Behind Rupert's Smackdown: Lessons from the Wizard of Oz

You've got to admire Murdoch. His smackdown of the Bancrofts and Dow Jones has all the makings of a Greek tragedy. It's all about strength and weakness, courage and reticence. Points to Rupert for the strength and the courage. He's stared down reluctant shareholders over the years to do what he thinks is right for the business, and been proven right more often than wrong. The real tragedy is that he doesn't bring the same passion to independent journalism as we know it, and that'll be the substantial and enduring rub here.

What Rupert sees here -- and is willing to bet on -- is the future. Not bad for a septuagenarian. There's some good estimates out there on how much Rupert "overpaid" for Dow Jones. Financial analysts are trying to figure out how he's going to recoup the 17-18X EBITDA he's paying when Knight Ridder went for 9.5, the Tribune's going for 10 and Gannett's trading at 12.

Analysts are finding some corporate expense synergies here and some growth as the Fox Business News Channel launches in November, its ratings and reach abetted by Journal and Marketwatch content, if and as the CNBC "exclusive" gets sorted out. But those analyses miss the larger point.

This isn't a 2008/2009 deal. It's a reach-out for the business news franchise worldwide in a time of greatest global expansion we've ever seen. Think that might worth an extra billion or so, over time?

How many white board discussions have you endured about delivering stories and ads to customers any way they want it? And then go back to your desk and hear the 49 reasons why content management systems, business relationships or vacations won't allow it?

Rupert sees it -- cable, satellite, Internet, and, yes, print -- and moved on it. His people from gaming networks to MySpace are also building up lots of ad know-how. Combine that with Dow Jones' own emerging savvy -- video ads are now going for $90 cpms on WSJ.com -- and you've got new core competence.

Importantly, you also have a company in News Corp that isn't a newspaper company.

About 15% of News Corp's revenues and operating income comes from newspapers, though it publishes more than 160 of them. Add in Dow Jones revenue, and News Corp still will be no more than 20%+ newspapers. That's key.

In a fast-declining print marketplace, you can't run a public newspaper company -- with strength and courage -- unless you've got significant growth coming from other busineses. Rupert's got Homer Simpson, Bruce Willis and Sacha Baron Cohen bringing in the bucks. His own newspaper business is flat, but he can operate it as a hobby for now.

What it comes out to this: the standalone newspaper business is endangered. It took a brisk day of Powerpoint and Excel to convince enough Bancrofts that their future was hopeless without Uncle Rupert's deep pockets. If you are newspaper-focused Gannett (maybe 10% broadcasting), or McClatchy or Lee or the New York Times, you're looking at the same numbers. Today, Scripps announced the shuttering of a couple of papers. We'll see more of that as times get tougher and those 20% margin days quickly turn to unprofitability.

Scripps gets more than 70% of its revenue outside of newspapers. Cox is dependent on newspapers for only 10% of its income. And they're getting pressured to get out of those businesses entirely.

We saw Ron Burkle stick his hand up yet again. Brad Greenspan emerged. Meanwhile newspaper industry voices are fairly quiet; those numbers they're viewing are chilling.

Maybe it's time to take a break and watch one of the kinds of movies that Rupert's made a fortune on: The Wizard of Oz. It's a good reminder that it takes brains, a heart and courage to make it to the promised land.