Evidently, when someone comes in and offers you nearly double the current share price, it's hard to say no. News Corp.'s purchase of Dow Jones (DJ) will soon resound across the landscape in ways obvious (say hello, Wall Street Journal and Barron's, to the Fox Business Channel) and not so obvious. For one, News Corp. (NWS) is in the process of updating its printing presses in Europe, which will ready the Journal for a frontal attack on the Financial Times' home turf.
The Wall Street Journal is—I must have a macro on my keyboard for this sentence by now—one of the world's great newspapers. Which, unfortunately, is something that seems to mean less and less in today's world, if you go by the earnings of Dow Jones and…well, just about any big, serious paper in America. It horrifies many that the Journal is now nestled in Rupert Murdoch's tender embrace. We will soon hear much about Murdoch's "legacy," and how he can rewrite it by not mucking around with the Journal's editorial bona fides. (When writers make the "legacy" argument about an executive, it's a sure sign they have no other hammer to hold over said executive's head.) But "whither Murdoch's legacy?" isn't the right question. The right one: "Is News Corp. the best candidate to rework what it means to be The Wall Street Journal today?"
I'm not among those who believe Murdoch is a fanged beast who eats baby journalists for breakfast, but the answer is still simple: No. News Corp. is an excellent packager, and unmatched at divining the visceral reasons that make you buy a newspaper. Properly applied, the latter instinct will blow a few cobwebs out of the stuffier corners of the Journal's newsroom. But it does not answer what the Journal—indeed, what Dow Jones—needs to become.
Murdoch, MySpace or not, is at heart an old-school newspaper guy. He has shown tremendous patience with eight-figure losses at papers ranging from The Times of London to the New York Post. In some ways, this is good news. Patience is necessary for the Journal, which appears barely profitable, at best, these days. Murdoch's history suggests that the layoffs that probably would have accompanied any other outcome will be staved off or avoided outright. But putting up with losses can come from aggressive investment in the future or from casually accepting a challenging status quo. The New York Post does not lose money because it's pouring trillions into a bold new strategy to reinvent itself in a Digital Age. It loses money for reasons that have remained the same for years: There are not enough ads, and circulation gains aren't enough to make up the difference when you're selling lots of copies for a quarter. There's talk about a new Journal strategy online, but none of Murdoch's major papers has been reinvented for the Digital Age. It should irk Murdoch that the BBC, which he frequently blasts, has moved much faster than News Corp. to revamp its news operations in interesting ways.
What happened to Dow Jones can be traced back to the obvious tension that comes from coupling high-quality journalism with a publicly traded company. The payoff from the former relies on an expensive creative process, which is why the profit margins at New York Times Co. (NYT) and Dow Jones never rivaled those of Gannett (GCI). That's the reason many newspaper companies have two-tier stock structures—Times Co., McClatchy (MNI), and Washington Post Co. (WPO) among them. So did Dow Jones. This insulated the Journal from some of the harsher, short-term demands of the market. It also insulated Dow Jones' management from feeling market pressure to make any moves that might have made the company bigger—and thus much harder for News Corp. to swallow.
News Corp.'s doing so shows that a dual-stock structure won't withstand every challenge, and that there is a price to pay for confusing "protecting the journalistic franchise" with "ignoring everything the market says." As for Rupert, if he's wise, he won't let his love for newspapering in the 20th century get in the way of what Dow Jones needs to become in the 21st.