The changing face of newspaper ownership
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.
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.