A deal of the century
If they are to make a success of their proposed acquisition of Torstar Corp., announced this week, entrepreneurs Jordan Bitove and Paul Rivett will be tempted to adopt the business strategy of New York Times Co. and the very few other traditional newspapers that have figured out how to thrive in the Information Age.
Here is what ails Torstar, in a nutshell. Its flagship publication, the
Toronto Star, has attracted just 32,000 or so paid online subscribers. By contrast, the Times Co. can boast about four million paid online subscribers to the New York Times. A Star rival, the Globe and Mail, has about 120,000 paid digital subscribers.
More on that successful 21st-century model of newspapering later.
First, a word on Torstar’s proposed buyers.
Jordan Bitove is a private equity fund manager whose family brought the Toronto Raptors to the city. And Paul Rivett, before setting out on his own recently after a long stint as president of renowned investment banker Prem Watsa’s Fairfax Financial Holdings Ltd., oversaw Watsa’s longtime ownership of the largest portion of Torstar’s non-voting shares.
As such, Rivett understands Torstar, its frustrations and potential.
Rivett and Bitove have committed to Torstar’s investigative journalism approach to newspapering and to the Atkinson Principles of comforting the afflicted that make the Toronto Star one of North America’s few genuinely progressive news organizations.
That is a prime asset of the Star franchise, in attracting readers and talent, and distinguishing the Star from rivals.
Bitove and Rivett are Torontonians whose bid to own Torstar would keep the Star, a 128-year-old civic asset, in local hands. That’s important. The Vancouver Sun, Ottawa Citizen and Montreal Gazette do not benefit from their absentee ownership.
Bitove and Rivett also benefit from the timing of their proposed Torstar acquisition.
Ottawa is gearing up to confront the U.S. social media giants, with a goal of getting Google Inc. and Facebook Inc. to share a portion of the revenue they generate by carrying Canadian newspaper content without paying for it.
As well, the COVID-19 crisis has further depressed Torstar’s already weak ad revenue, pushing Torstar stock down to a low of 30 cents this month before NordStar’s 63-cent-per share bid for the company’s voting and non-voting shares. Torstar shares traded as high as $31 in 2004.
And Bitove and Rivett’s investment vehicle for their Torstar purchase, NordStar
Capital LP, is offering to pay just over $51 million for a Torstar that has just over $69 million in cash on its books, and no debt.
That is a bargain price by any metric. And if approved by Torstar shareholders, the purchase could be a deal of the century. Rivett and Bitove need only perfect a formula for boosting Torstar’s digital subscription revenue to increase the value of their Torstar investment several times over.
Consider that in 2013, Jeff Bezos, founder and CEO of Amazon.com Inc., paid just $250 million (U.S.) to purchase the Washington Post. The longtime Graham family owners, deciding newspapers had no commercially viable future, practically gifted one of the world’s leading newspaper franchises to Bezos. Like the New York Times — and the Wall Street Journal and the Financial Times in the U.K. — the Post then focused like a laser on investigative journalism and on displacing ads with digital online subscriptions as its chief, and reliable, source of revenue.
Bezos has been hands-off at the Post, except in boosting its editorial budget. Today, the Post is one of the half-dozen most indispensable — and lucrative — news journals in the English language. If Bezos, who owns the Post personally, were to sell the paper today, it would fetch at least $3 billion, a 12-fold increase in the value of his Post investment.
The New York Times Co., for its part, is currently worth $6.6 billion. Shares in the firm have nearly tripled in value in the past five years.
Paid digital subscriptions to the Times now account for most of the firm’s total revenue, which topped $443 million in the first quarter. In that same quarter, Torstar’s revenue fell 20 per cent and the company posted a $23.5-million (Canadian) net loss.
The contrast in performance between the two papers comes down to one word: advertising. A sudden dive in ad revenue has only the slightest impact on the Times.
Paid online subscribers are the future of 21st-century newspapering. Most North American newspapers lose money on every print copy they sell. And chasing ad dollars has long been a waste of time. Mark Thompson, CEO of New York Times Co., said as much last year in speculating on a Times that sooner than later won’t sell a single column-inch of ads.
It’s fair to ask why this model has not been embraced by Torstar or most North American newspaper publishers. The answer is that it has not been easy to shed a 20th-century business model that long made newspapers among the most profitable of all industries. And Torstar’s digital ventures — including a tablet edition and a national network of digital papers — failed to win advertiser support.
If its bid for Torstar is successful, NordStar will take Torstar private. That changes the character of a company. As it happens, most of the trailblazers in newly viable newspaper publishing, described above, are privately owned. The outlier is the publicly traded New York Times Co. But its shares are controlled by the Sulzberger family, longtime publishers of the Times.
If this deal goes through, Bitove and Rivett and their Torstar colleagues will be undistracted by the financial markets as they reinvent Torstar to market and design Torstar’s papers in a way that most effectively drives paid subscription growth, which to this point has been unimpressive.
There is a science to the new newspapering. It consists of indispensable journalism, new-product development and expert marketing. The latter includes cross-promotion among products and bargain pricing to lure online subscribers and retain those who think of straying.
Low-priced boutique Times products like its crossword and cooking sites generate incremental revenue; are a gateway to the core New York Times site; and recruit readers in unlikely places — including Kansas and elsewhere in the U.S. Heartland, to the initial surprise of Times managers when those products were first launched.
Bitove and Rivett will have that same range of possibilities, with large Torstar metro and regional papers unsurpassed in their local coverage and brand awareness.
All of the above, of course, is coloured by my fulfilling time working with splendid Star colleagues — though, alas, I missed out on sharing a newsroom with erstwhile Star employees June Callwood, Ernest Hemingway and Duncan Macpherson.
Be well, and enjoy your social-distancing walks in the newly welcoming great outdoors.