That other big media merger and what it means

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Thomson Corp.’s plan to buy Reuters hasn’t gotten nearly the attention that Rupert Murdoch’s play for Dow Jones has. There are lots of good reasons for this: Thomson-Reuters is a (yawn) friendly deal, Reuters doesn’t posses the iconic status (at least not in the U.S.) of the Wall Street Journal, and David Thomson is no Rupert Murdoch.

But consider these two numbers: $5 billion and $18 billion. The first is what Murdoch’s News Corp. has offered to pay for Dow Jones; the second is what Thomson is paying for Reuters. The venerable wire service and market-data provider that spent the past 26 years losing ground to upstart rival Bloomberg is still worth more than three times as much as the parent company of the Wall Street Journal.

The standard thing for business journalists to do when confronted by such evidence is to tut tut about how poorly managed Dow Jones has been in recent decades. I’m sure there’s something to that. But I think the more important turning point came much earlier, during World War II–and it certainly wasn’t a case of bad management.

Before then, Dow Jones and the Journal were very much like Reuters/Thomson and Bloomberg today–aimed entirely at market professionals. But there weren’t very many market professionals in those days. The brilliant Barney Kilgore, who become the Journal‘s editor in 1941 and Dow Jones’s president in 1945, saw far more potential in becoming the newspaper of choice for the millions of Americans with no direct connection to Wall Street who needed to understand how business and the economy worked. (Kilgore even contemplated ditching “Wall Street” from the paper’s name, but never went through with that.)

This approach was a spectacular success, as the Journal‘s circulation went from 32,000 in 1941 to more than a million when Kilgore semi-retired in 1966. (All this history is from Lloyd Wendt’s 1982 book, The Wall Street Journal.) But it brought an inevitable change in Dow Jones’ DNA, and when the population and buying power of those once-scarce market professionals began exploding in the 1980s, the company was not at all well-equipped to capitalize on it.

That’s not to say Dow Jones couldn’t have become a serious competitor to the likes of Reuters and Bloomberg, but it would have required complete reinvention on the level of what happened at Thomson. Thomson was, you see, once a mass-market newspaper company itself. Its most famous properties were the Times and Sunday Times of London, but it also owned a big chain of smaller newspapers in the U.S. and Canada and a stake in Canada’s national daily, the Globe and Mail.

But in the late 1970s, Thomson began buying into more specialized media (starting with textbook publisher Wadsworth), and getting out of the mass market. It sold the Times papers to one Rupert Murdoch in 1981, and finally got out of newspapers completely in 2003. In the meantime, it had become a dominant player in all sorts of obscure but lucrative fields like legal research, medical statistics and financial data. It’s not just Dow Jones that Thomson left in the dust: Stock market investors currently value it (at $26 billion) more highly than Murdoch’s News Corp. ($23 billion) as well. After the Reuters merger goes through, the disparity will be much greater.

In the decades following World War II, the most successful media businesses were the ones that catered to the masses. Some of those are still highly profitable businesses. But they’re not where the growth, or the biggest bucks, appear to be these days.

Update: Sara Ellison, in Thursday’s W$J, writes that Reuters-Thomson

presents a challenge and an opportunity to Dow Jones Newswires, which is part of the company’s most-profitable unit, the Enterprise Media Group.

As financial information has become common on free Web sites, real-time news and sophisticated financial data sold to Wall Street traders, brokers and institutional investors are a lucrative niche of the media world.

Update 2: Something was wrong with those market capitalization numbers above. News Corp. did and does have a bigger market cap than Thomson.

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