As Rupert Murdoch moves in to buy Dow Jones (DJ) for $5 billion, shareholders might want to ask themselves what effect the deal will have on News Corp. (NWS) stock. At a PriceWaterhouseCoopers media panel I attended aerier this week, Media Metrics CEO Laura Martin raised a good point. News Corp's stock price gets a bit of a shine from the fact that it owns MySpace, the largest social network on the planet.
What happens to that premium if News Corp's digital business all of a sudden contributes a smaller percentage of overall revenues and profits?
Martin thinks MySpace accounts for $2 billion of News Corp's total market capitalization (far less than the $10 billion valuation it was looking for in a deal to swap MySpace for a quarter of Yahoo's stock). But adding Dow Jones to its mix of media properties would significantly increase the percentage of News Corp's cash flow coming from no-growth print businesses, and at the same time dilute the percentage of cash flow coming from its faster-growing digital businesses (i.e., MySpace).
But then, the reasons for this deal might have more to do with ego than with financial logic.
Martin feels that the proposed Yahoo-MySpace deal also made no sense. As she put it to me:
Why would News Corp. give up the thing that is giving their stock a premium to somebody where they don't even know will be running it, with all of the management turnover there. And why would Yahoo give up 25 percent of their company for MySpace?.
On thing about Murdoch is he always knows who is going to run the business before he does a deal. It is usually some loyal manager back in Australia or somewhere else in his global media empire. So swapping MySpace for Yahoo right now is probably dead in the water
But what no one has been asking in the Dow Jones deal is: Who does Murdoch have in mind to run it. You can bet he's already hand-picked the whole management team. Why don't the Bancrofts ask him that? His attitude is pretty clear, as you can tell from this outburst of his captured by Time:
They're taking five billion dollars out of me and want to keep control, in an industry in crisis! They can't sell their company and still control it — that's not how it works. I'm sorry!
He also threw out the idea of getting rid of the print version of the Wall Street Journal and making it a completely online entity (after knocking down the online subscription wall). It might happen some day, but online ad revenues could not support the staff of the newespaper at current levels.