Investors in Media Still Think Ink

A challenge by insurgent shareholders to the management of Dow Jones & Co. has made headlines. The public argument is over the company’s troubled electronic information service, Telerate, but the real focus is the company’s newspaper crown jewel, the Wall Street Journal.

Significantly, the investors want Dow Jones to stop throwing money into the electronic operation and to put more resources behind the newspaper business.

That emphasis on the Journal’s value is a hint that newspapers have regained the esteem of financial markets for their current good business and even their future prospects.

“The Wall Street Journal as a product is the envy of Bill Gates and Microsoft and of all the other new-media companies. It would take them $2 billion and 10 years to even try to attain its credibility,” says investor James Cramer, who recently acquired roughly 1% of Dow Jones stock.

Along with investor Michael Price of Franklin Mutual Fund Advisers, who has acquired 5.4% of the stock, Cramer is urging Dow Jones management not to continue investing in

Telerate but to focus on the newspaper.

Somebody may be listening. Last week Dow Jones, 70% of which is owned by family members and trusts, nominated three new directors, signaling that changes could come.

Dow Jones is no different from most companies in the newspaper industry, where family owners have been forced to reform old practices and cope with new technologies.

And they have coped, as attested by newspaper company share prices that are keeping pace with the rising stock market. In this environment, analysts are sure the Kansas City Star and Ft. Worth Star-Telegram will fetch handsome bids if sold by Walt Disney Co., which acquired them in its 1995 merger with Cap Cities/ABC.

In a broader perspective, newspapers hold lessons for all “mature” businesses, where sales and earnings growth are slow and difficult to achieve.

Newspapers are mature. Total U.S. circulation--at 61.8 million on Sunday, 58.2 million weekdays--is no higher than it was in 1988, reports John Morton of Morton Research. With $36 billion in ad revenues, newspapers still lead all media, but their share is not growing as fast as direct mail and some other media, reports McCann Erickson, the advertising agency.

Yet the news photo is not of decline but of a resilient industry that has reformed itself in hard times and now faces new and different challenges. “A lot of family companies reformed labor practices and began to run their companies,” says analyst James Dougherty of Dean Witter.

There is no better description of the process than Katharine Graham’s in “Personal History,” the newly published memoir by the owner of Washington Post Co. Graham recalls the time, three decades ago, when newspapers earned high profits, and pay raises and work rule concessions came easily. As she walked through the plant, union leaders “were sort of friends of mine,” Graham writes.

But as readership stopped growing and competing media cut into newspapers’ share of advertising, owners became aware of costs and tried to cut back. At the Post, that led to a bitter six-month strike in 1975-76 in which presses were sabotaged, but the Post continued publishing. Both sides felt angry and betrayed. The unions thought that traditional patterns were broken; management believed that goodwill and good times were taken for granted. In the end, Graham learned that newspaper publishing is an industry, not a genteel activity.

The challenge today is external. Newspapers need to attract new readers, to compete with growing varieties of other media and to adapt to historic changes in technology.

In that regard, the Internet holds both promise and threat. With its limitless ability to carry information on real estate, automobiles, movies and available jobs, the technology threatens to replace classified ads.

And classifieds are a newspaper backbone, a big $14-billion-a-year form of advertising that is growing 10% a year. Indeed, a boom in help-wanted and auto ads late last year is one reason newspaper stocks are doing so well, says analyst Edward Atorino of Oppenheimer & Co.

Internet business is still years away from being commercial--few people know yet precisely how to charge for online information. But small companies are cropping up everywhere. Microsoft is hiring journalists to prepare online magazines, complete with local entertainment ads, financial information and other services.

But the Internet is a potential substitute for paper, not for information. And newspapers, as the most proficient gatherers and processors of information, should have a natural advantage. “They should do better at their own business than Microsoft can do at their business,” notes analyst Dougherty.

Most newspapers are developing online services, trying to do more for the customers they already have--both readers and advertisers--and to capitalize on their good names and local positions.

The Los Angeles Times is stressing its key position in California and the Pacific Rim. The New York Times is trying to adapt its national edition to carry regional news.

Meanwhile, the Wall Street Journal, which provides Dow Jones with about $1 billion in annual revenue and nearly $150 million in pretax profit, is doing well on the strength of an unprecedented bull market and a strong U.S. business climate.

But the Journal does less well internationally, where the London-based Financial Times is preferred for its coverage and analysis. Dow Jones managers might invest more in the Journal’s international presence if they shifted focus from pouring money into troubled Telerate.

And perhaps they will if investor Mike Price and the company’s new directors make them see that the opportunities, still, lie with the newspaper business.