All Commentary
Tuesday, June 16, 2015

What Rupert Murdoch Sees in Dying Newspapers

The billionaire entrepreneur sees a bigger picture

If the newspaper business is doomed, why doesn’t Rupert Murdoch sell NewsCorp?

This week, the 84-year-old mogul asked the board of 21st Century Fox to install his son James as chief executive — the job Rupert has held since he incorporated the company in 1979. Fox earns $31 billion annually, while sister company NewsCorp’s papers continue to decline in revenue. Investors have asked Murdoch to sell the papers, which include the Wall Street Journal and the New York Post, but Murdoch refuses to do so.

According to Meg James of the L.A. Times, Murdoch resists “in part, because he loves the newspapers — and the political power they bring. He also sees continued financial value in publishing.”

Love, power, and money. Which motive is dominant for the octogenarian billionaire? Even if there is “continued financial value in publishing,” that doesn’t make NewsCorp a good investment. It’s not enough for a dollar invested in the Wall Street Journal, for example, to earn more than a dollar. For a man like Murdoch, each dollar in the newspaper business is only well invested if it earns more than it would at 21st Century Fox (or in his other investments).

Are his tabloids just an indulgence in Murdoch’s later years? He built his empire from a single Australian newspaper he inherited from his father in 1952 — maybe the medium holds sentimental value.

“Rupert’s favorite thing,” according to Jeffrey Cole, chief executive of the Center for the Digital Future, “is to wake up, read his newspapers and then call his editors and scream at them.” But is a love for his morning routine enough to explain the decision to keep his money where it’s not earning the same return it could elsewhere?

Or is political power a consumer good for a man like Murdoch? He started FOX News as a conservative counterbalance to the “liberal” CNN. Perhaps Murdoch holds onto his troubled papers as a way to maintain his influence in how the always-ongoing political debates unfold.

Or maybe Murdoch just sees a bigger picture.

I was briefly part of NewsCorp in the 1990s, when Murdoch was buying up online properties, trying to do with the newly commercial Internet what he had done with FOX television during the previous ten years or so. One of his new acquisitions was a gaming company in Charlottesville. I was one of their “web guys.” It was my first full-time job in the private sector.

Charlottesville, perhaps like most university towns, is famously left-wing. Rupert Murdoch was infamously right-wing long before FOX News became the unofficial media arm of the Republican Party. So I sensed a definite ambivalence, sometimes defensiveness, among my co-workers about the guy in charge.

One thing I remember people saying with great respect, however, was that Rupert Murdoch had built his media empire by paying not what property was worth but rather what it was worth to him.

That struck me as profound at the time.

What they meant was this: Murdoch didn’t think of a newspaper as just a newspaper, a TV station as just a TV station. He thought about them as nodes in a network he was building. This meant he outbid his competitors who saw these organizations as single units of profit and loss, whereas Murdoch saw them as part of a bigger picture: what would they contribute to the larger plan?

In The Fourth Network: How FOX Broke the Rules and Reinvented Television, Daniel M. Kimmel writes,

If there was a single turning point in the history of the FOX network, a moment when the Big Three became the Big Four, it occurred in December 1993 with the simple announcement that NFL football was coming to FOX the following season.

One of the NFL’s attorneys explained, “What FOX offered us, the league, was the potential of having a bidder who needed the games, wanted the games, and was willing — in a sense — to overpay for them.”

Why would a savvy entrepreneur overpay for anything?

As FOX exec Lucie Salhany later recalled, “When Rupert took over, Rupert was his most phenomenal. ‘I want it, I have a vision, I’m willing to pay for it.’”

Kimmel comments, “As he had with so many other properties, Murdoch had paid more than the market thought it was worth because he saw a greater opportunity there.”

What was his vision? It turns out that 70 percent of the NFL’s viewing audience had never watched FOX.

Salhany again:

So, in the end, it was actually a bargain to acquire the rights to the NFL to promote the rest of [FOX’s] schedule. It was cheaper. If you went out and spent the same amount of money to promote it, it wouldn’t have been as effective.

What strikes me now is not how brilliant Murdoch was as an entrepreneur (although he was and is) but how my game-company colleagues worded their praise for the man — and what it revealed about the people giving the praise:

Rupert Murdoch didn’t pay what something was worth but rather what it was worth to him.

Notice the unstated assumption that there is such a thing as value independent of an individual evaluator, almost as if “worth” is objective, but Murdoch had the genius and the vision to see it subjectively.

But all value is subjective. Consumers pay whatever they feel will benefit them more than the next best thing they could have done with that money, whatever seems better than the opportunity forgone. The difference between consumers and entrepreneurs is twofold:

  1. Consumers pay for things as direct ends in themselves, goods that will directly satisfy their subjective needs (consumers’ goods), whereas entrepreneurs pay for things as the means toward achieving other ends (capital or producers’ goods).
  2. Consumers can make direct price comparisons between, say, a cup of Starbucks coffee and a cup of diner coffee, or between a MacBook and a Windows laptop, but ultimately the comparison isn’t much of a calculation — it remains a subjective preference for the thing purchased over the forgone options; entrepreneurs, however, need to combine the objective data of recent prices for all their factors of production and compare the result to their personal predictions for what people will pay for the final product.

The successful entrepreneur is the better predictor, the more innovative producer, or both.

When my co-workers praised Rupert Murdoch for pricing factors more presciently or using them more innovatively, they were just saying, in essence, that he was a good entrepreneur. Maybe they understood that. Maybe what they meant by “what it’s worth” was what the current market consensus is for this factor’s future earnings, discounted for time, and assuming no innovation.

I certainly didn’t understand that they were merely describing what an entrepreneur does, and admiring Murdoch for doing it so much better than everyone else.

Maybe Rupert Murdoch loves the smell of printer’s ink — or the feel of pulp between his fingers. But if his investment history is a guide, the man values his newspapers not for what the bookkeepers show as return on investment but for the value that owning the papers adds to his empire.

That value isn’t necessarily represented on the books. If the newspapers add political leverage to his portfolio — if, for example, they help shape the debate over how much Western governments should regulate the media — then Murdoch’s attachment to an old-fashioned medium isn’t an indulgence: it’s a strategic vision that benefits the long-term goals of his investors better than some of those investors may realize.