Research

Murdoch buys Dow Jones: What does it mean for The Wall Street Journal?

Reaction to Rupert Murdoch's $5.6 billion takeover of the Dow Jones Co. and The Wall Street Journal is a reminder of how highly businesspeople value the venerable news organization. Some fear that Murdoch will bring tabloid style or political advocacy to the bible of business, but experts at the W. P. Carey School of Business predict that these fears are likely to go unrealized.

2007-08-15

Reaction to Rupert Murdoch's $5.6 billion takeover of the Dow Jones Co. and The Wall Street Journal is a reminder of how highly businesspeople value the venerable news organization. Some fear that Murdoch will bring tabloid style or political advocacy to the bible of business, but experts at the W. P. Carey School of Business predict that these fears are likely to go unrealized.

The media baron's business acumen will prevail, they say, and should Murdoch misstep and undermine the Journal's reputation, competitors will step in to fill the void.

Two track records

Some of Murdoch's holdings are among the most sensational published, and his right-of-center political views are well-known. But a look at Murdoch's history does not necessarily support concerns that the Australian-born publisher will harm the Journal, according to finance Professor Herbert Kaufman.

"It would be bad business," Kaufman says. And, "he is first and foremost, an astute businessman." It's a perspective shared by many, and Kaufman says Murdoch's track record offers proof. Although critics say that the Murdoch-owned New York Post has been known to engage in tabloid sensationalism, Kaufman, who grew up in New York, points out, "The New York Post always did," long before Murdoch bought it in 1977.

(Murdoch subsequently sold the Post in 1987 because of legislative limits on foreign ownership but bought it back five years later after the law changed.) "The Post has become more sensational under Murdoch but it was not a total directional change — simply a continuation of the trend." On the other hand, Murdoch's history also contains the seeds for concern.

Following his acquisition of The Times of London, for example, Murdoch fired top editors, and critics say that overall he softened content. But Kaufman, a longtime reader, says that Murdoch's takeover there in 1981 did not completely ruin the Times' reputation. "The news coverage and business pages are still quite good," he noted.

As for politics, "the [Journal] editorial pages as they are, already are in line with his views," Kaufman says. "He's already got his Fox News as far as bringing his right-of-center views onto television." The power of the Wall Street Journal is rooted in the quality of the reporting, writing and analysis.

It's as essential to the day as coffee, and business people look to it for quick analysis of breaking news as well as detailed articles that explain difficult topics. And the ownership change comes at a time when business readership is increasing. A five-member editorial oversight board will monitor the WSJ's coverage and content, but Kaufman says it will be Murdoch's judgment, not the Journal's independent editorial board, that will maintain quality.

"He could go around the editorial board pretty easily; however, I don't expect him to try," Kaufman says. "While some of his publications are directed at the masses, there are many quality publications in his lineup. He does have a mix of publications but he does not seem to debase the quality publications he's taken over."

Kevin Dooley, a professor of supply chain management whose research includes text analysis of news and other content, agrees that Murdoch has everything to lose by eroding the Journal's quality.

"Dow Jones is a very successful company, and it got there in part because of its branding and product strategy," he says. "Any acquirer of Dow Jones should be loath to do anything to affect the quality of the deal's jewels, like WSJ." Murdoch's challenge is the one faced by the purchaser in any takeover.

"The research that I am aware of concludes that many acquirers have a very hard time getting ROI [return on investment], because they pay too much of a premium up front and then grossly overestimate synergies (and the cost of really achieving them)," Dooley says. "Given the former is already true, he better hope the latter doesn't become true also."

The success of the brand

Amy Hillman, a W. P. Carey professor of management, says that Murdoch understands all this and will not tinker too much with the Journal's winning position. "He's buying the WSJ because it is an extremely high-quality brand and product that has an undisputed position providing business news in the U.S. and elsewhere," she said.

"The value in WSJ lies in its long history of Pulitzer Prize-winning journalism and the utmost integrity of its reporting. I'd be very surprised if he meddled too much or made many changes, because he's paying a high price for WSJ, one that presumably is based on its lofty reputation and position."

Hillman is the author of a 1999 case study, "The Wall Street Journal, print versus Interactive," that analyzes the WSJ's remarkable success in building circulation, 5 million worldwide, but also charging for its online product, a task few papers have accomplished. Key to that accomplishment was deciding "how two products should be positioned, priced and promoted in order to maximize revenue for both," she wrote.

"Despite its long-standing traditional front page format without full paper-width headlines, six columns, dot print photos, and the 'What's News' summaries, the Journal innovated many new formats in the 1990s. Starting in 1993, the Journal expanded its business and economic trend regional coverage to select parts of the United States, including Texas, Florida, California, New England, the Northwest and the Southeast."

"While most newspapers' readerships are down," Hillman says in an interview, "WSJ has remained relatively strong and their on-line version is one of the strongest paid sites on the internet — a business model many other newspapers have not been able to implement (e.g. New York Times).

Therefore, I'd be surprised if Murdoch threatens the value of his new acquisition by changing anything drastic." Hillman says that this also applies to the editorial versus news reporting. "The quality and integrity of WSJ has always come from a clear separation between the two," she said. Blurring the lines would spell disaster for WSJ because its readers and advertisers will no longer see them as objective reporters.

There would be no faster way to erode the value of the WSJ." Hillman says there is an upside to being a part of the Murdoch family for Dow Jones, particularly its non-print media holdings. "These should benefit from an increased resource base and global opportunities not present today."

Expanding the reach

Kaufman says there is room for improvement that he hopes Murdoch will bring about: the Journal's coverage of globalization. For his money, Kaufman says, Financial Times is out-covering the Journal in that regard. "The best alternative is the Financial Times because it has the best international coverage about the interrelatedness of the world."

In terms of a footprint outside the U.S., however, The Wall Street Journal brings the power of an international brand to Murdoch's table, according to Beth Walker, a marketing professor at the W. P. Carey School. "The Journal has a solid presence in Asia (especially in China and India) where there is a strong and growing appetite for business news," Walker says.

"In fact, some argue that the WSJ's strength is in Asia, where Murdoch's current presence is weak. In addition, the WSJ offers a tailored edition for European markets. Murdoch is prepared to invest heavily in the WSJ to drive international growth. This is where the action is."

Walker adds that the enormously prestigious and credible WSJ brand may help lift the brand of the Fox Business Channel. "While currently, there is an agreement between Dow Jones and CNBC that extends until 2012," she said, "Murdoch may be able to use non-business content developed for the WSJ on it's Fox business station."

Andrew Leckey, a Chicago Tribune columnist and director of the Donald W. Reynolds Center for Business Journalism at ASU, also looks for the new Dow Jones Company to better exploit opportunities to expand news coverage into other media, including a new financial news television channel. The Bancroft family's failure to expand into such areas opened the way for Bloomberg News, CNBC and other competitors' business coverage, he said.

"My educated guess is that Murdoch will leave consumer and enterprise media products alone, as Dow Jones is a very strong brand," Dooley says. "Murdoch's interest is strategically obvious — he can use his portfolio to enhance the Dow Jones business divisions of local media and strategic alliance partners, which are relatively weak in Dow Jones right now."

But such multimedia growth depends on a very big "if," according to Robert Mittelstaedt, dean of the W. P. Carey School of Business. "If the quality of the analysis stays up, this certainly provides more outlets for content distribution," Mittelstaedt says.

"He is smart enough to realize that he cannot afford to allow the market to lose confidence in the most respected brand in U.S. business journalism, but there will be a short-term perception problem where people will assume that he has influenced it, whether he really has or not," he adds.

"I believe the greater risk is if his management style, rather than his personal viewpoint, drives away the best talent. If he messes this up, he could provide a huge opportunity for the Financial Times, which is a fine publication with limited U.S. circulation."

Bottom Line:

• Experts expect Rupert Murdoch to make wise business decisions by respecting the quality and objectivity of The Wall Street Journal's journalism.
• Failure to maintain a high caliber of coverage would cut into the Journal's print circulation base and its unusual success in gaining paid online subscribers.
• Because of globalization and more widespread stock ownership, business coverage has never been more prominent and should continue to rise in importance.
• The Wall Street Journal has played a huge role in business decision-making and it most likely will continue to do so. Failure would open the door to greater prominence by its competitors.

Finance Economics Leadership Management Faculty