‘FT’ deal changes newspaper game
MICHAEL WOLFF
Apparently, playing hard to get is worth something.
There are two lessons from the sale of the Financial Times for $1.3 billion by its corporate parent Pearson to Nikkei, a Japanese newspaper company. The first is never believe a media company when it says it won’t sell something. The second is that newspapers, — at least some newspapers — heretofore consigned to the dust heap, are back in business. The Financial Times — rather a step-child business of a company that during the last decade or more has transformed itself from an enterprise with diverse media interests into one focused exclusively on the education market — has been rumored to be for sale for the past four years. The newspaper was not just rumored to be up for grabs but by any logic had to be. But the company stoutly and often bitterly denied this. After its CEO, Marjorie Scardino, left in 2012, the rumors became more specific: The newspaper had not been sold only because Scardino did not want the deal to happen on her watch. And yet, when the new CEO John Fallon was asked about his intention, he too was boldly having none of it: Selling the FT was an absolute non-starter.
Now, there are general protocols for not revealing your hand without outright deceit: We are not considering a sale at this time … we have no plans … the FT is a
treasured member of the family, etc. That’s much different from a market-bucking unthinkable.
And, indeed, with two rich bidders known to be in the market — Bloomberg and Thomson Reuters — both in a position to pay practically any price for a trophy, it began to appear however illogical, to be unthinkable that Pearson would sell. No one was going to get it away from them. Ever. Until now. And that is part of the second lesson: Playing hard to get and standing up to the short sellers is worth something.
The deal in fact changes the newspaper game entirely. The premium newspaper — or news brand — market place which collapsed in 2008 after Murdoch bought Dow Jones and its newspaper the Wall Street Journal (which also played very hard to get) for $5.6 billion and then was quickly forced to take a series of dramatic write downs, is back. (The Nikkei deal values the FT almost at the level of the WSJ.)
It wasn’t that the FT was not for sale, it was just not for sale at a discount price. That was part of what seemed so confounding about the lack of a sale, and to assure its inevitability. Why would Pearson want a newspaper? Why wouldn’t it want to get rid of the
FT at any price? After all, the price was not going to go up. Its suitors may have seen the
FT as a trophy, but they were confident that newspaper trophies had vastly diminished value. Don’t they? Or why wouldn’t they in a news market that was looking at ever-falling ad revenue, its main business driver?
The assumption on the part of fundamentally non-economic buyers like Bloomberg and the Thomson family was that since there were no economic buyers — that is anybody who would buy a newspaper for sound business reasons — even people who might pay anything could get a good deal.
This Nikkei- FT deal challenges two aspects of this assumption. It distinguishes trophy papers — those with international brands, unique products and outsize in- fluence — from the general newspaper business. They are different and irreplaceable. And it brings into the equation companies in markets where newspapers are still largely thriving. The runner-up bidder for the FT was Axel Springer, the German media company which publishes newspapers in a yet-strong market.
Among the certain questions prompted by the sale is what does it mean for other international newspaper brands, like the London Times, The Washington Post, the Wall Street Journal — indeed, USA TODAY, recently spun off from its parent company — but perhaps most obviously the New
York Times.
In part, the Times’ present ownership has been protected by the fact that in most scenarios its shareholders couldn’t get that much for their holdings.
Hence, the plan for the Times has largely been to reduce costs in an effort to hold on. Likely that view will come under some revision in a market that might value the paper, like the FT, at as much as three times its revenue, or something like 40 times its earnings.
It also may change the strategy of leading news brands pursuing digital ubiquity, platform agnosticism, social media absorption and a competition with the likes of Buzzfeed.
In a boneheaded interpretation of the deal by various U.S. commentators and analysts steeped in newspaper end-day thinking, the rational for the outsized price was put on the FT’s efforts at digital transition — instead of on the fact that the FT’s nearly impassable, and incredibly irritating, pay wall had continued to put the emphasis on the salmon-colored paper’s singular brand identity.
Indeed, across the globe, there remains, among a particular audience, few pleasures as great as the arrival of the weekend FT.
That’s the unexpected lesson for the news business: There turns out to be a rich market for the valued and the unique. Who knew?