As I write this, the drama concerns who will bag Dow Jones (DJ). Or how gruesome staff cuts under some possible scenarios will be. (Hello, Pearson (PSO)-GE (GE)!) Or whether the controlling Bancroft family might yet swallow hard, face certain investor outrage, and continue to go it alone. No matter the outcome, one question remains: How do you fix a problem like Dow Jones?
The company owns one of the world's best newspapers. Which, judging by the gentlest interpretation of the data, is barely profitable. (The consumer media unit, for which a Deutsche Bank (DB) analyst estimates the Wall Street Journal supplies around 80% of revenue, posted profit margins of 3% in '06. It lost money in '05.) The company's coulda-woulda-shouldas of the past 15 years fill volumes. In just one episode, Reuters (RTRSY) made entreaties regarding a combination back in 1997, precisely a decade before the Thomson (TOC)-Reuters deal. Stiffening competition from those quarters and from the ever-powerful Bloomberg only make Dow Jones loom smaller. A wise new owner will bring a long fix-it list and large toolkit, and they will include the following.
GIVING THE WEB AWAY. One thing attracting Rupert Murdoch to the Journal is that people pay to access its Web site. As of March, wsj.com claimed 931,000 subscribers. Assume they all pay the minimum $49 a year (the tariff for a print subscriber's access), and you're still north of $45 million. Dow Jones cannot currently turn down that money. But News Corp. (NWS), roughly 15 times the size of Dow Jones, might. Dow Jones executives tout online subscription revenue as a hedge against ad booms and busts. Another owner should think hard about how much those millions cost, because subscriber-only access squashes traffic, links, and potential ad dollars. The free parts of wsj.com, with the possible exception of opinionjournal.com, are undernourished. The need for more eyeballs and online ad inventory drove 2004's $540 million acquisition of CBS Marketwatch.com, a category also-ran that's currently leaking traffic. Expect a buyer to mull ways to tier the Journal's paid online model, as News Corp. reportedly is. A brave one will consider trashing it outright.
DOUBLE DOWN ON DATA. Former CEO Peter Kann was wrong to hold on so long to the doomed data play Telerate. But he was right to believe in the power of data. Bloomberg built an enviable journalistic operation from its data profits, and business media companies with serious database assets remain well regarded by the Street (including The McGraw-Hill Companies (MHP), which owns BusinessWeek). Had Dow Jones already cracked the code on transmuting journalism into bigger database products than its Factiva (DJ) unit, we would not be having this discussion. (This is why one dream partner for Dow Jones is LexisNexis owner Reed Elsevier (ENL). Dow Jones just has to convince Reed that it needs Dow Jones as much as Dow Jones needs Reed. Good luck.)
BLOW OUT THE VIDEO. I'm extremely skeptical of the suggested (bad word alert) synergies between print and television, accepted at face value by many press accounts that touch on Murdoch's upcoming Fox Business Channel. It's not TV that's important for Dow Jones, it's video, broadly defined. Compare the video offerings on the Web sites of The New York Times and The Washington Post, vs. what's on the Journal's, and you see another area where the Journal lags its peers. An owner with TV assets could help Dow Jones' legions of print journalists make a transition to the world of video. Having spent much of my adult life in print, I know this is an enormously tall order. But it's a necessary one.
Any long-term look at Dow Jones also must reckon with a way to ramp up its profits internationally, which has long bedeviled blue-chip American print media brands. The funny thing is that there's one obvious company with the skill set and portfolio that best fits the bill: News Corp. The other funny thing: All through the years, Dow Jones' top management insisted that the company was built on carefully protecting its journalistic credibility. So it went slow and played safe. But all the managing within that framework accomplished was leaving the company vulnerable to Murdoch's massive bid.
For Jon Fine's blog on media and advertising, go to www.businessweek.com/innovate/FineOnMedia
By Jon Fine