Mensa quiz, sample question: Rupert Murdoch's US$5 billion offer is to ____ as Google's US$1.65 billion buyout was to ____.
Correct answers: Dow Jones and YouTube.
When Google swallowed YouTube, the video-sharing Web site, last year, the media and Web worlds were agog at YouTube's valuation, given that it was not yet two years old and barely made any money. Of course, that is very different from Dow Jones, a relatively ancient enterprise that has nearly US$2 billion in revenue.
But here, fellow brainiacs, are three remarkable similarities between the gambits by Google and Murdoch -- similarities that show why both deals make sense to them alone:
One is that both Google and Murdoch have plenty of money. The US$1.65 billion that Google offered for YouTube seemed the equivalent of a rounding error, given Google's gigantic market value. Murdoch is not nearly as flush, but his News Corp, valued at US$70 billion, can easily absorb Dow Jones.
The second similarity is that the offers are so whopping that they are very hard for the targets' owners to refuse.
Third, and perhaps most telling, is that the goals have less to do with what the desired company does today than what it can do in the future.
In Google's case, the idea was to turn a popular Web site for looking at video clips into a hotbed of television-like programming and ads.
At Dow Jones, some see an enterprise dwarfed by electronic rivals and worryingly reliant on newspaper publishing economics. But Murdoch sees the company's flagship, the Wall Street Journal, as the hub for the digital transformation of newspapers he already owns around the world and as an engine for a global financial information business with print, online and TV components.
Whether Murdoch can pursue his dream hinges on negotiations with the Bancroft family, which controls Dow Jones, over how much autonomy he would guarantee in the newsroom.
If he succeeds, Murdoch will need to decide quickly how the Journal will fit into his plans to finally start a business news cable channel in the US this fall. The new business channel will be an early indicator of whether his bold business gambit shows promise.
The issues surrounding the business channel are thorny, because CNBC, the leading financial news channel, has a deal to use Journal reporters as on-the-air personalities until 2012. (Dow Jones formerly owned half of CNBC's operations in Asia and Europe, but sold them two years ago.)
Murdoch wants his new channel to rattle CNBC, which is owned by NBC Universal, the way his Fox News Channel has rattled CNN and MSNBC. And Roger Ailes, who runs Fox News, once led CNBC to some of its best years. Certainly the Journal might help kick-start the new channel, but Murdoch faces the prospect of either waiting until the CNBC deal expires five years hence or trying to break or buy out the contract.
And even if he could bring the storied newspaper's assets to his TV party (he has said he'd like to work "Journal" into the network's name, for one) the new channel faces the handicap, at least at the get-go, of being carried in only about a third of the 92 million homes that carry CNBC. (Even Bloomberg's television outlet reaches more viewers.)
Indeed, while they have been short on programming specifics, News Corp officials have said they plan to spend US$100 million on the channel's start-up, a trifle next to the proposed outlay for Dow Jones.
So what are the vulnerabilities at CNBC that Murdoch might like to exploit? It is a classic Murdoch target in the sense that it has a dominant position in a market where few others see an opening.
CNBC is certainly a rich mark. The channel generates an incredible annuity for NBC Universal, considering that it is guaranteed subscription fees from cable and satellite subscribers. Yet over a given day, viewership averages only around 218,000, according to Nielsen Media Research, just over one-tenth the number of people who subscribe to the Journal every weekday.
To help it sop up advertising revenue, CNBC argues that its modest audience figures underestimate office and other "out of home" viewing that make up a majority of its high-income audience.
Profit niche
Despite its niche, CNBC is among the most profitable businesses in all of NBC Universal, generating around US$300 million in operating profit a year.
Jeff Zucker, NBC Universal's chief executive, told me last week that the channel was adrift as little as 18 months ago after a big drop in viewership, but that it has since been preparing for Murdoch's long-awaited challenge. Viewership is up 57 percent since 2005, as a result of an effort by CNBC's new president, Mark Hoffman, and his news chief, Jonathan Wald, to reinvigorate the channel.
"We don't take any competitor lightly," Zucker said.
Still, he added, Murdoch's legendary success with Fox News has overshadowed less successful television efforts in trying to set up a Fox Sports channel to challenge ESPN and in recently starting the MyNetwork TV network.
"Just because Rupert wants to do it doesn't mean it works," Zucker said.
That said, Zucker is watching keenly. If there is a rub against CNBC, it is the common refrain about NBC Universal: that as part of General Electric it may have played too safe for too long. Sure, CNBC is a profit-spinner, the thinking goes, but it has never quite figured out evening or weekend programming and instead has relied on infomercials for revenue and reruns of shows like NBC's Deal or No Deal to bolster ratings.
Hoffman says he is working on filling these gaps.
"We've taken the last two-and-a-half years to change the direction, to change the voice, to change the energy of what we're doing at CNBC," he said.
Some wonder what would have been possible had GE bought Dow Jones in the mid-1990s -- which it considered doing -- rather than becoming long-term partners. But then, as now, NBC Universal and its GE bosses viewed Dow Jones as primarily a newspaper company -- and that was not deemed a growth business. Murdoch is more of a gambler in pursuit of his goals, the way Google was in buying the unproven YouTube.
Another area where the News Corp sees an opening for its business news is online. CNBC, after years of licensing its content to Microsoft's MSN, only a few months ago introduced a new iteration of its own CNBC.com Web site. With 662,000 unique users in April, the site ranked a distant 22nd among financial news Web sites, figures from comScore Media Metrix show. Its audience is growing, but Dow Jones attracted nearly 10 times as many users between its WSJ.com paid site and its Marketwatch.com free business news destination, acquired in 2004.
The News Corp currently has little presence in financial news, online or on cable. But Murdoch believes that his company is uniquely positioned to conquer the Web -- with everything from the Fox TV and film businesses to a new mobile arm to newspapers to MySpace -- even if it doesn't claim Dow Jones.
Ailes is plowing ahead with plans to set up the new business channel without presuming that the Journal will figure into them. Ailes declined to comment, and Fox News declined to give any specifics.
But if they do get the Journal, the US' second-largest newspaper after USA Today, it will be interesting to see whether Murdoch and Ailes can crack the code for having a print news product translate into a world-beating brand on television, let alone the Web.
Recalling the day the story of Murdoch's audacious bid broke last month, Zucker said jokingly: "Let's remember who broke the story about Dow Jones -- it was CNBC. It was not the Wall Street Journal."
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