Many defenders of the Wall Street Journal’s independence don’t like the prospect of a takeover by Rupert Murdoch. Concern that the media baron will hijack the newspaper’s editorial line and distort its coverage of the news to advance his business interests has been expressed by big shareholders, including James Ottaway Jr. and former chief Peter Kann, not to mention many of the company’s staffers.
Ottaway, a large shareholder of Dow Jones, expressed opposition to the financial media company selling out to Murdoch’s News Corp. “The sale of Dow Jones to Rupert Murdoch and his News Corp. global media giant would lead to loss of the unique news quality and integrity of The Wall Street Journal and other Dow Jones publications and Internet services, and loss of the independence and integrity of a leading national editorial voice,” he wrote.
Former chairman and chief executive Kann expressed his support to members of the controlling Bancroft family who turned down the $60 (Rs2,460) a share offer from Murdoch.
To convince the controlling Bancroft family to sell the business founded by their ancestor Clarence Barron, Murdoch clearly needs to find a convincing answer to these concerns. But, if he can, there is one very good reason why the guardians of Barron’s legacy should actually prefer Murdoch to the current ownership. He’d invest heavily in the brand.
Murdoch says he’d expand in London, where, partly out of fear of competing with the Financial Times, the Journal punches below its weight
Under the Bancroft family, by contrast, Dow Jones has arguably been crimped of investment for the sake of paying fat dividends. For example, Murdoch says he’d expand in London, the emerging second global capital of finance, where, partly out of fear of competing with the Financial Times, the Journal punches below its weight. Ditto in Asia. Murdoch also wants to expand political coverage in Washington and create a business cable network sporting the WSJ brand. All of this will require substantial investment.
In an interview with the New York Times last week, Murdoch said he would propose to set up a separate editorial board for the Journal to ensure its independence. He also said he would revitalize the Journal’s European and Asian editions, and use the Journal brand as part of Fox’s planned cable business news network.
Murdoch has been widely demonized as a cost cutter. But he’s actually one of the few people prepared to invest in newspapers these days—witness the revitalization of the Times of London, or his willingness to bear losses at the New York Post in its battle with the Daily News.
Contrast that with the current situation. To keep the Bancrofts happy, the WSJ’s parent pays substantially all of its earnings to shareholders in the form of dividends. Over the past three years, Dow reported cumulative earnings per share, excluding one-time items, of $3.30. During that same time period it paid $3 in dividends. That’s a 91% payout ratio—nearly three times the ratio of earnings that rivals New York Times and Tribune paid to their own investors in dividends.
Dow insists it hasn’t been keeping controlling shareholders fat and happy at the expense of investing further in core brands such as the Journal. It points to capital expenditures of $91 million last year alone, and another $100 million pegged for this year. That said, if Murdoch is prepared to quantify how much he plans to invest, these amounts may look paltry. He would also gain one argument for winning over his doubters.
Dow Jones is a minority investor in breakingviews. The WSJ also carries a daily breakingviews column.