Hear All That Laughing Down At The Bank – That’s The Bancrofts

Philip Stone February 25, 2009

News Corp. has enough cash in the bank to pay off its debt for the next seven years, so Rupert Murdoch probably doesn’t dwell too much on how much he paid for Dow Jones, that he has just written down that investment by half --$2.8 billion -- and that hard times have now meant journalistic cuts at his beloved Wall Street Journal and his four UK national newspapers, but the Bancroft family must consider him an absolute savior.

It was the Bancrofts, you will recall, that owned Dow Jones and when Murdoch bid his ridiculously high $60 a share for the company back in 2007 there were countless family meetings on whether they really should could sell their company to a man of Murdoch’s reputation. But sell they eventually did – let’s face it it was then a 65% premium and  must be more than a 100% premium today --  and now each and every one of them is laughing all the way to the bank.

Even back in 2007 no one could really see how News Corp could make a decent profit on its $5 billion investment. Many big companies took a look, they even contemplated forming partnerships to share the load, but at the end of the day they all walked away – the premium was just too high even then to produce profit.

But now the economic realities have caught up even with Rupert Murdoch. News Corp profits plunged into the red for the last months of 2008 – a 42% decline in operating income and a net loss of $6.4 billion for the quarter. “It is the worst downturn since News Corp was established 50 years ago,” Murdoch said.

And it means that all of the hoopla of the past year of how Murdoch is investing in the Wall Street Journal, giving it more pages, beefing up its editorial might, and so on now gets superseded by the announcement the newspaper is losing 25 jobs.

That includes the end of its fashion editorial unit that had been formed to great fanfare back in 2006 basically as a snare for more luxury advertising. All WSJ executives had to do was open enviously the New York Times every day and there splashed on the first three or four pages was all that highly paid display advertising from luxury brands. They wanted that spend at the WSJ.  The sub-head on its PR release at the time said, “Additional ‘Business of Life’ coverage will create new advertising opportunities for luxury retailers” and the release quoted the then publisher and the then managing editor talking about how important fashion coverage is, and how this was such an improvement to the Journal’s editorial product.

Difficult to fathom how that reasoning has all changed, but the Journal says it will now go back to how it used to cover the industry – via its various bureaus. It’s just an example of a step forward and then back again. 

There are tough times ahead for Dow Jones. News Corp is looking for an additional $40 million in savings by June, 2010 in addition to the $100 million it says it has already made and among the new policies is a pay freeze.

Murdoch, on a conference call after the latest results were announced, showed he remains a newspaperman deep down and nothing really inhibits the printers ink in his veins. “I am extremely happy with all of our newspapers. I think that they are good newspapers, they are increasing their share of market. There has never been a greater appetite for news in the community. And we will be able to capitalize on that pretty well. I have got great faith and if we continue the way we are going, we may even get lucky by not having so much competition at the end of at all. We are in good shape in the newspapers.”

Of course Murdoch is looking at savings in the millions of dollars while his Dow Jones write down is a full $2.8 billion. Big difference! Among ways News Corp is making savings is combining backroom functions at the New York Post and the WSJ and that’s good for some $7 million, there has been consolidation of office space around the world, but again, it’s all a drop in the bucket compared to the write-down.

How serious are things now at the WSJ? Murdoch told the analysts and journalists, “The revenue I have got to tell you in January was bad, ad volume was bad. But it is very short-term. And it is very hard to get a visibility into the future there. We have the New York Times cutting rates against us. We will not cut our rates. We are down at the moment about 20% in advertising.”

Les Hinton, who used to run Murdoch’s UK newspaper operations before being transferred to New York  as the new CEO at Dow Jones tried to put the best face forward on it all. “Our success in finding savings  allowed us to redeploy  resources where it mattered most to readers  and customers in this challenging business climate,” but he really didn’t talk about the job retrenchment.

Murdoch has never really hidden that his target in making the WSJ bigger and better is to knock the New York Times off its perch as America’s premier newspaper. If he was willing to pay way over the odds to the Bancrofts is it just today’s economic climate that stops him from making a similar offer to the Sulzbergers?  The answer is not, believe it or not, financial, he claims. “I have got no interest but if you want a further comment, I have no desire to be an even bigger public enemy or target.” meaning the hell that would break out if he were to try and get his hands on the newspaper.

Can’t ever remember Murdoch running from such a fight but maybe in old age he is mellowing?