When Rupert Murdoch said the other day that he wasn’t investing in newspapers anymore, we assumed that he was being ironic, especially as it came in the same telephone conference call with News Corp analysts and reporters in which he said that he thought his agreement to buy Newsday from Tribune Co was all but sewn up .

That goes to show you what they say about assuming things.

The Wall Street Journal reported on Saturday , and we subsequently confirmed , that News Corp isn’t going to chase Newsday after all. Instead, it’s pulling its $580 million bid, paving the way for Cablevision to likely take over its fellow Long Island media outlet. New York Daily News owner Mortimer Zuckerman is in the race still as far as we know, but it’s hard to see how Tribune will take his $580 million bid when Cablevision has a $70 million sweetener on top of that.

Why? Apparently the economics were unjustifiable. What could that mean? The short list: Tribune’s quarterly financial results, which came out late Friday, show the company continuing to lose advertising revenue at its newspapers; media ownership laws might make it tough for Murdoch to take the paper yet keep his New York-area television broadcast licenses; and finally, a bid higher than $650 million is already a higher valuation for a newspaper than most sensible financial folks see as feasible.

That didn’t seem to bother Murdoch before. Here’s what he said on the News Corp earnings call (reproduced from our earlier blog entry ):

No, I don’t think Cablevision will prevail. Just be patient for a couple of days (inaudible). We’re certainly not in the business of getting into an auction here …

We’re hoping to wrap it up within the next week. And I don’t mean the end of next week, I mean within the next seven days … It takes two to agree. But we’re at a pretty advanced stage. I’ll just leave it at that at the moment.

Here’s what he subsequently said at the Time 100 dinner later that week, according to the New York Observer (whose owner Jared Kushner also was interested in bidding, though a source close to Kushner Properties told us recently that he has no idea what he wants to do about a bid right now — we’re guessing nothing):

“Yeah, I might have gone a little too far saying it was a certainty,” he told The Observer. “I was telling the truth, but you don’t know until …”

Until Saturday.

One thing you can bank on next week is that the TV networks won’t be showing off dazzling pilots of new shows at the upfronts, as we highlighted in a preview.

Executives have made no secret of the fact that pilots are costly, and, it seems, not all that useful. Already, NBC previewed their season with little more than a few very, very short clips. CBS, ABC and Fox aren’t expected to offer a whole lot more.

So what do advertising buyers think of this brave new world without pilots? Are they and their clients comfortable shelling out big bucks without seeing a full episode of a new comedy or drama.

Here’s what several had to say on the subject:

Aaron Cohen, Director of Broadcast at Horizon Media:

It worries me, but it’s similar to when replacements are made for programs that aren’t working.

It hasn’t been for a while that you’ve been able to lay down a schedule and say ‘This is what I’m buying and it’s going to be there for four quarters.’ You know you want to reach this particular demographic and you know they have an affinity to watch these forms of programming more than others. That’s what you’re looking for.

   
Stacey Shepatin, Senior Vice President, Director of National Broadcast at Hill Holliday:

It always makes you feel better when you can see the full pilot. The goal will be to be able to see a full episode to make sure that it is appropriate for our brands, there are no content issues and the storyline fits with what our consumers are looking for. So that will all come into play when we look at what shows to purchase.

You’re not going to just run blindly into something, you’re going to want to see what the production quality is, what the storylines are, all of that.

Donna Wolfe, Chief Negotiations Officer at Universal McCann:

The interesting thing is for years we were able to view new pilots. but the failure rate for new shows was extremely high. On average, 70 percent of the new shows fail. All the testing that the networks do, and all the pilots, it doesn’t necessarily spell success.

But I think we have to be comfortable that the content will be appropriate for our clients. It’s in their best interest and the network’s.

(Photo: Reuters) 

As the Microsoft-Yahoo will-they-won’t-they? saga drags on, Google’s role in any future talks becomes more apparent.

On Thursday Google CEO Eric Schmidt said a two-week trial selling search advertisements on rival Yahoo last month had given the companies good reason to discuss cooperation, but there was no deal yet.

That isn’t great news for some in the online advertising world.  As commentators have pointed out, a Google-Yahoo partnership (Yahoogle? Yoogle? Gahoo?) could concentrate too much power with just one team. This has led to some folk to paint Microsoft as the little guy. Yes, the same Microsoft, which is a Monopoly 101 case study for first-year economics college students.

In a TV interview with CNBC on Friday, WPP CEO Martin Sorrell said, “It was a shame…that those negotiations failed. Maybe they’ll come back again.”

Sorrell, whose empire of ad agencies includes Ogilvy, JWT and Y&R,  said the advertising industry lost a potential balancing influence in the Web search market when the talks between Microsoft and Yahoo collapsed.

Meanwhile,  Silicon Alley Insider reports that Google is seriously considering having display ads on its home page, based on statements from executives. SAI estimates Google could add up to $3 billion to $4 billion in annual revenue if it decided to do so.

 Keep an eye on:

* British video search engine company Blinkx sees it shares fly on rumors of a possible bid by News Corp or Google  (Reuters)

* MySpace lets users share their profiles across the Web (Reuters)

* Real Networks spins off its gaming division (GigaOM)

(Photo: Reuters)

For a mogul who’s spent a lifetime snatching up newspapers across the globe — and who spent the better part of his time talking about them on Wednesday’s quarterly earnings conference call — we found it surprising that he insists he’s not spending more money on the dying print business.

Murdoch: “From day one, the financial press has been fixated on portraying this move as a change in strategic direction; the company is now focused on allocating more of its capital on print businesses. That is not our intent, nor is it factually correct. We have not changed our playbook.”

Murdoch argued that Dow Jones, the splashiest of his newspaper buys yet, is barely a newspaper publisher at all. To lay out that argument, Murdoch appears to have abandoned his earlier argument that a free Wall Street Journal online would be better than a subscription-based site.

WSJ.com still has more than 1 million paying subscribers, up 11 percent compared to last year. (It’s unclear if he meant that the site added 11 percent more subscribers compared to the same period last year.)

Then there’s the paper itself, where Murdoch sees big opportunities to boost ad sales and circulation volume and revenue. Individually paid subscriptions rose 1.6 percent to 1.46 million and overall circulation rose 0.3 percent to 2.07 million. Circulation revenue rose 6.8 percent in the quarter, slightly below the 7.3 percent growth in 2007.

Its biggest growth area remains its enterprise division, which houses the Dow Jones Index, Factiva and Newswires — all of them subscription businesses. He says the Dow Jones Indices business revenue rose 37%, with profits up nearly 50% in the quarter ended March 31st. Factiva revenue grew 10 percent.

Dow Jones’s financial information and services group revenue rose 13% , with profits up over 8%.

All this in the first quarter after the purchase! Then again, maybe Murdoch thinks some people have set the bar higher than that.

This is destined to be an extra-inning game; to use an overly used metaphor, we’re only in the first innings. Those of you expecting to see immediate dramatic results in 12 weeks are kidding yourselves and setting an unrealistic bar. Over time, as we have done dozens of times at News Corp, most recently with SKY Italia and MySpace, we’ve made our acquisitions work, generating great returns to our shareholders. We’ll do it again at Dow Jones. It may take time, but I am as confident of it as any acquisition I have done.

Then there’s his Newsday bid, which was one of the more exciting parts of the conference call. Boxed in by Newsday reporters on the call, Murdoch spoke frankly about his confidence in landing the Long Island daily.

No, I don’t think Cablevision will prevail. Just be patient for a couple of days (inaudible). We’re certainly not in the business of getting into an auction here …

We’re hoping to wrap it up within the next week. And I don’t mean the end of next week, I mean within the next seven days … It takes two to agree. But we’re at a pretty advanced stage. I’ll just leave it at that at the moment.

Nope. No newspapers here.

(Photo: Reuters/David Moir / News Corp. Chairman and CEO Murdoch stands with Scotland’s First Minister Salmond during the official opening of the News International press printing plant at Eurocentral near Glasgow in central Scotland.)

And it was thus decreed that the messengers of Steve Ballmer were sent far across the land to say No to an alliance with the kingdom of Yahoo:
    
“Yahoo could always come back again and say please buy us for $33 (a share) and I’m sure we might reconsider it, but we’re not assuming that’s going to happen,” Microsoft Chief Research and Strategy Office Craig Mundie to Reuters in Jakarta, May 8. 

“The conclusion was reached that we should pursue our independent path,” Microsoft Chairman Bill Gates in Tokyo, May 7.    
    
“The key decisions on that will be made by Microsoft CEO Steve Ballmer, who took a look at Yahoo and decided that, on our own, he likes the stuff that we’re doing,” Gates in Seoul, May 6.

“We decided to move on and basically withdraw our offer …. Absolutely, that’s the end of the story. We are moving on because our strategy is very clear,” Microsoft International President Jean-Philippe Courtois to Reuters in London, May 6.

The globe-trotting Microsoft messengers have yet to fully convince Yahoo shareholders of their sincerity, since investors have propped the stock up to nearly $26 despite the break-up of talks over the weekend. That’s well below Microsoft’s last offer for $33 per share, but still perched higher than the $19-level, where Yahoo traded before the takeover offer was made public on Feb. 1.

Maybe shareholders are mindful of Microsoft’s last world tour in April, when Ballmer hopscotched through Morocco, Italy and Belgium saying there was no way he would raise his initial offer of $31 for Yahoo. Two weeks, and two dollars per share later, Yahoo is still waiting.

Keep an eye on:

* Rupert Murdoch says News Corp is feeling the squeeze on advertising budgets due to a weakened U.S. economy; the company’s division that includes MySpace will likely miss a $1 billion annual revenue goal by 10 percent. (Reuters)

* Warner Music Group’s quarterly loss comes in worse than expected and the company suspends its dividend to raise cash and cut debt. (Reuters)

* NBC Universal is starting a 24-hour local news network in New York, in what could be the first of several such channels around the country, to help weather a weak local TV advertising market. (WSJ)
 
Photo: Reuters

Microsoft dumped its offer to buy Yahoo on Saturday. A closer reading of Microsoft CEO Steve Ballmer’s letter to Yahoo’s Jerry Yang shows Microsoft is content to do nothing less than choke the air supply out of Yahoo’s trachea.

Consider these sweet bon mots in Ballmer’s letter, which is also a thinly veiled salvo at Google:

We regard with particular concern your apparent planning to respond to a “hostile” bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons:

– First, it would fundamentally undermine Yahoo!’s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them.

This would undermine the reliance on your display advertising business to fuel future growth.

– Given this, it would impair Yahoo’s ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies.

– In addition, it would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit. Among other things, this would consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.

– This would also effectively enable Google to set the prices for key search terms on both their and your search platforms and, in the process, raise prices charged to advertisers on Yahoo. In addition to whatever resulting legal problems, this seems unwise from a business perspective unless in fact one simply wishes to use this as a vehicle to exit the paid search business in favor of Google.

– It could foreclose any chance of a combination with any other search provider that is not already relying on Google’s search services.

Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft’s proposal to acquire Yahoo!.

We are eagerly awaiting Google’s response.

Meanwhile, Global Equities Research analyst Trip Chowdhry advances speculation — based on discussions with his industry contacts and applying game theory to his analysis — that Ballmer has masterfully played his hand to block Yahoo from a merger with Amazon.com.

Chowdhry thinks that Microsoft’s deal to buy Yahoo would likely be blocked by the Department of Justice, given its experience in 1995 with a deal to buy Quicken software-maker Intuit, when the DOJ did just that. At the time, Microsoft Money was the fourth biggest player.

Chowdhry: Yahoo’s management should make sure it does not fall into the trap of a potentially fake bid, as Microsoft itself probably may be knowing that the chances of a deal going through is unlikely, and the outcome could be similar to 1995, when DOJ blocked Microsoft’s acquisition of Intuit. We think Yahoo should hire Game Theorists to get insight into Microsoft’s both tactical as well as strategic moves.

(Photo: Reuters)

Who says the newspaper business is doomed? Circulation and advertising may be in the dumps, sure, but judging from the bidders lining up to buy Newsday there are plenty of moguls still keen on newspapers.

The latest development: The Wall Street Journal reports that Cablevision is planning to bid as much as $650 million for the Long Island daily, which likely catapults it ahead of other bidders like News Corp, which owns the New York Post, and Mortimer Zuckerman, who owns the Daily News.

Cablevision’s bid could come within two days, the report said, adding that it was unclear whether whether Cablevision is working with New York Observer owner Jared Kushner in its offer. Beyond Cablevision’s cable assets, it owns the New York Knicks, the New York Rangers, Madison Square Garden and Radio City Music Hall.

The New York Times offered a different view. It, too, said Cablevision is preparing a bid, but it reported that the owners of the New York Observer have dropped out of the race.

Cablevision? Zuckerman? New York Observer? News Corp? What’s going on here?

These are smart, successful media companies and executives, so they must know something. Indeed, the New York Times reported that people briefed on its finances says that Newsday last year generated more than $80 million in income and about $500 million in revenue.

And it is, after all, the key paper in a relatively affluent area.

But get this: The New York Times also reports that some executives at companies interested in Newsday “learned over the last month that its printing, trucking and subscription operations were more troubled and inefficient than they knew. Paradoxically, that has persuaded them that the paper was worth more than they initially thought.”

Go figure.

Keep an eye on:

• With time running out a self-imposed deadline in contract talks with actors, major Hollywood studios say the two sides remained far from a deal and that excessive union demands are to blame (Reuters)
• Comcast Corp, the largest U.S. cable operator, on Thursday posted a fall in first-quarter net profit as it lost basic video subscribers because of fierce competition from phone and satellite companies (Reuters)
• Microsoft indicated a willingness to up its bid for Yahoo to $33 per share, but Chief Executive Steve Ballmer has also appeared ready to walk away from the deal altogether if need be, the Wall Street Journal reports , quoting people with knowledge of the situation. It reported that Microsoft’s board met Wednesday without reaching a decision.
• Talk at the 2008 leadership conference of the American Association of Advertising Agencies centered on politics and the economy (The New York Times)

(Photo: Reuters)

Talk about passing the buck.

During a panel discussion on media and entertainment at the Milken Institute Global Conference on Wednesday, former Yahoo! CEO Terry Semel swiftly deflected questions about the Internet company’s current pickle with Microsoft to his fellow panelist and Yahoo! board member Activision CEO Bobby Kotick.

Asked by moderator Dennis Kneale of CNBC how Yahoo had gotten itself in the position of being courted by Microsoft, Semel pointed to Kotick, who was sitting next to him.

“Ask the board member,” he said.

But Kotick wouldn’t bite. In fact, he said nothing at all.

Later on, Kneale tried again, asking another panelist, News Corp. President Peter Chernin, to tell Semel and Kotick what Yahoo! should do in response to Microsoft’s $44 billion bid.

“Can you tell us what Yahoo should do with itself?” Kneale pleaded.

Chernin also deferred to Kotick, who again said nothing. When pressed by Kneale to give the Yahoo board member his advice, Chernin finally gave a response that could only be characterized as diplomatic.

“I have no advice for Yahoo!, it seems to be doing just fine,” he said.

Semel gave a similarly deferential response when asked by Kneale whether News Corp. should spin off a portion of its MySpace business to the public.

“It’s a very good asset and I’m sure ultimately he will find a better way to monetize it and bring more and more advertising,” Semel said.

And they all lived happily ever after.

Rupert Murdoch has earned the disdain of many Wall Street Journal staffers by saying their stories often are too long , especially some of the front-page juggernauts that take their time getting started.

While the page-one woes got all the attention, it looks like he and his crew were doing some editing elsewhere in the paper as well. The Heard on the Street column, which contains all sorts of interesting analysis and tips about buzz in the financial world, seems to be nearly half its former size some days.

Friday’s feature, “Lehman Brothers Seen As Cheap Recovery Bet ” by Peter Eavis and David Reilly, measured 431 words. Compare that to the (now weirdly prescient) “A Microsoft, Yahoo Tie-Up? ” that Robert Guth and Kevin Delaney wrote for the May 3, 2006, edition, at 1,224 words.

Typically, 800 to 1,200 words has been the breathing room for such stories, and maybe that will return on days when the news demands. Then again…

(Photo: Reuters)

Although Marcus Brauchli’s decision to resign as the top editor at The Wall Street Journal — announced on Tuesday — did not require the approval of the paper’s editorial integrity committee, they will step in when it’s time to hire the next one. 

The committee was designed to safeguard editorial independence by approving or vetoing the hiring choices in case its new owner, News Corp’s Rupert Murdoch, attempts to use his candidate to evade a solemn promise to keep the newspaper’s editorial dignity intact. It was one of the few safeguards left behind by its previous owners, the Bancroft family, as a condition for agreeing to the Murdoch’s takeover.

How effective will the committee actually be? We asked former Dow Jones board member Christopher Bancroft on Tuesday.

“That’s a lovely fantasy,” he said. “I told the family [at the time] that it’s window dressing. It is a lovely fantasy to imagine you can have a board that will take care of editorial issues at The Wall Street Journal.”

Jeff Bercovici and Portfolio.com got a similar comment from another family member, Jane Cox MacElree:

“I’m not surprised,” says Jane Cox MacElree, who controlled 15 percent of the family’s Dow Jones shares. “This is why I was not in favor of selling the paper to that man. Words mean nothing to him, unless they’re his.”

What do you think about the committee? Five people getting $100,000 to act out a fantasy, or five guardians of truth, justice and journalism?

(Photo: Reuters)