Fool on the Street: How Now, Dow Jones?

After taking a look at Dow Jones' (NYSE: DJ  ) presentation at the Credit Suisse Media and Telecom Week, I came away with the notion that Dow Jones management has a sound understanding of the world in which it operates and the mission that it has laid out for its company.

The three-person presentation began with comments by Rich Zannino, the company's CEO, who readily acknowledged that "traditional media models are under serious pressure" and that "as a result, most traditional media players are seeing sharp revenue and profit pressure." He noted, however, the existence of a silver lining for companies in this sector -- including Dow Jones -- that possess "unique brands, content, products, and audiences." As a result, he said, those companies, which can legitimately claim real uniqueness, "can [buck] and are bucking these print-industry trends."

A special product
"You can't get our content or reach our audiences anywhere else," Zannino observed early in the presentation. It was a claim that I frankly found difficult to refute. But to continue to leverage its position of special access to its upscale and (for advertisers) desirable audience, Zannino indicated that his managers are endeavoring to develop new revenue streams, revitalize the sales effort, retool the cost structure, and reposition the company's portfolio to focus on faster growth in higher-margin areas. "So far, it's working," he said, "as evidenced by our industry-bucking increases in revenue, earnings, and stock price so far this year."

Zannino also described an effort undertaken earlier this year to transform the company. This is an ongoing effort that includes seven aspects, or "planks," as he called them. The first of the planks involves attempts to ascertain the appropriateness of the company's organizational structure and to determine that the right people are in the right jobs. Plank two then involves the continued successful execution on what he called Dow Jones' "slate of bold initiatives." Those initiatives apparently include Weekend Edition, the still relatively new weekly issue of The Wall Street Journal. Even though only six issues have been released, Zannino says it is fostering increases in print revenues "in the face of market headwinds" and the integration of the recently acquired MarketWatch, with its franchise of online and broadcast content and newsletters.

Planks three through six involve expense reduction, balance-sheet improvement, execution on the company's long-range strategic plan, and a continued internal search for "big ideas like Weekend Edition." Plank seven calls for a pursuit of external investment opportunities and business information services that can be accessed best through acquisition or partnership. As Zannino notes, while management is not yet satisfied with the company's 2006 share-price performance, some credit likely should go to the success of the transformation plan in raising Dow Jones' stock price by 3% in 2006. Not many publishing companies have achieved an upward direction with their stock as of late.

Complementing the Dow Jones transformation plan is the company's long-range plan, which includes an accompanying mission statement: "We want to be the world's best provider of business and related content and information services across all consumer and enterprise media channels, wherever, whenever, and however our customers want it. And we will do so in a way that generates superior value for our customers and shareholders."

According to Zannino, several approaches within the company will benefit the mission statement, including continuous strengthening and differentiation of the company's content, the development of new sources of revenue, and an expansion of the digital and information-services businesses. An ongoing program to measure the success of the plan and mission statement has been instituted, and management is targeting mid-single-digit revenue gains and a low- to mid-teens operating margin by 2009. This, Zannino calculates, would translate to compound growth in earnings in excess of 20% per year and to double-digit total returns to shareholders, even amidst the low-growth environment for print.

Ready for the makeover
L. Gordon Crovitz, president of the Dow Jones Consumer Media Group, followed Zannino as a presenter for the company. Crovitz wasted little time in identifying with his audience: "You are among our 14 million high-demographic consumers across the Journal and Barron's, and Printing Online, and MarketWatch." But despite the success of those franchises, he vowed to do still more to drive his unit.

Relative to the interrelationship between the print Journal and its online sibling, he stated, "Some publishers have said that their goal is to become platform-neutral, meaning they aspire to be indifferent to whether people get access to their content in print or online. Our strategy is very different. We aim to have our brands and our content used by people across print and online and mobile and other digital products throughout their day."

According to Crovitz, monthly advertising measures taken on all newspapers and magazines in the U.S. indicate that for every month thus far in 2006, the print version of the Journal has ranked first in year-over-year revenue growth. To maintain that enviable position, he said the use of color will increase at the paper and that the Journal itself will be subject to a makeover that will be revealed with the first issue in the new year. Crovitz's optimism was palpable when he described the makeover, which will include a reduction in the paper's size -- and in turn lead to reduced newsprint expenses and increased convenience for readers -- along with more effective coordination between the print and online editions, more forward-looking analysis of the news, and a more readable typeface.

Just the Factiva
Claire Hart, president of Dow Jones' Enterprise Media Group (EMG), concluded the presentation by describing the impending Dow Jones acquisition of the rest of Factiva, a provider of business news and information that it currently owns jointly with Reuters (Nasdaq: RTRSY  ) . Once the acquisition is completed and Factiva's $290 million in revenues is fully consolidated on the Dow Jones income statement, the group's revenues will nearly double. In addition, according to Hart, the parent will add about $50 million in EBITDA (earnings before interest, taxes, depreciation, and amortization) and $32 million in operating income annually. The purchase is being funded by the recent sale of six of Dow Jones' Ottaway community newspapers.

"Throughout 2007," Hart said, "we will be highly focused on swiftly and successfully integrating Factiva into the new EMG organization. Successful integration will position EMG for future organic growth as well as providing it with the scale and bandwidth to grow through acquisitions." She also discussed the effective application of technology as being critical to her unit's success: "We believe that today, content is only as good as the delivery vehicle. And technology drives those delivery vehicles."

Foolish bottom line
And so it seems that Dow Jones is something of a special case within the newspaper world. Unlike New York Times (NYSE: NYT  ) , Tribune (NYSE: TRB  ) , McClatchy (NYSE: MNI  ) , and others, it is able to deliver to a highly targeted, demographically upscale audience, especially through its lead property. Nevertheless, its management recognizes that it, too, is involved in an effort requiring unceasing diligence.

As far as Dow Jones as an investment idea, I mentioned my thoughts here. To summarize briefly, I believe that the company is currently not cheap enough to buy into. But with all of these changes in the works, this is one company I'd like to review again next year.

For related Foolishness:

New York Times is aMotley Fool Income Investorselection. See what other generous dividend-payers we've recommended by taking a free, 30-day tour of Income Investor.

Fool contributorDavid Lee Smithdoes not own shares in any of the companies mentioned. He would not resist being stranded on a desert island if that circumstance involved daily delivery of The Wall Street Journal. He welcomes yourcomments, too. The Fool has adisclosure policy.


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