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Archive for May 14th, 2007

To understand Murdoch’s bid for Dow Jones, don’t follow the money

Posted by metaphorical on 14 May 2007

Bloomberg.com has an absurd and misguided take on Rupert Murdoch’s brilliant and surely unstoppable bid for the Wall Street Journal.

Murdoch’s Bid Places Google-Like Value on Dow Jones (Update3)

By Leon Lazaroff

May 11 (Bloomberg) — Rupert Murdoch’s $5 billion takeover bid for Dow Jones & Co. values the Wall Street Journal publisher higher than Google Inc., based on a measure used by analysts.

You might think from the wording that somehow Google is worth only $5 billion (or less), a pretty crazy idea given that it recently purchased DoubleClick for $3.1 billion. No, Google’s market value is $140 billion, and the “measure used by analysts” is multiples of earnings. Google trades at 32x its projected 2007 earnings, which is higher than the 40x of Dow Jones’s projected earnings that Murdoch’s $60/share purchase price works out to. The fact that if Murdoch or anyone else tried to swoop in and grab Google it would have to pay a significant premium—surely more than 25%—on the current valuation is just one of the many many facts seemingly lost on Mr Lazaroff.

But talk of valuations, projected earnings, and multiples completely misses the point of what Murdoch is doing, and those who forget recent history are doomed to have their lunch eaten just as CBS’s was back in 1993.

No, the thing to remember is Super Bowl XXXI.

Super Bowl XXXI was the first to be broadcast by the then-struggling Fox Network. It was a phenomenal success and it marked the true birth of Fox as the nation’s fourth broadcast network.

Tech-notes.tv has all the essential history. Fox debuted on 9 Oct. 1986 with the utterly unmemorable Late Show with Joan Rivers. In 1987 it started to have some success with Married… With Children. By 1989 it was broadcasting on three nights, and by 1990 on five.

By 1993 it had programming all seven nights, but it was still thought of as the odd location of a couple of good shows—most notably The Simpsons, beginning in 1990—rather than as a fourth network. To get over that hump, Rupert Murdoch did two things. First, he spent an ungodly sum of money. Second, he spent it wisely, though it didn’t seem that way to most observers at the time.

The spending wasn’t limited to football—In 1995 Fox would pick up rights to a major league baseball game-of-the-week, even-year World Series, and odd-year All-Star games. But it was its outrageous December 1993 grab of four years worth of NFL football games, culminating in Super Bowl XXX1, that put the network on the map.

Here’s what a contemporary Washington Post article had to say about the lengths Murdoch was prepared to go:

They also were told by Fox executives that money would be no object, that the network was willing to pay whatever it took for either the prestigious package of National Football Conference games held by CBS or the American Football Conference package held by NBC. Fox was not interested in becoming a bit player such as ESPN or Turner Network Television (TNT), which split the Sunday night package. Fox wanted it all and, essentially, was willing to become the network of the NFL.

Industry sources already are estimating that Fox could lose $500 million to $700 million in this deal. But Fox, trying to use the NFL to strengthen America’s fourth and newest network, has chosen to accentuate the positive, one critical factor in getting the NFC contract.

In early negotiations, Rupert Murdoch, the Australian media baron whose parent company, News Corp., owns Fox, told the NFL he was prepared to pay at least $1.2 billion ($300 million a year) for the four-year NFC package and $840 million ($210 million per year) for the AFC. CBS had paid $1.06 billion over the last four years; NBC had paid $792 million. Murdoch’s numbers were far beyond what either network initially had been prepared to pay this time.

It’s indisputable that Murdoch’s bold and potentially “money-losing” move did in one stroke what years of careful programming advances couldn’t. In a 1998 episode of The NewsHour with Jim Lehrer, media analyst Elizabeth Stevens said this about Murdoch’s big-ticket bid:

it really made the Fox Network, you know. Before it had been the fourth network, a challenger, and really an after thought in a lot of people’s minds. And it transformed its fortunes, really at the expense of CBS. But what Fox did was, you know, come in with a bid so far and above what CBS was willing to pay in 1993, and at the time CBS’s owner, Larry Tisch, had been very vocal that sports programming rights, even back then, were so out of line that it was–it put profits under such pressure that it wasn’t worth pursuing. So he made a financial decision–CBS did–not to go forward. And Murdoch made a strategic decision to build the, you know, value of the Fox asset and get the football rights. That, you know, led to a whole slew of grief for CBS. Murdoch was able to snare away a great number of very important CBS affiliates, local stations throughout the country, got them to switch over to Fox, and CBS has yet to really recover and Fox, you know, has–though it does not make money on his football contract–even, you know, the previous football contract–you know, strategically, it allowed it to build itself into a much different sort of network, and, you know, a real leading network at this point.

Of course, looking back, we can see that the NFL was worth what Murdoch paid. As Wikipedia puts it:

CBS apparently underestimated the value of its rights with respect to its advertising revenues and to its promotional opportunities for other network programming. Indeed, FOX was still an upstart player in 1993, not yet considered on par with the “Big Three” networks – CBS, NBC and ABC. It had already had offbeat hits such as The Simpsons, but had no news or sports divisions, and its coverage was significantly weaker than that of its elder counterparts.

Which brings us back to Dow Jones. If Murdoch is to launch a financial news network, what’s it worth to co-brand the Fox name with those of Dow Jones and the Wall Street Journal?

Lets remember the early days of Fox News, when it seemed inconceivable that CNN could lose its lock as the leading 24-hour news network. Let’s also note that TV Week predicts that lead will finally disappear entirely in 2007:

While CNN’s ad revenues are growing, however, Fox News Channel’s are growing faster. According to estimates by Kagan Media, Fox News will surpass CNN in ad sales during 2007. Kagan expects Fox News to generate $507 million in gross ad revenue compared with $467 million for CNN. MSNBC’s ad revenues are expected to rise to $156 million.

So there’s one difference between being the leader and being an also-ran: $507 million vs $156 million, or a third of a billion dollars per year. What if Dow Jones added a few hundred million dollars per year to the value of Fox’s financial news network in addition to the admittedly lackluster profits it already makes as a largely print-based financial news empire? And what if it also adds tens of millions to the rest of Murdoch’s vast global television news holdings, Sky Television and all his other holdings in Australia, China and elsewhere?

I guess it’s not surprising that Bloomberg.com can’t see the big picture. In this comparison, Bloomberg, a financial news network in its own right, is the MSNBC-like also-ran.

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