Wednesday, August 01, 2007

Murdoch Takes It. Now What?

Rupert Murdoch and News Corp (NYSE:NWS) have successfully captured Dow Jones (NYSE:DJ). Now that it is all done, other than the legalisms, what did you expect? Fifth generation members of the lucky sperm club had been riding their nest egg rather hard. If they did not do the deal, chances are they had bad chances coming up. But on to the future.

Rupert Murdoch is launching his challenger to CNBC this Oct. The official takeover of Dow Jones will probably close sometime this fall also. The time frames are short and ultimately Dow Jones will contribute mightily to the new venture. But in the meantime how much of a factor can it be? Can one move into a new house before the lawyers have closed the deal? Rupert Murdoch will want fast traction for his $5 billion.

In the meantime CNBC and its ultimate owners GE (NYSE:GE) have been closely watching and preparing. GE opted not to pay an exorbitant amount of money. GE probably has been making other arrangements to replace Dow Jones. I suspect there has been a behind the scenes race of epic proportions to replace the necessary infrastructure.

If I was GE/CNBC I would cut out Dow Jones immediately if not sooner. The faster CNBC stops highlighting Dow Jones coverage the sooner the Dow brand just starts to hang out there. Contractual arrangements you say. Perhaps. Enforceability issues will abound. What if CNBC insists on holding Dow Jones to their deals, pays them whatever the tariff was going to be and then stops using them as much as possible. Brand hijacking? GE would love to ice the competitor for as long as possible.

Eventually the elbowing and tripping will come to an end along with the lawsuits that it will engender. Then the real work of competition will commence.
GE used to say they want to be number one or two in the subject market place. Will a one or two strategy apply in a two product race. GE has exited business before. The exits have been strategic in nature and usually well considered. I cannot recall GE running home with its tail between its legs.

For News Corp the scrutiny of Dow Jones will be intense. Every piece will be publicly vetted and examined for secret agenda’s. The so called editorial independence provisions that the Bancrofts are insisting on should be made public as soon as possible. The investment world is an information seeking culture. The investment world is Darwinian in nature. If you feed the market something that is integrity challenged you will ruin your own brand and franchise, be held to public and private ridicule not to mention the lawsuits.

The Battle Royale is only just commencing. One major problem for both entities exists. Financial news services and other investor tools typically correlate to the market. If markets are bullish and optimism prevails investors watch and pay for services. When markets trend downwards (Bearish?) investor participation dries up. I believe CNBC viewership has reflected this in the past.

So instead of fighting over a dollar the two may be fighting over seventy-five cents. This calls for deep pockets and patient capital. Who fits the profile better GE or News Corp. In any event both entities will probably have less than adequate financial returns in this category.