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New Money Rediscovers Old Media
Michelle Leder
05/01/2007
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But as Toll and his partners are discovering, local ownership
does not guarantee that the new proprietors will be greeted as rescuers. Soon
after Philadelphia Media Holdings acquired the Inquirer, the
paper’s highly respected top editor, Amanda Bennett, stepped down amid massive
layoffs—nearly 200 since the sale was completed. Not surprisingly, these cuts
have sparked reactions in both the local and national press. Toll admits that
the new ownership team knew going into the deal that they would be forced to cut
costs. "If we fired some janitors, nobody would have batted an eye. But we’ve
had to fire writers," he says.
After McClatchy acquired the two Philadelphia newspapers (along
with 30 additional titles from Knight-Ridder), it immediately moved to sell the
underperforming properties. McClatchy’s consultants tabbed the Philadelphia
papers as the most financially challenged ones. Toll recalls that McClatchy was,
therefore, a highly motivated seller that streamlined the acquisition process.
The two sides closed the deal in two months.
Toll and his partners are not the only investors being lured
into this market by fire-sale prices for what they perceive as undervalued
brands. Last December, McClatchy sold the Minneapolis Star-Tribune to New
York–based private equity firm Avista Capital Partners for $530 million, or less
than half of what McClatchy paid for the newspaper eight years earlier. In
January, The New York Times Company announced that it was taking an $814 million
write-down on its New England media group, whose assets include the
Boston Globe that Welch considered buying. Fourteen years earlier, The
Times had paid $1.4 billion for the newspapers.
Revenue Rescue
Investors are also enticed by the opportunity to move these
businesses into private hands and away from the pressures of the quarterly Wall
Street earnings dance. Some industry veterans suggest that this strategy may
offer some of these newspapers enough breathing room to begin transforming
themselves. Serial entrepreneur Steve Brill, who runs Verified Identity Pass,
has invested millions of dollars in print media, founding two magazines,
American Lawyer and Brill’s
Content. He contends that the best move for
newspaper investors is "to get out from under the idiot stock analysts. If it’s
a private company, and it doesn’t have to deal with the quarter-to-quarter
numbers, it can start charging for online content," he explains. "It will lose
ad revenue because of the lower eyeballs, but in the end, it should help its
business."
Brill admits that he sometimes considers reentering the media
business, especially when he sees the attractive sale prices right now. But he’s
having too much fun with what he’s doing—creating a private firm that prescreens
travelers to pass through airport security lines. Moreover, the challenges of
squeezing digital revenue out of traditional print properties remain
daunting. Only one newspaper—the Wall
Street Journal—has built what most analysts
agree is a successful online subscription model. But, Brill notes, many
Journal readers simply consider an online subscription a business expense.
Traditional local newspapers, even in huge cities such as Los Angeles and
Houston, cannot count on this type of captive audience.
Most media analysts agree that the future of newspapers is
largely rooted in a digital medium. Investors entering this fray must be
prepared to expend millions of dollars to extend these brands online. The
Los Angeles Times recently announced a strategy to staff its online news desk 24
hours a day to, as executives explained, break news on the Web and expand and
analyze it in print. Print journalists will be expected to also write for
Latimes.com. But are moves like this too little, too late to catch up with
well-established Web portals such as MSN.com and Yahoo?
For most newspapers, online revenue from both subscription
services and advertising has been anemic at best. But for entrepreneurs like
Cuban, all is far from lost. While newspapers were late to recognize and respond
to the demand for both online content and advertising, most of them retain a
niche that some investors find hard to resist. Cuban advises that newspapers
should focus on what they do best: covering their local markets like a blanket.
Whatever happens, they will continue to hold one advantage over staring at a
flickering computer monitor or a pint-size BlackBerry device. "Here’s their new
marketing campaign," Cuban offers. "If you don’t want to go blind, read a
newspaper."
Within the past 12 months, many successful individual investors
have been linked to potential newspaper deals. A few of them
include:
Warren Buffett,
investments: The New York Times.
Eli Broad, real
estate development: Tribune
Company.
Ron Burkle,
supermarkets: Tribune Company.
David Geffen,
entertainment: Los Angeles Times.
Jack Welch,
business executive: Boston Globe.
Sam Zell, real
estate development: Tribune
Company.
Michelle Leder runs the blog Footnoted.org and is the author of
Financial Fineprint: Uncovering a Company’s True
Value.
Additional Information
 Losing the Paper Chase
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