Hamilton, Madison, and Jay

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Location: Mesa, Arizona, United States

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Wednesday, August 1, 2007

Thomas Lifson On Rupert vs. Pinch -- The Media Grudge Match

Unless you have been living in a Taliban cave in southern Pakistan, you know that Rupert Murdoch has acquired Dow Jones, and with it the vaunted Wall Street Journal. Today, Thomas Lifson -- The American Thinker -- examines a grudge match that just might be the beginning of the end for Pinch Sulzberger at the New York Times:

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.

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.

Mr. Lifson's piece is one that must be read to understand the dilemma facing Mr. Sulzberger right now. The New York Times circulation and subscription numbers are down significantly. So are their advertising dollars. People are turning away from the cage-liners of old for two reasons that are uniquely linked.

First -- Bias. There is no way that the newspapers can deny there is a certain bias in their reporting. whether it is an injection of personal invective in a piece, or an omission of information, the newspapers have opted to not be as forthright with the public as they used to be. Furthermore, when some reporters or analysts tend to differ from the editors, they are notably savaged. (As yet the New York Times has not done that John Burns for his excellent analysis of the early stages of the Surge in Iraq, but others have.)

Second -- You can get it on the Internet. For some papers, you have to pay a subscription fee to read some parts of their online editions. (While we do have that for a couple papers, the New York Times is not one of them.) Just this morning we received a call from a distributor of the Times here in Arizona. Thomas let the woman give her spiel, then informed her that if we were interested int he Times, we could read it online. People are venturing to the Internet because it is an information tool. Mr. Sulzberger should have heard the steady drumbeat of old media's demise with the rise of the Internet. As yet, he has not adapted, and that speaks volumes to his leadership in the business. this is a point that Mr. Lifson addresses succinctly:

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.

Mr. Sulzberger knows where his bread is buttered with the print edition, and he is milking it for all it's worth. The problem is that in business -- especially in media -- you must try to appeal to all demographics to survive. It is nice to have those regular readers, and even the people who enjoy the crossword puzzles in the Sunday edition, but they are not the ones that will keep your paper afloat. If one third of the nation is ambivalent towards you, one third is not, and the other third yawns when they hear about you (because they could care less), and you do nothing to turn that around in your favor, you are swimming amongst sharks as you bleed to death.



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