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Dow Jones is a subsidiary of News Corporation (NWS), acquired in 2007, which runs the Wall Street Journal, Factiva and MarketWatch, in addition to publishing a number of market indexes and newswires. Total revenues amounted to $1.8 billion in 2006.

The company has not suffered as much from the advent of the Internet as most print newspapers. Dow Jones has stood up well compared to its competitors because it has taken several measures to respond to this challenge. With the acquisition of Factiva and MarketWatch, Dow Jones increased its Internet presence and gained new sources of revenue beyond advertising (e.g., premium subscriptions and data syndication). Dow Jones also improved its own online offerings and increased revenue from subscriptions and advertising on WSJ.com, its for-pay website of the Wall Street Journal.

Dow Jones further distinguishes itself from its competitors through its business-oriented coverage, which reaches a niche of readers prized by advertisers. The company has built an outstanding reputation and stands out especially for its business-to-business advertising in the financial and technology sectors. On the other hand, this focus exposes the company to greater potential risk in the case of an economic downturn in either or both industries.

Though Dow Jones has fared better than other print newspaper companies, it has not been completely immune to the challenge from online competitors, especially search engines such as Google (GOOG) and Yahoo! (YHOO). Print circulation has decreased steadily over recent years as has print advertising revenue, which accounted for the majority of its overall advertising business. Two key advantages driving the growth of Internet advertising at the expense of print advertising are:

  • In 2006, it was estimated that the average newspaper advertising CPM (or cost per thousand viewers) was around $25; the comparable metric for the Internet channel hovered around $5.
  • Internet advertising companies such as Google and Yahoo! have implemented performance-based business models allowing advertisers to pay only when a viewer activates a desirable action (such as clicking).

Business Overview

Dow Jones was founded in 1882 and began publishing its flagship newspaper the Wall Street Journal in 1889. Dow Jones is privately controlled by the Brancroft family but is publicly traded. Dow Jones earned revenues of $1.78 billion in 2006. Dow Jones is currently on the block following an April 17, 2007 offer from Rupert Murdoch's News Corporation (NWS) for $60 a share.

Since its foundation, Dow Jones has made a number of acquisitions expanding into a large media company with three major components:

  • Consumer Media Group includes the many editions of the Wall Street Journal across the world as well as WSJ.com, Barron's, MarketWatch and the Far Eastern Economic Review.
  • Enterprise Media Group is comprised of Dow Jones Newswires, the Dow Jones Indexes, Factiva, the Dow Jones Information Services and the Dow Jones Licensing Services.
  • Local Media Group publishes eight daily newspapers across the country and fifteen weekly editions. All of these also have Internet websites.
  • Dow Jones has also created partnership with other companies to create SmartMoney, STOXX and Vedomosti.

Business Drivers

Advertising


Dow Jones earns the bulk of its revenue from advertising, like most newspapers. On the other hand, the company's advertising has been strong as of recent, growing by 7.6% between 2005 and 2006, while competitors such as the New York Times Company have experienced decreases. Dow Jones's performance can be attributed to several factors.

It sets itself apart from other newspapers by drawing the majority of its clients from business-to-business advertisers. Dow Jones and its print and online publications (e.g., the Wall Street Journal) target affluent and business-minded readers; Barron's, the Wall Street Journal and MarketWatch combined attract more than 14 million readers. This large, targeted audience is very attractive for advertisers, which are willing to pay a premium to reach them.

Dow Jones relies chiefly on business-to-business (B2B) advertising, which allows businesses to target other potential business clients. The Wall Street Journal remains the premier source for B2B advertising, keeping ahead of its toughest competitors.

The company has expanded its legacy base in an effort to make print advertising more profitable and appealing to advertisers. Dow Jones has diversified its advertiser base by expanding into consumers and luxury advertising through the Wall Street Journal Weekend Edition, which launched in September 2005. More recently, the company introduced advertising on its front-page and began limited color printing for its seminal paper, the Wall Street Journal. The idea is that color printing would appeal to readers by providing a richer visual experience as well as increasing revenue through more expensive advertising.

However, the value print revenue--which accounted for 70% of 2006 revenue--is declining overall. Reliance on print revenue will fall to 60% in 2007 based on its current trajectory. Dow Jones has attempted to counter this trend by shifting focus to Internet advertising through its various online properties, including WSJ.com, Barrons.com and MarketWatch.com.

Circulation

Circulation accounts for a quarter of overall revenue, and the Wall Street Journal has fared better than other newspapers in terms of circulation, posting an increase of 9% percent of "paid subscriptions" (including online subscriptions) between September 2005 and 2006; the paper is the nation's second largest paper in terms of circulation, behind Gannett's USA Today. On top of this, Dow Jones' Consumer Media Group has seen modest increases in circulation in recent months. But other newspapers owned by Dow Jones have not been so successful. Particularly, the Local Media Group has recently experienced declines in circulation and falling revenue, which fell 3.5% in the first quarter of 2007 compared with the same period last year.

Dow Jones' circulation figures are also boosted by its paid subscription service to WSJ.com and Barrons.com, the Web site for the weekly magazine which the company publishes. In the first quarter of 2007, online circulation grew by 20% because of a special offer which allowed new subscribers to access the print and online editions of the Wall Street Journal. Such gains may be one-time and not sustainable at the same rate.

Content

Dow Jones is bolstered by its outstanding reputation, specifically in the area of business reporting with the Wall Street Journal. The newspaper distinguishes itself by the quality of its business and financial information/ Furthermore, its international presence and long standing brand name have given Dow Jones a durable reputation to buffer against new competitors, including online.

Information Services

Dow Jones has actively built an arsenal of online properties to help shift its focus from print to the Internet and in the first quarter of 2007, online revenue grew by 30% compared to the same period in 2006. Several acquisitions helped accelerate this trend:

  • In January 2005, Dow Jones acquired MarketWatch, an online information service about financial and business news for $519 million. The number of unique visitors (7.6 million) grew 13% in the first three months of 2007, compared to the first quarter of last year.
  • In October 2006, Dow Jones gained full ownership of Factiva from the Reuters Group (RTRSY). Factiva is a site which provides information on business and financial news to businesses and education services and it is part of Dow Jones' Enterprise Media Group. Factiva's contribution to revenue and profit is not broken out by the company.
  • In early April 2007, Dow Jones announced its decision to purchase the British company eFinancial News Holdings for $51.6 million.

These online acquisitions have various sources of revenue beyond online advertising (such as premium subscriptions) thus lessening its exposure to trends in online advertising.

Newsprint

Newsprint prices greatly affect operational costs for Dow Jones. A number of newsprint factories have been shutting down and companies have merged and consolidated in recent years because supply for newsprint in North America currently exceeds demand. In the past few years, rising newsprint prices have placed a burden on all newspapers by increasing operational costs.

Overall, newsprint costs grew by 11% for Dow Jones in 2006, reflecting both a rise in prices as well as the company's higher consumption of newsprint. The increase in consumption was due to the fact that 2006 was the first full year of the publication for the lengthier Weekend Edition of the Wall Street Journal.

Dow Jones is attempting to cut its newsprint expenses through its shifting focus away from its print publication and towards its Websites, particularly WSJ.com, which requires a subscription fee. The company has also adopted a number of other cost cutting measures to balance its increased newsprint costs, including decreases in staff size and a reduction in the size of the paper used to print the Wall Street Journal.

Comparison to Competitors

Dow Jones faces tough competition from multiple fronts--directly from other newspapers and media outlets as well as Internet properties and advertising companies. In the chart below depicting advertising spend, newspaper advertising decreased by -1% annually from 2000 to 2006 while Internet grew by 12% on average during that same period. It is interesting to note that newspaper advertising spend is nearly three times higher than online as of 2006.




Print

The Wall Street Journal's serious print competitors include the New York Times (owned by the New York Times Company (NYT)) and USA Today (owned by Gannett (GCI)). A key advantage for the Wall Street Journal is its specific focus on business and financial news, which attracts a very distinct audience and set of advertisers.

The Wall Street Journal newspaper is second in circulation behind USA Today. In terms of revenue coming from the Internet, Dow Jones has fared the best, bringing in 10.2% of its revenue from the Internet. Similarly, the Dow Jones paid subscription online model was the first of its kind for its size and remains highly profitable. These factors are important because as readers’ media focus shifts increasingly from print to online, newspapers will have to find ways to attract readers and compete with other websites.

Comparison to Competitors in 2006
Company Circulation (MM) % Internet Revenue Revenue ($ billions)
Dow Jones 2.8 10.2% $2.0
New York Times Company (NYT) 2.3 8.3% $3.3
Gannett (GCI) 7.9 5.0% $8.0

Online

One reason the Internet has dramatically affected the newspaper industry is because it has become cheaper to reach audiences. In 2006, it was estimated that the average newspaper advertising CPM (or cost per thousand viewers) was around $25, while the comparable metric for Internet hovered around $5. In addition, Internet advertising companies such as Google (GOOG) and Yahoo! (YHOO) have implemented performance-based business models allowing advertisers to pay only when a viewer activates a desirable action (such as clicking).

Dow Jones has responded to serious Internet competition for advertising revenue well with the acquisitions of Web sites. Dow Jones has seen rising profits from its online holdings. Most recently, online revenue rose by 30% in the first quarter of 2007 for the company. Dow Jones is also taking advantage of the increased use of wire services for online news, and has found a new niche for its already highly profitable news wire service.

Though the Wall Street Journal has continued to do well in advertising, particularly in the past year, it has not been completely immune to the threats which the Internet has posed to traditional media sources. Specifically, search engines have created serious competition for B2B advertising.

While its effort to diversify into consumer advertising reduce this risk factor, Dow Jones' reliance on B2B advertising--in particular from the financial and technological sectors--exposes it in the case of an economic downturn in these areas.

References

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