Rupert Murdoch’s bid for Dow Jones is an Online play
I applaud Rupert’s aggressive bid for Dow Jones and their line of newspaper which include the Wall Street Journal (WSJ). In a bid of $5 billion that would value the company at nearly 17 times estimated earnings, I see much more room for growth. Murdoch’s vision has transcended from the traditional media space into an online arena that is still being invented as we speak. His success in the acquisition of MySpace, the major social networking website on the Internet, positions Murdoch in advantage to understanding the hidden treasures that are locked in the vast cyberspace.
This is purely an online play. An interesting valuation justification is the fact that the company currently receives just 30 percent of their revenues online. The strong physical brand held in Dow Jones and their Wall Street Journal was kept mostly captive to the physical limitations of distribution. Furthermore, the costs associated with the physical delivery of information are about to disappear. In the near future, publications like the WSJ will reach the entire cyberspace with minimal costs. The current online subscription method for newspapers is an old way of dealing with selling valuable content. In the near future, with the proliferation of technologies allowing for micropayments, newspapers will be able to do something they never were able to do before – charge per article. In this new media space, traditional newspapers will benefit from this by reaching a wider number of readers, and receiving generous revenues from it.
Video of news from the market including Murdoch’s bid
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Rafael Sosa's Weblog 
Interesting thought Rafael, But I want to get a little more details on why you see more potential future value locked up in the Dow Jones Company?
Thanks Brian for the comment.
Now when a person like Robert Murdoch buys a company, he is making a bet on future revenue above and beyond the quoted valuation of the company. I see a humongous amount of profit margin increase in newspapers, with strong brands, when micropayments are incorporated. For example, I am not currently subscribed to the online version of the WSJ, however, if they had micropayments integrated, and I saw an article about “Online Advertising Spending” I would purchase it for $1. A 100,000 people not subscribed purchase it, and you’ve got some good money flowing.
Then, another thing about newspapers is – articles used to economically die the same moment they were published. Now, if we reference an article written back in 1999 that predicted the Internet Bubble Burst, I am sure many people would go back and want to read it. The article revives, and so does the revenues of the publisher.
I’d buy Dow Jones 🙂
You’re right that micropayments would provide a temporary boost for the revenues of existing newspapers, but the economics quickly turn against them. Right now, their major costs are labor and content-filtering. Additionally, inflexible pricing helps keep the status quo. Micropayments would jolt some change by making pricing flexible. However, the newspaper companies will not be able to compete on labor costs as they currently pay way too much and currently own hugely expensive and useless equipment like printing presses and horribly expensive office buildings (no reason most content creation can’t be done by telecommute). This means small and focused groups of content creators will rip the current conglomerates to pieces. Content filtering will be an important piece of all this although it’s almost nonexistent now, and micropayments will help spur that field also. As content-filtering technology progresses, the small furry mammals writing on the internet will kill off the giant corporate media dinosaurs of the past. All this will ultimately be good for truly talented content-creators, if not for the corporations that may currently employ them.
Hey Ajay, thanks for your comments.
You propose an interesting concept. However, I see traditional newspapers with strong international brand awareness, as is the WSJ, transition very well to the Internet and sustain an advantage over individual, or “small and focused groups of content creators”. My reasoning is that when people are looking for solid financial information, they will continue to go to the Wall Street Journal, because it is a hub of reputable and valuable information. The information provided by the WSJ is a result of privileged structuring throughout financial markets that give them many advantages over individuals and small groups. Furthermore, the WSJ could always adapt to the change of decentralization you propose. They could embrace the individual and publish his contributions online.
So, when it comes to a less important issue – like sports (no offense to hard core sports fans), I suspect your theory of ripping apart a huge content creator might be more feasible. When it comes to the serious information that is financial news, I think the bulk of the viewers would be more conservative to change their WSJ for a small group of scattered individuals. A more likely way of the WSJ losing ground would be by having an internal scandal diminishing their reputation, or by being outperformed by a similarly sized competitor like Reuters.
Hello, You say that the WSJ has an inside track into certain financial info but this is almost certainly the quantitative info the WSJ publishes that isn’t too important for journalism. The only reasons for the WSJ brand to stick around are the legacy value that some people attach to it and the archives. If I were advising newspapers after the advent of micropayments, I would suggest carving up the talent into small groups while slowly cannibalizing the brand (WSJ could take equity stakes in the small groups where possible) and monetizing the archives through micropayments. The WSJ would be stripped away to just a filtering service, providing links to content they think their audience would find relevant. However, while this is almost certainly the future, I don’t think any existing newspaper will make the transition towards a shell of what they were. History suggests they will all die out and be replaced by smaller, nimbler groups that understand this new landscape and are not wed to the past. As such, I find it hard to believe that the WSJ, or any other newspaper for that matter, will recoup any of their current market capitalizations. As I said before, the reason for this splintering into smaller groups is that now that the high costs of the printing press, centralized offices, and physical distribution are unnecessary, the most efficient and hence dominant model will prove to be small groups that collaborate in a decentralized manner.
As for sports news being more amenable to these changes, this is nonsense as both financial and sports news have already largely moved online and become much more splintered. Both financial and sports audiences will go anywhere they have to in their thirst for information and will hunt down any sources they can find. Financial audiences are in fact more likely to embrace new sources than sports audiences as they are interested in an extremely diverse array of information.
I don’t think you realize how fundamental the changes engendered by the new technology of the PC and the internet will be, especially when coupled with the final piece of the technology puzzle: micropayments.
I agree with you that there’s efficiency in “small groups that collaborate in a decentralized manner”. And yes, WSJ should make some alliances with smaller content providers.
Now, filtering and reducing itself to just linking to outside content would be a turn towards their demise. The WSJ, as well as many traditional newspapers, should and *are* creating a house for all these decentralized small groups to contribute. This is also beneficial for the user. If I can get all my financial news at WSJ, then why wouldn’t I go there? Why would I want to visit 50 different small websites?
It looks like Murdoch’s bid is moving forward. The future of traditional newspapers could be significantly shaped by this event. 🙂
You say that newspapers limiting themselves to a filtering service would be a turn towards their demise but my point is that it’s a choice between a greatly reduced role as a filtering service and oblivion. That’s why I said that I don’t think the WSJ or any other newspaper will be able to accept this new reality and will try to keep doing what they’re doing, only to sink into oblivion. Talent will have jumped off these sinking ships long before they go down, of course, as soon as micropayments allow them to earn a living independently. You argue that the WSJ can be a “house” for these small groups but what will the WSJ bring to the table in that case? Office space and access to a rapidly irrelevant printing press? The economics and organizational realities don’t work in favor of organizations that want to be “houses.” If the WSJ was a filtering service, they would provide links to the best of the 50 small websites and you could then decide what you want to do. You could keep relying on the WSJ to give you good links or you could eventually choose a handful of those 50 websites, the ones you keep going back to, to bookmark and read regularly. Or better yet, you could just find a better filtering service as I doubt the WSJ will do a good job at what will be a very technological affair. The future of news is being shaped far more profoundly than anything Murdoch is doing with some existing newspaper.