Ron Burkle, Rupert Murdoch, Dow Jones and The 3 Cs

It's summer and re-run time, not just across America, but in the Tinseltown entertainment built, L.A. So it's fitting that we've got a media ownership drama re-run. Stop the presses: "Ron Burkle is bidding for a newspaper company."

Actually, I'm not that cynical about it. It would have been interesting to see what Burkle and his presumably new-to-the-industry hires could have done with Knight Ridder or Tribune, or the L.A. Times or Philadelphia Inquirer particularly. And it may not have been his fault that he couldn't get to third base in any of those deals. In each of them, Burkle and his people had a hard time starting out and a hard time finishing. He often seemed to enter the fray a bit late and then had trouble getting the documents he needed to assess financials (hint: they're not good). Then, there was some public wrangling, complaining in the press about second-class treatment. Then he got left out in the cold. (Previous Burkle posts: On bidding for KR, on questions he would have faced and on Tribune offer.)

(This story's got a great personal/Hollywood angle, if you recall the continuing suits and slurs exchanged between Burkle and the Murdoch-owned New York Post Page Six contributor Jared Paul Stern over alleged gossip column extortion(!), but that's just a fun sideshow.)

Part of that short history has nothing to do with Burkle. He's just not part of the fraternity, and in the newspaper business, owners prefer to deal with their own kind. (In Chicago, Sam Zell's favorite son status -- Chicago boy who may take care of his Chicago-based friends -- provided an edge for someone who decidedly is not part of the newspaper brotherhood.) But another part of it was that Burkle seemed amazingly clumsy in the process, something totally uncharacteristic of the savvy investor he's been.

So let's chalk it up to a learning experience. That's fair. He just needs a couple of new guides to the Newspaper Business.

Is he too late in this Dow Jones process? That's a hard call to make, but probably not. We think that Murdoch and the Bancrofts are far apart on this nasty little question of editorial independence and quality (don't you just hate that when it gets in the way of a 67%+ premium?). But that may be posturing.

What's certain is that alternative deals, Burkle's, any others put together by the Dow Jones union (Independent Association of Publishers' Employees--IAPE) or by anyone else coming out of the woodwork must move quickly.

As we watch Burkle and for signs of other non-Murdochian life, I think there's three basic principles here that should drive any purchase and its aftermath:

---CAPITAL: That's an obvious one. Dow Jones needs some deeper pockets here. If it's not Uncle Rupert, it's got to be someone else that can sustain Dow Jones through the inevitable trough that newspaper companies face. Print revenue is in decline, online revenue won't make up for it in the short term, and deeper pockets are needed to get from here to an uncertain there.

---CONTENT: Also, obvious, but so far more obvious to News Corp than other would-be bidders. Sure Murdoch would like Dow Jones for his crown jewel and political purposes, but he sees that it can be the foundation of the #1 worldwide Internet/cable/print business/financial news and information play. That's worth billions, well beyond the five or six -- in the longer term -- that Dow Jones will go for.

---CHANNELS: So Murdoch is smartly thinking first of his own channels, specifically the fall launch of his Fox Business News Channel, which can easily gain prominent global carriage. Other bidders, including Burkle, must think just as expansively. Internet channels like Google, Yahoo and MSN. Other cable players like ATT and Comcast. Mobile carriers like Verizon and ATT. And let's not forget the still-growing and profitable B2B channels of the day, getting business news and information, well-tailored and -filtered onto the desktops and mobile devices of enterprise users. That's the way you multiply the value of this franchise; Rupert shouldn't be the only one to get that. Post Dow Jones purchase, any buyer will be able to assess whether to keep or sell Factiva, its main B2B play. Factiva's got increasing worth, especially to players like the new Thomson/Reuters and Reed Elsevier, as global finance information competition scales up.

Three Cs, much interconnected, and the basis of any smart deal going forward.

Comments

[Andy Black]

In financial circles when the Fed sneezes, the World markets catch a cold. Perhaps in the media, when Rupert Murdoch makes a move, others should clench their buttocks.

You can love him or loathe him, yet nobody would dispute that Murdoch is a media genius and in over 4 decades he has proven himself as a man with a Midas touch and an unsurpassed intuition in understanding content, distribution and audiences at every generational zeitgeist.

This is a man who launched satellite broadcasting whilst complacent executives at terrestrial TV channels chuckled – what does a down-market press baron know about TV? Yet within a few short years Murdoch had redefined the delivery of sport, entertainment, news and movies to a modern audience.

This is a man who blindsided everyone by opening Wapping as a supposed new printing plant for a new London newspaper, but instead equipped it with the latest digital technology and moved all his newspapers to this new site – gaining economic advantage over his slower competitors (also enabling him to grab market share in a price war) and laying off a vast army of unionized print workers. There are many more stories….

So, why is Murdoch buying Dow Jones? Murdoch knows the B2C market, why is he moving into B2B? A number of analysts are busily asking can News Corp buy Dow Jones for $60 a share and make it pay off? They pull out their calculators and use a valuation of 10.8x 2007 EBITDA and get a value for Dow Jones’ core businesses of $4 billion. News Corp, though, is offering $5.5 billion. Therefore where is the missing $1.5 billion of value to be found?

News Corp are soon too launch Fox Business News as a cable, satellite, mobile and web service and based on industry average calculations on ad revenue per subscriber and other factors, analysts value the channel at $500 million. This is where Dow Jones content comes into play – whilst most analysts focus on Dow Jones print interests, many have failed to appreciate their online assets and B2B workflow tools like Factiva, despite having access to them on their intranet via corporate subscriptions.

Factiva provides essential business news and information together with the content delivery tools and services that enable professional workers to make better decisions faster. Factiva’s has licence agreements with more than 10,000 trusted and authoritative newspapers, magazines and newswires and includes the exclusive combination of The Wall Street Journal, the Financial Times, Dow Jones and Reuters newswires and the Associated Press, as well as D&B company profiles.

Could Murdoch use Factiva to attack Google? In looking at the relative size of web aggregators, the order is Google, Yahoo, MSN, Ask with Factiva at seventh.

However, Factiva has licences with all the publishers to redistribute their content, and pays them a small royalty. Google does not have a distribution licence and instead gives the publisher a tiny percentage of ad revenue. Murdoch knows that the Google search results are becoming increasingly irrelevant to a professional audience, he also knows via his experience with MySpace that a fashionable B2C web service quickly becomes unfashionable, whereas a professional audience operates 24/7, has money, is stable and needs good content and information.

So perhaps Factiva should offer publishers more than Google gives them with their share of ad revenue on condition they reset their robot exclusions to limit the extent of the crawl of the Google spider on their sites? This would seriously diminish the quality of the Google index and enhance the quality of the Factiva aggregated content – this would encourage additional subscriptions to Factiva and drive advertisers away from Google. Particularly if a press campaign is started that highlights how Google is the Worlds' biggest pornographer, given the quantity of porn on the Google index and the advertising revenues Google derives from the porn industry.

And with Factiva pumped out via the new Fox Business News across cable, web and mobile and throughout all the News Corp distribution channels– perhaps Rupert Murdoch will once again prove what a wily old fox he is. The race is certainly on.....