23 July 2007

Wall Street is Murdoch's gateway to Asia
By Katie Allen
The Guardian
(c) 2007 The Guardian

Rupert Murdoch is tantalisingly close to adding the Wall Street Journal to his media empire. If the sale goes through, analysts, investors and rivals will all want to know a lot more about the motives behind a bid described as "insanely high" by his fellow News Corp directors.

Murdoch offered a 65% premium on the share price of Dow Jones, owner of the Journal, calculating - correctly - that no other media conglomerate or billionaire with a liking for newspapers could outbid his $5bn (pounds 2.4bn) offer.

But with such big money at play the deal has to make strong strategic sense for an empire that includes newspapers, TV stations and a Hollywood studio.

Much has been made of what he might do with the WSJ in the US, where it is the second biggest-selling newspaper behind USA Today. He has already said he wants to use the brand for his planned Fox business channel. But those looking for longer-term motivations behind the deal should turn their attention to the one region in the world where print readership is still growing, mobile phone usage is shooting up and the appetite for financial news seems insatiable.

Media experts at PricewaterhouseCoopers expect Asia Pacific to be the fastest growing region for the sector over the next five years. Against a backdrop of strong economic growth, they predict spending in the media and entertainment markets will rise to $470bn in 2011 from $297bn in 2006.

"We are going to see a lot of market entry-type activity in the course of the next two to three years," says Marcel Fenez, Hong Kong-based managing partner at PwC's global entertainment and media practice. "In terms of segments of news, financial news has always been important in Asia, probably disproportionately important. Financial news is a driver, and that applies across the entire region."

Murdoch has made no secret of his ambition to grab a bigger slice of the Asian media markets. He has owned the Star TV business there for more than a decade, and recently embarked on a joint venture with India's Tata group to create the Indian satellite TV service Tata Sky.

Buying Dow Jones fills in another piece of the Asian - and the global - puzzle for News Corp. The acquisition brings on board the 30-year-old Wall Street Journal Asia, including its 15 bureaus across the region, nine printing plants and the resources of more than 200 Dow Jones Newswires reporters in Asia. He also gets Chinese WSJ.com, a Chinese-language online business news service, launched in 2002.

WSJ Asia has a paid circulation of 80,601 and estimated total readership of 370,765. Like the FT's Asian edition it enjoys the sort of reader that advertisers love: high net worth professionals with high disposable incomes.

Michelle Lau, head of media planning and buying group Carat China, says that prestige brands such as luxury carmakers and banks particularly favour financial newspapers. "General newspapers have very high circulation, but for our premium clients we tend to use business papers, which have lower circulation but are much more targeted," she says.

Dow Jones says that WSJ Asia has more editorial staff than any other regional newspaper, with close to 70 editors and news staff, but observers say it is still held back by lack of funds and manpower. Indeed, Murdoch has vowed to put more resources into the Journal's editions in both Asia and Europe.

Interviewed recently on his Fox News network, he described the WSJ as "the greatest newspaper in America and one of the greatest in the world", but suggested it had untapped potential. "It's got great journalists and great management, but it's got a rather confined capital; it needs to be part of a bigger organisation to be taken further," he said.

For the man who once owned 20% of FT publisher Pearson, taking on the pink paper's Asian edition will be no easy task. It enjoys a strong reputation, lucrative relations with advertisers and a committed readership. The FT is gaining readers in the region faster than both the WSJ and the International Herald Tribune.

"While others have retrenched and retreated over recent years, we have had a sustained commitment to Asia and that is part of our global strategy," says John Ridding, chief executive of the Financial Times and FT.com, who led the launch of the FT's Asia edition in 2003 and the development of the FT's Chinese-language website.

Matching the FT's strength in Asia will probably require more staff at the WSJ, observers say. FT managers are doubtless fearing key editorial staff from its international titles could be poached. There may also be a role for Rupert Murdoch's China-born wife, Wendi Deng, who has served as his unofficial ambassador in the country for some time.

Murdoch can draw on a pool of talent from elsewhere in his media empire, not least the Times, whose editor, Robert Thomson, launched the FT in America. Thomson has refused to speculate about a possible move to the WSJ if the bid for Dow Jones is successful. Whoever ends up at WSJ Asia, they will have to follow the overall media trend for more bespoke content, analysts say.

"What he [Murdoch] really has to do is not just give the Journal more resources regionally but also aggressively localise it," says Vivek Couto, executive director of independent analysts Media Partners Asia. Couto, a Hong Kong-based specialist who has followed News Corp for a decade, believes the Dow Jones deal is a long play, and goes well beyond a liking for the Journal. "Murdoch is not bidding for Dow Jones for what is going to happen next year," he says.

"The acquisition gives them a lot of ammunition for their new news television channel. He's basically looking at $1.5bn in new value to add to it. That really is what potentially Fox Business News could be bringing."

The takeover should also allow Murdoch to break up an existing deal whereby Dow Jones provides financial information to rival channel CNBC, thus boosting Fox Business News.

The service is set to launch in October, initially to 30m homes in the US, where it will be going head-to-head with CNBC and Bloomberg's financial news channel.

"Let's say it breaks even after three years - that's the typical time or just before it that you look at expansion overseas," says Couto. "The great thing about business news is there is only one channel that does it globally, and that's CNBC. I think there is a great opportunity for Fox Business News in Asia."

As for where Murdoch will focus within Asia, China will not necessarily be the priority, even in the media frenzy that will surround the run-up to the Beijing Olympics next year. After all, Murdoch has been frank about his frustration at China's slowness in opening up.

China's media and entertainment markets will enjoy a compound annual growth rate of 16.8% between now and 2011, according to PwC, but India will easily outstrip that. At 18.5%, growth it will be the fastest in the region.

"In terms of size, India is still much smaller than the China opportunity. However, because of the regulatory difficulties at the moment of entering the Chinese market for any types of media player, India is actually where most people are spending their time right now," says PwC's Fenez.

Independent News and Media has taken the local content route by buying a 20.8% stake in JPL, publisher of India's most-read newspaper, Dainik Jagran. The Financial Times group, meanwhile, has a stake in Business Standard, one of the country's leading financial newspapers.

For any news provider, India also presents a huge opportunity with its rapidly growing mobile phone market, to which millions of news subscribers are added every month. "The message about mobile growth in the region is very important for news," says Fenez. "It's all about leveraging content."

Paper chase . . . Rupert Murdoch and Wendi Deng peruse a Chinese newspaper, but it is the less regulated Indian media which most interests the mogul Reuters