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News Corp.'s offer less than it seems

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The business and business publishing world was buzzing last week about News Corp.'s unsolicited $5 billion bid to acquire Dow Jones & Co., publisher of The Wall Street Journal. (This big media story coincides with BtoB's Media Power 50, our annual of picks for the top media outlets for marketers in print-newspapers, general business, IT and trade-online, outdoor and broadcast. That report begins on page 25.)

Newspaper stocks rose on the announcement of News Corp.'s $60-a-share offer for Dow Jones, and there were also reports of several atypically heavy options trades of the company's stock. On Monday, the day before the news broke, these surpassed the number of Dow Jones option contracts that exchanged hands for the entire month of March—according to The New York Times—prompting speculation of insider trading and a possible Securities and Exchange Commission investigation.

Once the hullabaloo dies down, however, newspaper stocks will definitely fall back to earth. For years, Wall Street and growing numbers of marketers have accepted the fact that general--*interest newspapers face a very tough road ahead, with their revenue base from classified advertising shifting to the Internet and their circulation declining.

The latest Audit Bureau of Circulations FAS-FAX statement, released at the end of April, supports this view. It found U.S. newspaper circulation fell 2.1% in the six-month period ended March 31. Just six of the top 25 newspapers had paid circulation increases. The Journal was among those, with an increase of 0.61%. The Journal's circulation is 1.7 million in print and 931,000 online.

So aside from a sweet offer and a potential juicy insider-trading scandal, what is the real story behind News Corp.'s interest in Dow Jones?

One thing is clear: It isn't the venerable print publication. Notwithstanding the fact that the Journal's ad revenue increased 9% and ad pages increased about 7% last year, most observers believe News Corp. Chairman-CEO Rupert Murdoch, who has had a longtime interest in taking over the Journal and its parent company, is really after Dow Jones' various financial products to feed content into a cable business channel he plans to launch this fall.

Dow Jones itself has stated its objective of reducing the share print revenue contributes from 60% currently to 50% by 2010.

"This is as much a distribution deal as a content deal," said Ken Doctor, a media analyst with research firm Outsell Inc., who is quoted in reporter Matthew Schwartz's story of the News Corp. offer for Dow Jones (page 3). "Rupert knows Dow Jones has the best financial content, and he understands pipes and distribution better than anyone."

Schwartz's story also uncovers skepticism among media buyers about the promise of synergies between News Corp.'s more entertainment-driven programming and Dow Jones' hard-core financial coverage.

Meanwhile, another observer, Jeffrey D. Reinhardt, managing director of media investment bank Berkery, Noyes & Co., thinks there will be a wave of acquisitions by newspaper companies of the Web properties that lured away their classified advertising over the past several years. These media organizations, which missed their chance in the first round, will pursue an acquisition strategy rather than a timely and costly "build" plan, he said.

"My gut instinct is that some of these online ad networks would be ripe for these newspapers to acquire," Reinhardt said.

American Business Media President-CEO Gordon Hughes II said News Corp.'s desire for the b-to-b properties of Dow Jones was "indicative of the interest within the b-to-b information space." He added, "Thankfully, our space seems to be one of those investment opportunities of interest to people." Financial Information Services, a division of Dow Jones, is an ABM member; no News Corp. properties are members.

At press time, Dow Jones' board said it was taking no immediate action on News Corp.'s offer. Dow Jones' stock was trading at $55.39 per share, down from the day the offer was announced but still well above the $37.12 per share price the day before the announcement.

Ellis Booker is editor of BtoB and BtoB's Media Business. He can be reached at ebooker@crain.com.

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