willing to stand still, staying the risk-averse, reactive course.
No, the Bancrofts still don’t want to sell to him, but much has changed, most of it of Dow Jones’ own doing, and the chance to stay independent has now been squandered. First, while Dow Jones, the average, has more than doubled since my Murdoch meeting, Dow Jones, the stock, has done almost nothing during that time. That’s a point-blank indictment of management. Few groups of companies have grown faster than those that provide data and information services to all the hedge funds, mutual funds, and brokerage firms out there. But Dow Jones hasn’t kept pace with the other Joneses.
While Dow Jones stood still, Bloomberg, the company, ate into Dow Jones’ bond-reporting business and then outflanked the Dow Jones wire service, one of its most profitable units. Michael Bloomberg had worked at Salomon and knew what the institutions wanted. I recall him schlepping to my old office seeking to sell us a Bloomberg terminal for our newly minted hedge fund. We wanted a half-dozen different data feeds and analysis; he said, “Done.” The journalists who ran Dow Jones didn’t even see the threat coming. Now neither hedge funds nor mutual funds count the Dow Jones newswire as a primary news service, and Bloomberg has become indispensable. Until about a month ago, the Dow Jones wire was an acceptable backup to Bloomberg, so it kept up a decent business. But in the time since Murdoch launched his bid, there’s been a major change in the landscape. Reuters, the third newswire, is merging with Thomson, a terminal purveyor. Thomson’s got a long-term perspective. It would not shock me if it offers Reuters for free to all the funds out there that use Dow Jones if they take the Thomson trading box. Squeezed on the high end by Bloomberg and the low end by Reuters-Thomson, the prospects for the wire, the only cash cow Dow Jones has left, seem bleak.
To its credit, Dow Jones has done some things well; but Mr. Cramer seemingly wondered if doing them "well," was enough in an industry marked by rapidly changing business models.
The economics of the news business have gotten so bad that any protestations about journalistic integrity seem hollow. There’s no faster way to compromise the journalism than to run out of money.
Another reality? The Journal’s been fabulously successful at getting people to migrate from its print version to its electronic one. The digital Wall Street Journal is the most successful paid newspaper site in the world. But every customer who moves from print to electronic hurts the bottom line. Print’s more lucrative even as it dies than the Web is as it thrives. The advertisers just won’t pay as much for digital display as they will for broadsheet.
However, simply because today's advertisers apparently will not pay as much for digital advertising as print advertising, does not mean there are no lucrative online business models out there. Finding these models will take some innovative thinking and the willingness to take increased risk. And, as Mr. Cramer suggests, New Corp. may be willing to take that risk much more proactively than Dow Jones ever did.
So, what would a News Corp.–run Dow Jones look like? Murdoch’s much more a visionary about the Web than people give him credit for, and that means he can better monetize Dow Jones’ news content than any other media entity could. An organization that had the vision to pay $580 million for MySpace might be able to ungate the paid Wall Street Journal Website and get hundreds of millions of dollars more in advertising globally. A paid site can’t generate anywhere near the eyeballs that a free site produces, and advertisers covet viewers. The additional ad revenue would dwarf the subscription fees, which are puny to begin with. Dow Jones hasn’t been able to afford to go free without corrupting the price of the print publication. News Corp. could care less about that.
My take away from Rupert’s Eleven-Year Hunt is that standing still or just making small, conservative changes to an existing business model may ultimately be more risky than proactively disrupting the status quo. Because, as Dow Jones Inc. ultimately discovered, if a business' leadership does not take action on its own accord, it is increasingly likely someone else will.