Dow Jones & Co., which has long had one of the most successful paid content Web sites with the Wall Street Journal Online, acknowledged Nov. 14 the growing power of free, advertiser-supported content. That's the day when Dow Jones announced it had agreed to acquire CBS MarketWatch for about $519 million in cash.
"It's not any change in strategy," said L. Gordon Crovitz, president of Dow Jones' electronic publishing division. "It simply increases the scale that we have [in advertiser-supported content]." In addition to its paid wsj.com site, the Journal has several free sites, such as OpinionJournal.com, RealEstateJournal.com and CareerJournal.com.
In outbidding the New York Times Co. and Viacom, Dow Jones paid a higher than anticipated price. "It was a pretty full price," said Reed Phillips, managing partner of media investment bank DeSilva & Phillips. "It was a pretty frothy auction."
Based on estimated 2004 results, Dow Jones said it paid a multiple of 17.7 times EBITDA for MarketWatch but, calculated against anticipated 2006 results, it said the multiple would be 12.5 times.
The deal is expected to close in the first quarter of 2005.
The MarketWatch acquisition represents a shift in emphasis in Dow Jones' Web strategy to focus more on paid advertising. The Online Journal has 701,000 paid subscribers, but that exclusivity limits the ad programs the site can garner compared with the more heavily trafficked sites of competitors such as Forbes.com and Yahoo! Finance.
"They were smart," said Seth Alpert, managing director at media investment bank AdMedia Partners, of Dow Jones. "In the early years, they realized they couldn't live on advertising, but I do think that the world has changed. There are folks who are living off advertising, and [Dow Jones] would be in a tough spot to ramp up that kind of audience from scratch."
MarketWatch, which includes MarketWatch.com and BigCharts.com, attracts about 8 million unique visitors per month, or about three times as many as Dow Jones' free sites. Only 11% of MarketWatch users are Online Journal subscribers.
This broader audience will be even more attractive to advertisers, Crovitz said, because of Dow Jones' ability to target users on the Web.
The deal will be funded with new debt of $375 million to $400 million, which will come from the company's revolving credit facility and a bond issue. Dow Jones said it will pay off the debt in three years.
The debt level concerns some observers. Following the announcement of the deal, Standard & Poor's Ratings Services placed Dow Jones' "corporate credit and commercial paper ratings on CreditWatch with negative implications."
Jim Spanfeller, CEO of Forbes.com, which has unabashedly been taking on The Wall Street Journal both in print and online, said the Dow Jones-MarketWatch deal validated the Forbes approach to the Internet: a free site supported by advertising dollars. Spanfeller also speculated that the move indicated Dow Jones couldn't convert wsj.com to a free site, because such a move would erode the number of people willing to subscribe to the print Journal.
"Without particular reference to any other Web site, I would say that any print publisher that seeks to charge a subscription price for a print product but then gives away the same content on the Internet has failed to find a sustainable business model," Crovitz said.