The chang­ing face of news­pa­per own­er­ship

Newspapers & Technology Magazine - - News - Kat her­ine Michalets Con­tribut­ing writer

News­pa­pers them­selves have been mak­ing head­lines in re­cent years with a flurry of sales and ac­qui­si­tions, many of those to well­known, af­flu­ent suit­ors like War­ren Buf­fett and Ama­zon founder Jeff Be­zos, who pur­chased The Washington Post in 2013.

As the cost to ac­quire news­pa­pers goes down with the sec­u­lar de­cline of the in­dus­try and other eco­nomic ef­fects, news­pa­pers have grabbed the at­ten­tion of lo­cal busi­ness peo­ple like Be­zos, pri­va­tee­quity firms and cor­po­ra­tions, said Jim Friedlich, CEO at Em­pir­i­cal Media, a New York-based media ad­vi­sory firm.

Larry Grimes, owner of media merger ad­vi­sor W.B. Grimes & Co., said the Great Re­ces­sion and its im­pact on the news­pa­per in­dus­try drove most buy­ers to the side­lines.

“The mar­ket ba­si­cally dried up,” he told News & Tech. “They needed to shore up their own oper­a­tions be­fore they could be­come buy­ers again.” The fact that some pub­lish­ers, who were older and com­fort­able at the point they’d reached in their ca­reers, weren’t in a hurry to buy or sell was also a fac­tor, Grimes said. Since his com­pany started in 1959, Grimes’ news­pa­per di­vi­sion has as­sisted own­ers and pub­lish­ers with the anal­y­sis, ac­qui­si­tion and dis­po­si­tion of more than 1,500 media prop­er­ties.

“What we are faced with now that we have this ex­tremely rocky past, (is that) many of the pub­lish­ers have de­cided they are not in­vest­ing mon­e­tar­ily in the in­dus­try any­more,” he said.

Three types of buy­ers

“Pre­vi­ously, Friedlich man­aged the global advertising sales, con­sumer mar­ket­ing and busi­ness de­vel­op­ment of var­i­ous Dow Jones & Co. news­pa­pers, mag­a­zines, web­sites, TV chan­nels and con­fer­ences. He started Em­pir­i­cal Media in 2011, and has since ad­vised such com­pa­nies as Reuters, Newsweek, Bloomberg and Tri­bune Pub­lish­ing on their growth strate­gies.

From his per­spec­tive, there are three groups in­vest­ing in news­pa­pers — the first rep­re­sented by Be­zos, Glen Tay­lor, who pur­chased the Min­neapo­lis Star Tri­bune, and Bos­ton Red Sox owner-turned-Boston­Globe-owner John Henry. He refers to them as the “lo­cal he­roes,” who can be gen­er­ally summed up as “wealthy, civi­cally minded lo­cal busi­ness (peo­ple).”

In the sec­ond cat­e­gory are cor­po­ra­tions or news­pa­per chains, such as Gan­nett Co. Inc., Tri­bune Pub­lish­ing and Gate­House Media par­ent New Media In­vest­ment Group, many of which have re­cently spun off their news­pa­per di­vi­sions into stand­alone com­pa­nies.

Gate­House has been on a buy­ing binge re­cently, with its high­pro­file ac­qui­si­tions of The Colum­bus (Ohio) Dis­patch and Las Ve­gas Re­view-Jour­nal par­ent Stephens Media LLC, for $47 mil­lion and $102.5 mil­lion, re­spec­tively. It's also snapped up the Providence (R.I) Jour­nal and Hal­i­fax Media Group in the past year.

And as Gan­nett plans the spinoff of its news­pa­per di­vi­sion, the pub­lisher on June 1 ac­quired the re­main­ing in­ter­est in the Texas-New Mexico News­pa­pers Part­ner­ship from Dig­i­tal First Media. The deal re­sulted in Gan­nett own­ing the en­tire part­ner­ship.

“There is no media com­pany in Amer­ica that knows lo­cal com­mu­ni­ties bet­ter, and with USA To­day, Gan­nett has out­stand­ing na­tional to lo­cal scale,” Robert Dickey, pres­i­dent of Gan­nett’s U.S. Com­mu­nity Pub­lish­ing and CEO-des­ig­nate of Gan­nett pub­lish­ing ser­vices sub­sidiary “SpinCo” said in a state­ment fol­low­ing the buy.

Dig­i­tal First Media, mean­time, had been mulling a sale of its re­main­ing pa­pers for nearly a year. In May, how­ever, DFM took its news­pa­pers off the mar­ket, end­ing ear­lier dis­cus­sions with New York-based hedge fund Apollo Global Man­age­ment, for a re­ported $400 mil­lion. Pri­vate-eq­uity firms rep­re­sent the third type of news­pa­per buy­ers. Be­cause they are ma­ture but still have mean­ing­ful rev­enue and cash flow, Friedlich said news­pa­pers cap­ture the at­ten­tion of this sect. He cited the New York Times Co.’s sale of its re­gional news­pa­pers to Hal­i­fax Media Group in 2011 (Hal­i­fax was sub­se­quently ac­quired by New Media In­vest­ment Group in 2014).

Grimes said pri­vate-eq­uity groups en­tered the news­pa­per mar­ket be­cause “they smelled blood on the tracks,” as prices got to the point where they be­lieved they couldn’t lose.

Con­sol­i­da­tion

As the news­pa­per busi­ness con­tin­ues its struc­tural de­cline, one way for com­pa­nies to strengthen and even grow, is through con­sol­i­da­tion, Friedlich said. The move makes par­tic­u­lar sense for ge­o­graphic con­tigu­ous news­pa­pers.

He cited Tri­bune Pub­lish­ing’s re­cent ac­qui­si­tion of the San Diego Union-Tri­bune, and the re­sult­ing con­ver­gence of its print­ing plant with that of Tri­bune’s Los An­ge­les Times — a move that is ex­pected to yield sig­nif­i­cant sav­ings.

“Usu­ally there are print­ing and cor­po­rate sav­ings in­volved as well as rev­enue syn­er­gies,” Friedlich said. “I am very con­fi­dent that you’ll see more con­sol­i­da­tion ac­tiv­ity.”

In the case of E.W. Scripps Co., Grimes said it makes sense for the pub­lisher to merge and spin off their news­pa­per oper­a­tions while bring­ing to­gether the broad­cast side to form a mega group to share con­tent.

In con­trast, Grimes said Gate­House’s strat­egy has been to ac­quire rev­enue and cash flow, po­ten­tially driv­ing up stock prices.

A need to ac­cess tech­nol­ogy has also played a role in con­sol­i­da­tion, said Randy Cope, di­rec­tor with Cribb, Greene & As­so­ci­ates.

“Stay­ing up with the latest tech­nol­ogy and dig­i­tal sales tech­niques is chal­leng­ing, es­pe­cially for small, in­de­pen­dent own­ers. Be­cause of that, we are see­ing a mod­est amount of con­sol­i­da­tion to those com­pa­nies that are com­mit­ted to the fu­ture,” Cope said.

At­trac­tive price point

Friedlich said the price of news­pa­pers has reached a point where they are at­trac­tive to value-ori­ented pri­vate-eq­uity firms.

Typ­i­cally these busi­nesses are sold on a ba­sis of mul­ti­ple earn­ings. At the peak of news­pa­per selling and buy­ing in about 2006 to 2007, Friedlich said, news­pa­per com­pa­nies were selling at nine to 10 times the amount of their an­nual earn­ings. Now, it’s closer to four or five times that amount.

News­pa­pers gen­er­ally have cash flow mar­gins of 10 to 15 per­cent, Grimes said, which is more prof­itable than many other in­dus­tries.

“There is the no­tion that we are prob­a­bly ab­sorb­ing more news to­day than in re­cent times and get­ting it from all dif­fer­ent sources,” Grimes said. “There is a need for some­one to gather in­for­ma­tion and dis­sem­i­nate it.”

While there have been some suc­cess sto­ries re­cently of pri­vate in­vestors pur­chas­ing news­pa­pers, such as Plat­inum Eq­uity buy­ing the San Diego Union-Tri­bune and selling it at a sub­stan­tial profit in 2011 to Doug Manch­ester, Friedlich said it re­mains to be seen how well fu­ture pri­vate-eq­uity buy­ers will fare as news­pa­per own­ers. That’s a sen­ti­ment of which Be­zos him­self is aware. “There is no map, and chart­ing a path ahead will not be easy,” he said in a state­ment to em­ploy­ees af­ter pur­chas­ing WaPo. “We will need to in­vent, which means we will need to experiment. Our touch­stone will be read­ers, un­der­stand­ing what they care about — gov­ern­ment, lo­cal lead­ers, res­tau­rant open­ings, scout troops, busi­nesses, char­i­ties, gover­nors, sports — and work­ing back­wards from there. I’m ex­cited and op­ti­mistic about the op­por­tu­nity for in­ven­tion.”

In con­trast, Friedlich said the ad­van­tage of cor­po­rate buy­ers is the syn­ergy they bring to the com­pany with cost-sav­ings and con­sol­i­da­tion plans — ben­e­fits the stand­alone lo­cal buyer doesn’t pos­sess. But, he warned, “cor­po­rate own­er­ship will not re­sult in the best reader ex­pe­ri­ence with­out a cor­re­spond­ing fi­nan­cial com­mit­ment to stronger news cov­er­age and new dig­i­tal prod­uct in­no­va­tion.”

“Many news­pa­pers have been in a vi­cious cy­cle of cut­ting the news prod­uct and los­ing read­ers, rel­e­vance and rev­enue,” Friedlich added. “I be­lieve the com­pa­nies that will suc­ceed will be those who rein­vest in lo­cal news, in­vest mean­ing­fully in dig­i­tal plat­forms, and com­mit to re­vers­ing that trend.”

Grimes said he be­lieves there is a fu­ture for the news­pa­per in­dus­try but that the next gen­er­a­tion of pub­lish­ers will need to step for­ward.

“In my opin­ion, a large per­cent­age of in­di­vid­ual and smaller group pub­lish­ers would like to re­tire and would like to sell,” he said. Grimes also be­lieves that pri­vate-eq­uity buy­ers will get out of their news­pa­per deals in the next three to five years.

For Cope’s part, he said he be­lieves news­pa­pers con­tinue to be a solid in­vest­ment

“When run ef­fec­tively, a news­pa­per can at the same time serve their com­mu­nity, take care of their em­ploy­ees and pro­vide a solid re­turn for the share­hold­ers,” he added. “We feel that as other sources of rev­enue con­tinue to grow, com­mu­nity news­pa­pers will be a solid in­vest­ment for years to come,” Cope said.

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