August 2, 2007
Rupert Murdoch vs. Pinch Sulzberger: Let the Match BeginBy Thomas Lifson
Many on the left regard Rupert Murdoch, architect of the rise of Fox News Channel, as the anti-Christ. More accurately, Murdoch deserves the title of the anti-Pinch. Murdoch's successful bid to take over Dow Jones & Company, publisher of Wall Street Journal, is a nightmare-come-true for Pinch Sulzberger, the hereditary occupant of the chairman of the board's and publisher's office at the New York Times.
Poor Pinch. Murdoch is everything that he is not. Conservative, smart, and wildly successful in the media business. As a result, Pinch faces serious challenges as a family member, business leader and corporate strategist.
The Family Dimension
Pinch holds onto his job only because other members of the extended Ochs/Sulzberger family, who together control the New York Times Company through family voting trust arrangements that elect 9 of the 14 directors, are willing to entrust a good chunk of their wealth to his stewardship. In recent years he has given them plenty of reason to worry about the financial future of the company and the security of their own shared fortune.
It must be heady stuff to be a member of a family that regards itself as custodians of a national treasure. Social standing, pride, political influence, and all the advantages of wealth are theirs. But the last item on this list continues only as long as the paper stays solvent enough to send them fat dividend checks, and the other items on the list depend on the paper holding onto its crown as the most influential publication in the land. "You can't eat prestige," as union organizers who tried to enlist the employees of Harvard University put it decades ago.
The Bancroft family, guardians of the other uniquely important national newspaper, the Wall Street Journal, have provided an example that has to weigh heavily on at least some members of the Ochs/Sulzberger clan. Those who are worried that their children may not have the same resources available to them if Pinch continues to bungle the corporation's strategy in this very difficult era for newspaper properties, for example. Or those who perceive that he has lessened the weight that the paper carries nationally and worldwide, by turning it into a partisan vehicle for the left wing of the Democratic Party.
There was considerable dissent among the various Bancroft heirs over Murdoch's offer to buy them out. Murdoch's $60-a-share bid was a 67% premium over what the stock had been trading for. Many family members took the attitude that they are duty-bound to guard the independence of the newspaper, regardless of the personal financial cost. The same concept that inspired and has governed the Ochs/Sulzberger voting trust arrangements.
But enough Bancrofts listened to one of their own, Crawford Hill, to swing the balance over to those who want to authorize a sale of their stock. Hill wrote family members a nearly 4,000-word email that stated it was time for a "reality check" - that the days of being able to go it alone as an independent newspaper publisher are drawing to an end. An appeal to greed alone was probably not enough. The Bancrofts have other money besides the Dow Jones stock. But an argument that merger would allow the proud heritage of the paper to flourish as it could not under independent management had to ease at least some of the pangs that would accompany a big cash payout.
This sets a very, very bad example for Pinch's aunts, uncles, cousins, and other assorted relatives.
In the short run, it is unlikely that enough Sulzbergers will become interested in selling their company to enable Murdoch or anyone else to make a successful bid. And the Sulzbergers arranged their family trusts differently than the Bancrofts, so that it will be more difficult for any potential acquirer to persuade enough of them to carry the day and enable a sale. But Pinch's glaring failures as a business leader will chafe at family members if the acquisition of the Wall Street Journal maintains the paper's standards and standing and enhances its business performance.
If Pinch cannot deliver better business results, he may see his cousin Michael Golden, vice-chairman and publisher of the subsidiary International Herald-Tribune, move out of the wings where he has been waiting into the chairman's office in the lavish new headquarters Pinch built for his shrinking company, probably forcing Pinch into a lesser role, or maybe into a face-saving early retirement. An outright sale of the company is unlikely for now, unless it consists of a friendly sale to one or more wealthy leftists, who conceivably could take the company private, buying out the public shareholders and dispensing with the embarrassment of publicly reporting financial results.
Rupert Murdoch has taken an inherited family business from one provincial newspaper in Australia to a global multi-media empire so wealthy that it dwarfs the New York Times Company's reach. Pinch inherited a much larger media empire, one that was healthy and growing, with a successful television station group, successful smaller newspapers in lesser cities, and all the promise of the internet ahead for a company with a pre-eminent brand name in media. He has turned it into a shrinking company, with shrinking profits and a bond rating downgraded (ironically by a subsidiary of Dow Jones & Company) to just above junk status, selling off crown jewels, laying off employees, shrinking the physical size of the newspaper, crowding employees into smaller office space, and to top it off, symbolically infested with vermin in its brand new digs.
The lushly-profitable TV stations have been sold off. Over a billion dollars was squandered on the purchase of the Boston Globe and other New England newspapers just as the market for newspaper publishers was topping out. These acquisitions have foundered, rapidly losing circulation and profits, and downsizing staff. The internet web sites that Pinch has bought have not done as badly as the newspapers, but they have not yet yielded market-level profits on the hundreds of millions of dollars spent, and their growth has slowed to a level where the lavish sums invested may never get an adequate return.
Under Pinch Sulzberger and the top editors he promoted to leadership, the paper was rocked by the Jayson Blair scandal, and has come in for harsh criticism for its partisanship. While the paper continues to enjoy iconic status among the left-liberal segment of the national public, the roughly one third of the country which is self-consciously conservative despises it, and no longer grants its reportage automatic credibility. This cannot be reckoned a positive development for the value of the brand.
Under Pinch, the paper has fallen to number three in circulation in New York City, behind Murdoch's hated New York Post and the New York Daily News. In fact the entire metropolitan edition of the paper has declined so dramatically that the large Edison, NJ printing plant that was Pinch's first major initiative after joining the paper's management is being shuttered. Only because the newspaper's national edition has added additional printing plants scattered across the continent has total circulation first grown and in recent years stayed roughly constant. But real growth of even the national edition has ended, as no promising hinterland markets remain to be exploited. Many national edition copies are sold at deep discount to college students forced to subscribe by their professors, who, in return get free subscriptions of their own, in a kind of legal soft-core bribery scandal that is part of the company's circulation base.
Murdoch, with the nationally circulated Wall Street Journal added to his properties, now threatens to do to the Times' national circulation and advertising revenues what the New York Post has done to the paper in Gotham. At the Times' own Richard Siklos wrote yesterday,
This means big trouble for advertising and circulation revenues of the Times. An expanded and revitalized Journal, offering a similar or even larger national audience of affluent readers and willing to cut advertising rates to attract business, could devastate the revenues and profits of the Times. As Jack Risko and I showed last year, the Times has been raising advertising rates while newspaper circulation has been stagnant, the price increases averaging two to three times the rate of inflation. An aggressive competitor in the form of a Journal which contains national and international general news, in addition to business coverage the Times cannot hope to equal, could very well siphon away significant numbers of advertisers and readers from the national edition of the Times, just as Murdoch's Post has done locally.
With characteristic hauteur, The Times assessed Murdoch's ambitions thus:
This is a dangerous under-estimation. Murdoch does not set out to establish his properties to merely rival other companies; he sets out to win the competition and gain profitable dominance. The Times knows full well what Murdoch did to CNN with Fox News Channel.
Two Business Strategists
Media moguls are cursed to live in "interesting times." At least it is a curse to those who, like Pinch, lack the vision to exploit the opportunities the new media structure offers. It is in the dimension of business strategy that Pinch and his fellow heirs dependent on him have the most to fear.
Take the opportunities presented by cable television. The New York Times Company's cable venture, a partnership with Discovery Communications (owners of a number of successful cable channels) called Discovery-Times Channel, has been a flop, and the Times has sold back its share to its partner Discovery Communications, taking a substantial loss. Failure followed by ignominious retreat.
In contrast, Murdoch has not only created the most successful cable news operation ever, he has created a series of regional and national sports channels (the latest one featuring soccer), the FX entertainment channel, home to ratings- and critical praise-winning drama series like The Shield, and now plans to introduce the Fox Business Channel, just as the Wall Street Journal acquisition gets going.
Murdoch, in other words, sees how to exploit synergies among media properties, and is aiming at the affluent Americans (and others around the world) who are both investors and consumers. He will use multiple professionally-run and well-executed broadcast outlets, the internet, and dead-tree publishing to increase his hold on this audience and the advertisers who want to reach it.
Last weekend, Murdoch used the promotional power of the Fox broadcast network, cable channels, and print properties to promote heavily a movie spin-off of the popular Simpsons cartoon television series. The film surprised everyone by scoring the largest debut weekend ticket sales ever recorded for a television spin-off, $74 million, surpassing even the big budget Mission Impossible series of films. Not bad for an inexpensively animated film. And a telling example of making synergy work.
The only advantage over Murdoch enjoyed by Pinch Sulzberger as a strategist is his relative youth. Murdoch is a much older man. Should the actuarial tables prove accurate in this case, Pinch has many more years left as a strategist than Murdoch. That is, assuming his relatives keep him in the position of a strategist for their fortune.
Nobody outside his inner circle knows exactly how Rupert Murdoch intends to earn a good business return on his huge purchase of Dow Jones. But it is a good bet that part of the money he expects to make is going to come out of Pinch Sulzberger's hide, one way or another.
Thomas Lifson is editor and publisher of American Thinker.