Why Murdoch Can Make Money On His Dow Jones Investment

Brad DeLong and Paul Krugman (free version here) both cogitate today on the implications of Rupert Murdoch buying the Wall Street Journal.

Krugman is unenlightening: his argument is basically "Fox News is bad, therefore Murdoch is bad, therefore Murdoch buying the WSJ is bad". DeLong is more interesting.

Is Murdoch basically just a multibillionaire buying himself a new toy? If that's the case, then watch out, says DeLong: the WSJ might well suffer. Is Murdoch, on the other hand, a multibillionaire buying one of his sons a new toy? If that's the case, "then the Murdoch purchase is probably good news for the world". And there's a third possibility, which would also make a Murdoch purchase a good thing, says DeLong:

that Rupert Murdoch thinks that in the age of new-media convergence the Wall Street Journal has the brand and the authority and the staff to make it an excellent launching pad, worth a $2 billion bet. Can Murdoch synergize the Journal's brand on TV and via new media in a way to further boost his fortune? Perhaps. Many fortunes will be made in financial news when the technological shift that has replaced the Mergenthaler and wood pulp with the microchip and the fiber-optic cable finally shakes itself out. Why, Murdoch may be asking himself, should the biggest fortune be made by Michael Bloomberg and not by him? That might be what is going on. But if it were, and if Murdoch had a real chance at the synergies, there would be other bidders by now.

(Ottmar Mergenthaler, in case you were wondering, was the inventor of the linotype. But you knew that, right?)

This possibility is the one I subscribe to. DeLong's an economist, which means he's naturally predisposed to arguments which say that if some course of action is profitable, then the market would have done it already. But I think there's a strong case to be made that News Corp is one of the very few entities capable of turning the WSJ into a powerful global electronic platform, both on the internet in places like East Asia, and on the television in the US.

Why? One answer is simple: Roger Ailes. Much as the likes of Paul Krugman despise him, the fact is that he's a visionary and a genius and is one of the few individuals capable of birthing a hugely successful cable-TV channel. News channels are a dime a dozen; only one has managed to beat CNN at its own game.

The other answer is that the WSJ needs to be run by a newspaper company, and newspaper companies simply don't have the cashflow to invest in cable-TV channels and attempts at domination of the electronic world.

Even public companies who don't own newspapers don't have Murdoch's time horizon on their investments, as NBC Universal CEO Jeff Zucker told the FT:

While Mr Zucker praised Dow Jones and its flagship Wall Street Journal, he argued that GE was constrained from matching News Corp's bid of $60-per-share, which represents a 65 per cent premium.
"When you have shareholders who you have to create value for, you have to be fiscally disciplined. When you are the shareholder that matters, you play a different game," he said, referring to Mr Murdoch's controlling stake in News Corp.

It's a bit embarrassing, but true, that the 76-year-old Murdoch has a longer time horizon than a public company which will almost certainly exist in some form for many generations yet. (As for private-equity firms, fuhgeddaboudit: they have 7-year time horizons, max.) Yet it explains why Murdoch can profitably spend $5 billion on Dow Jones even when no one else can.