Journal Investment Group's Brad Greenspan Issues Open Letter to Dow Jones Shareholders Detailing Valuation Assumptions and New Structure of Proposed Investment

LOS ANGELES, July 20 /PRNewswire/ -- Internet Entrepreneur and MySpace Founder Brad Greenspan today issued the following open letter to shareholders of Dow Jones Corp. :

Dear Dow Jones Shareholders:

I believe it is important at this hour for all Dow Jones shareholders to understand the opportunities that exist to realize significant stock price appreciation through the implementation of a new media strategy proposed by the Journal Investment Group that I am leading. At the same time, my investment group has evolved our financing structure and plans based on feedback from key Dow Jones shareholders.

Strategy

Our strategy centers around leaving the print publications of Dow Jones intact to continue serving as the Gold standard of financial reporting, and creating additional earnings streams through digital media initiatives that can produce a stock price above $100 a share. For too long, Dow Jones has limited its focus to the world of print media and allowed other, less established entities to generate millions of dollars in profits by developing financial reporting franchises on the Internet and cable television. The time has come for Dow Jones to break out of its slumber and extend its dominance into the lucrative arena of digital media.

The value proposition of the WSJ is its position as the leader in breaking news that impacts the market. The ability to consistently break the most financial news with the highest level of integrity will capture the largest audience, regardless of the medium. This is a formula that the WSJ has already proven through its 2+ million print readers each day.

Leveraging this leadership position and formula that has taken decades to build, Dow Jones is better positioned then any other company in the world to be the financial news leader both online and on cable/satellite.

By simply bringing a modest portion of its existing audience into these new media areas, Dow Jones will add billions of incremental shareholder value.

These are not uncharted, nebulous territories with questions regarding their existence and potential economic opportunities. Thankfully, the opportunity is already proven out by CNBC and Yahoo! Finance.

Dow Jones/WSJ Financial News Channel VS. CNBC

So what is CNBC worth? And therefore how much incremental value could be added to Dow Jones if a capable and experienced television executive directed its own effort?

According to the highly respected Pali Research Report on CNBC and FOX Business News (published July 12, 2007):

-- CNBC will generate $700 million in revenue this year and $400 million in EBITDA -- According to Pali Research, CNBC is "easily" worth $5 billion or more -- FOX Business News will lose $75 million dollars in its first year of operations in 2008 and become profitable for 2009

Trumping CNBC would create $5 billion in incremental value for Dow Jones shareholders. A great target to shoot for, but even a much more conservative outcome provides significant incremental value for Dow Jones shareholders.

The Dow Jones brands (online and offline) currently touch 2.7 million people each day. Converting even a small percentage of those individuals into viewers would give the Dow Jones/WSJ financial news channel a daily viewership exceeding CNBC's, which has approximately 185,000 average viewers per day. The Dow Jones financial news channel would also serve as the foundation for a Dow Jones video website, creating valuable synergies.

Using an estimate of 188,600 average viewers per day in 2009, we believe the Dow Jones financial news channel could generate $456 million in revenue. Assuming an operating margin of 33.3%, this translates into operating profits of approximately $152 million in 2009

With the major cost of content creation already being paid for by the WSJ print publication, start-up costs and losses are projected to be less then $60 million dollars in 2008 (vs. $75 million for FOX Business News).

WSJVIDEO

WSJVIDEO would be an open, video-focused, advertising-supported site complementing the existing Dow Jones internet properties (e.g. WSJ.com, Barrons.com, MarketWatch.com, BigCharts.com).

The new Dow Jones online video venture will benefit from being able to share content/production costs with the Dow Jones Financial News Channel.

With the low costs of creating WSJVIDEO content, capital can be readily deployed to promote the service across the internet to grow audience/users rapidly.

With the ability to sell video ads at high CPMs using an existing ad sales force, Dow Jones' online video venture is poised to quickly become the leader in this potentially lucrative new arena.

WSJVideo can also syndicate its video content via partnerships across most of the large video websites globally while sharing revenue.

In 2009, we would expect WSJVideo to generate 10 billion video views for the year. Using a $30 CPM rate, the venture will generate $243 million in revenue and $135.5 million in operating profits. With WSJ currently averaging $90 CPMs for its video ads and demand growing, we see upside in our projections.

Also, positioning WSJVideo with wireless broadband internet access through alliances with cellular service providers could be an additional driver of incremental traffic and profits.

Valuation - How We Get to $100 a Share

The two strategies above would generate $288 million in incremental operating profits in 2009. Assuming stable performance from the existing businesses, our growth initiatives would more than double Dow Jones' 2009 EPS to a projected level of $3.91. From 2007 to 2010, we estimate that our growth initiatives would help generate a compound annual earnings growth rate of 60%.

Taking an average from a variety of valuation methods for the projected 2009 performance -- including a DCF valuation, EV/EBITDA valuation, and PEG ratio valuation -- we believe Dow Jones stock would be worth more than $100 a share. This would represent a significant increase over the $60 a share being offered by News Corp.

The Wild Card - WSJ.com Takes on Yahoo! Finance

Not included in the forecast/implied share value above, is the ability for Dow Jones' WSJ.com to more closely rival Yahoo! Finance. With good execution, WSJ.com can reap the upside of a free content, ad-supported model while keeping a large number of its paid subscribers.

50% of Yahoo's revenue comes from non-search, and Finance is the largest of these non-search segments. With the addition of Yahoo's personal finance initiatives in 2007, it is also one of the fastest growing Yahoo segments.

Yahoo has taken a free content, advertising-supported approach with premium service overlays. We think this is a superior model and the financial data certainly indicates it.

According to the most recent web traffic statistics, WSJ.com and MarketWatch.com combined generate less than 200,000 average daily visitors. Yahoo! Finance generates more than 1.3 million average daily visitors and reaps huge amounts of advertising dollars because of their leadership position.

We estimate that Yahoo! Finance will generate over $300 million in revenue in 2007 and close to $500 million in 2008. WSJ.com generates under $100 million dollars via subscription and advertising.

With the drawing power of the Wall Street Journal brand name and exclusive content generated by the finest financial reporters in the world, we believe the WSJ.com site could quickly rival Yahoo! Finance if: 1) WSJ.com content was offered to consumers for free; 2) a modest online marketing campaign to drive new users was initiated; and 3) a reasonable level of cross-promotion from the WSJVIDEO and DJ Financial Network occurs.

At the same time, we believe WSJ.com can keep a large number of its paying subscribers by providing them exclusive access to a suite of services/products such as:

1) The ability to view certain premium/exclusive video content segments 2) Bundling access to Dow Jones resource tools such as Factiva 3) Providing services such as real-time quotes and other premium market data Conclusion

I can assure you, News Corp. has similar designs on monetizing the Dow Jones digital media assets. Why let Fox Corp.'s shareholders reap the benefits while Dow Jones shareholders' down the road will question why they only received $60 a share?

Certainly execution of the above strategies is dependent upon having good management talent. Fox Corp. doesn't have a secret stash of top executives. They will simply go out and hire top talent to execute. It's not rocket science. Dow Jones can do the exact same thing and likely get even better talent at lower prices because of the prestige of the WSJ brand. The General Manager of Yahoo! Finance just recently left her position and it's possible the #2 or #3 executive at CNBC would love to be #1 at the Dow Jones Financial Network.

The opportunity is right in front of all shareholders, and it's only the first inning in a game that the Dow Jones brands are already very well positioned to win.

I can speak from experience regarding missed opportunities. In 2005, as a 10% shareholder I tried to educate other shareholders of Intermix Media (which owned MySpace) of the future value of MySpace and convince them to reject News Corp.'s bid to buy the company for $580 million, thereby enabling Intermix shareholders to reap the benefits of the future growth of MySpace. Unfortunately, my efforts were muffled by directors and senior management rushing to endorse the sale and cash out. Today, less then 24 months later, the value of MySpace is estimated to be $20-25 billion according to UBS analyst Aryeh Bourkoff.

New Proposed Structure

In the weeks since the Journal Investment Group first announced our intention to make a strategic investment in Dow Jones, I have had the opportunity to meet with many of the key stakeholders, including Board members, trustees, employees, large shareholders, and members of the Bancroft family. During this process, we have gained a better understanding of the priorities of each group and therefore have adapted our proposal accordingly. We hope to work with key shareholders over the next few days to finalize a structure which is amenable to both our investors and shareholders:

Our new proposal is: -- The Journal Investment Group would provide a $400-600 million loan to existing Bancroft family members. The exact amount necessary to fulfill the transaction will be determined in the next few days. The funds would be utilized to buy out liquidity-seeking family members at $60.00 per share. (This structure is necessary as only a blood relative can purchase Class B shares from other Class B holders). The loan would be secured by all purchased shares. -- For all of the shares purchased with the loan, the Journal Investment Group would receive the rights to all value created in the stock above $60 per share. -- Subject to the support of the Board of Directors and the Bancroft family, Dow Jones & Co. would consider undergoing a leveraged recapitalization under which sufficient debt would be taken on to enable the repurchase of up to 50% of all outstanding shares at $60.00 per share. An additional $500 million of debt would be taken on to fund the digital media growth initiatives outlined above. If the aforementioned parties are not in favor of a leveraged recapitalization, then the Journal Investment Group would proceed without this step. -- Assuming the leveraged recapitalization occurs, then following the share repurchase, the Journal Investment Group would have the outstanding balance of its loan reduced to $200-300 million. -- The Journal Investment Group would receive two Board seats to help direct the new growth initiatives. -- The new Board members would assist in the creation of at least four new joint venture groups related to the digital/video assets of Dow Jones: - Online Video Network - United States - Financial News Channel - United States - Online Video Network/Television Channel - Asia - Online Video Network/Television Channel - Europe/Australia/South Africa The goal would be to bring in joint venture partners for some or all of the assets above to accelerate growth along with providing capital to reduce Dow Jones debt levels. For instance, we believe the Asian Online Video Network/Television Channel could be taken public on one of the Asian exchanges over the next 18 months, creating a significant liquidity event. -- The Journal Investment Group would have the right of first refusal to invest/participate in the funding of any digital joint venture opportunities.

The revised proposal meets the key priorities for all Dow Jones shareholders:

-- It provides an immediate liquidity event for a portion of your holdings at $60 a share -- It provides the opportunity for substantial appreciation of your remaining holdings as our digital media growth strategies are implemented -- It maintains the independence and integrity of Dow Jones

I urge the Bancroft family and all shareholders of Dow Jones to give strong consideration to the proposal of the Journal Investment Group and to recognize the enormous growth opportunities available as the dominant financial brand in print, online, and television.

Sincerely, Brad Greenspan CEO of Live Universe, Inc. ABOUT BRAD GREENSPAN

Brad Greenspan is a Los Angeles-based Internet Entrepreneur and the founder of MySpace. Greenspan currently has majority stakes in privately held Live Universe, Inc. and BroadWebAsia, which in aggregate are composed of over 30 websites that reach approximately 75 million unique users each month across the U.S./Europe/Asia. More information can be found at http://www.bradgreenspan.com/.