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July 15, 2007
David Warsh, Proprietor


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Swept Away by the River of Money

The Wall Street Journal, which the heirs of the Bancroft family are in the process of selling to Rupert Murdoch, is the ultimate symbol of the capitulation of the “American century” to the forces of economic change. Dow Jones, if not the WSJ itself, shortly will join the Great Atlantic and Pacific Tea Company, American Telegraph and Telephone, Anaconda Copper, Armour, CBS, General Motors, Gulf Oil, International Harvester, the Pennsylvania Railroad, Polaroid, RCA Corp., Sears, Roebuck & Co., Time Inc., US Steel, Westinghouse and various other emblems of one-time US supremacy in particular markets in the Nostalgia Hall of Fame.

On balance, it is probably a good thing, even though the news pages of the WSJ probably are as fair-minded and thoughtful as a daily newspaper is ever going to get. Realignment of its topmost tier of daily journalism will enable the US to better adjust to the realities of a new, much more complicated world.

Though Henry Luce coined the phrase in 1941, the “American century” commenced in 1945 with the end of World War II.  With much of the rest of the industrialized world in ruins, United States companies, already powerful before the war, enjoyed nearly complete dominion. The new technologies favored scale. Manufacturing companies tended to be arrayed in oligopolies, their workers represented by powerful unions, their financing arranged by a relative handful of heavily-regulated commercial and investment banks, their tendencies to overreach checked by regulatory agencies and Congressional committees. They met relatively little competition in the 1950s and ’60s as they expanded into international markets. The Cold War enforced a certain bipartisan discipline among politicians. A spirit of individual sacrifice, an ethos of team play, was widespread.

The Wall Street Journal flourished in this environment for forty years. It consisted of one section, typographically quaint and improbably broad of sheet, offering every day just four feature articles (three on the front page, one on the back page); two carefully-edited summaries (“What’s News”); and innumerable articles inside the paper on companies and markets, all delivered with clockwork precision from printing plants around the country. The daily paper faithfully reflected the interests of the rapidly-growing investor class.  A new Sunday version of the paper, The National Observer, launched in 1962 to compete for readers’ attention with surging television, failed to catch on.

Even so, a young financial journalist named Carol Loomis wrote in Fortune magazine in 1971 (under the headline “One Story The Wall Street Journal Won’t Print”), “As a business enterprise, the Journal is indeed a powerhouse….[it] is splendidly profitable.  A fat 80 percent of the paper’s [1.3 million] circulation comes from subscribers, most of whom seem to renew automatically, as if the $35 annual cost were small change (or were being paid, as it often is, by the subscriber’s employer).”

Circumstances began changing significantly in the ’70s, as resurgent companies in Europe and Japan began to enter to US markets.  The WSJ‘s response was to go abroad itself, starting an Asian edition headquartered in Hong Kong in 1976 and a European edition from Brussels a few years later. But when, in the ’80s, asset values boomed and globalization accelerated the pace of change, the paper’s managers lost their footing. They added a second section to the paper, then a third and a fourth. The quality remained high, but focus was lost, and internecine battles distracted executives from the technological revolution taking place around them.

And in the ’90s, Dow Jones’ financial services subsidiary, Telerate, went off the rails. The fledgling company had been competitive with other electronic data providers when Dow Jones began to acquire it by half-measures in the 1980s. But thanks to the high dividend payout that the Bancroft family required throughout the period, Telerate spectacularly failed to keep up with the rest of the fast-changing industry. It was the occasion for a $922 million write-off when the company finally unloaded it in 1998.

Financial markets had become a mighty river of money, with everybody trying to siphon off even a little bit of the stream. One of the slickest spillways of all was created by an out-of-work bond-trader named Michael Bloomberg, cut loose in 1981 after the Phibro-Salomon Brothers merger. Bloomberg LP relied on a hard-won mastery of computer technology, plus a series of under-the-radar agreements among Wall Street firms, to create a massive data base of bond prices — an authoritative set of “comps” with which to evaluate performance and risk.. Opening for business the next year, he sold bond traders access to it (and to a variety of analytic software tools he developed) on a subscription basis, with no mess and no fuss — the whole package was delivered through computer terminals, instead of on paper.

Bloomberg plowed his profits back into the business, adding company data to the data base, SEC filings, clipping files, employer-proof email to his growing network, everything but a daily crossword puzzle. By 1990, it was clear he needed a specialized news service, too, so he hired a WSJ bond reporter named Matthew Winkler to start one. Today, the 2,300 employees who Winkler superintends produce an extensive news report which supports television and radio broadcasts and a magazine as well.

From the beginning, Bloomberg’s secret has been its pricing. A subscription costs about $18,000 a year per terminal; there are no discounts for volume. With around 250,000 terminals scattered around the world, mostly on the desks of traders and those who advise them (2,800 of them at Merrill Lynch alone), that means revenues of something like $4.7 billion, and pretax profits of around $1.5 billion. Dow Jones, in contrast, earned $105 million on $1.9 billion last year, selling something like 1.8 million copies of its daily paper, plus another 900,000 subscriptions to its online edition.

Thus when Fortune writer Carol Loomis — now the grand dame of American financial journalism — sat down last spring write a superb profile of Bloomberg LP (in which she surfaced many of these numbers publicly for the first time), she wrote that “[I]n the annals of business, the fall of Dow Jones from its financial-information throne and the rise of Bloomberg must be counted one of the great competitive turnabouts in history.”  

In many ways, the rise of the traders who rely on Bloomberg boxes — and on similar information services from Reuters, Thomson Financial and Dow Jones — resembles the parallel rise of the army of MBAs who today form a preponderance of those who manage corporations around the world. That is to say the Bloomberg legion is a language community, requiring its own special tools and status symbols, and quite able to pay for them. No wonder, then, that Bloomberg gives four free months of home service to any subscriber who loses his job — with the result that most habitu…s quickly find employment elsewhere and promptly renew their subscriptions. To this day, most people have no sense of Bloomberg’s journalism, because so few people read it. It definitely is not a mass medium.

In recent years, The Wall Street Journal has struggled to reinvent itself. The paper added a Friday “weekend” section, then launched a Saturday edition, and worked with considerable success on its online edition. The re-design earlier this year of the iconic front page of its newsprint edition was emblematic of its general un-success in creating the kind of excitement that commands a high multiple.  The situation is not quite “between two worlds, one dead, the other powerless to be born,” for the WSJ remains the gold standard by which other newspapers’ intelligence, clarity and fairness is judged.  But that is the general idea.

In these circumstances, Rupert Murdoch’s pre-emptive bid of $60 a share for Dow Jones — nearly twice the value the market placed on the company previously — seems nearly certain to succeed. It is worth that much to the Australian entrepreneur, because he has built an international journalism and entertainment conglomerate (News Corp.), typified in the US by the Fox television network, into which it would profitably fit. Under Murdoch, the WSJ probably will become more widely read, not less; but its influence will be of a different sort. Former Dow Jones chief executive Peter Kann told Sarah Ellison of the WSJ last week that he still hopes that the Bancroft family will resist temptation. “But if the family is going to sell, I see no point in pursuing industrial conglomerates, Internet entrepreneurs, supermarket magnates and real estate developers. None know anything at all about journalism. As to Mr. Murdoch, at least he loves newspapers, presumably would invest in the WSJ and Dow Jones, and would seem to have little incentive to tarnish a trophy he has coveted for so long.” That’s mostly true, but it gives Murdoch, a proved scoundrel, too much benefit of the doubt. 

The great irony is that Dow Jones’ Wall Street Journal, at least its editorial pages, eventually will be remembered as fomenter of the war in Iraq, the greatest misadventure in US foreign policy in at least a century. It is true that The New York Times and The Washington Post for the most part joined the chorus approving the Bush administration’s march on Baghdad, but that was mainly the result of contagion that sometimes affects highly competitive industries (See “Why It Matters.”)

When careful students unpack the events following 9/11, when The Wall Street Journal was driven from its headquarters in the shadow of the World Trade Center to suburban New Jersey, they will find the WSJ editorial page was the great enabler of the war, and that the news pages of the newspaper, as good as they were, were powerless to resist. Thus the last gasp of the American century has turned out to be a tragic evocation of the United States’ intervention in World War I — except that in Iraq, the Americans weren’t invited, lacked allies and didn’t win.

With the old WSJ gone, US media will realign. The Washington Post and The New York Times will take on additional responsibilities. Old voices, including the Chicago Tribune and perhaps even the Los Angeles Times and The Boston Globe, will revive.  New voices will join the chorus. Meanwhile, it is hard to imagine Rupert Murdoch, or Michael Bloomberg, for that matter, garnering sufficient support to drive us off a cliff and into a tragic war.

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