Commentary

Should AOL Buy Newspapers?

  • by , Featured Contributor, October 7, 2010

According to a report in PC World, yesterday AOL's chief technology officer said that the company would continue to buy more media properties, and might even buy some traditional newspapers.   I know that I swore off writing about the newspaper industry, but this is too good to pass up.

OK, I know it sounds a bit crazy, but maybe there's something here worth considering. Newspapers run websites, so why shouldn't websites run newspapers? Here are some of my quick thoughts on why AOL might consider buying newspapers (disclaimers: I was a senior executive at AOL in late 2007 and early 2008 and, until this past summer, I served on the board of directors of Dallas-based newspaper publisher A.H. Belo, Inc. and continue to own stock in the company):

Newspaper companies are relatively cheap to buy. Newspaper stock prices still haven't come fully back to their pre-recession levels. Most investors believe that newspapers have little or no terminal value, since most have not been able to build strong digital franchises. AOL could provide the long-term digital platform transition that many lack today.

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Newspapers can be strong cash flow producers. While a number of newspaper companies got into trouble by taking on too much debt, well-run newspapers with good balance sheets can be very good cash producers. With AOL's dial-up Internet access business dying, the company could use the cash flow.

Newspapers have lots of proprietary local content. AOL has made very heavy investments in its Patch local content businesses, and local content is a strategic pillar in its long-term content strategy. Buying local newspapers would dramatically accelerate and complement those efforts, and would probably be cheaper than trying to create it all organically.

Access to local advertisers and national coupons. Newspaper companies have both, though in each case those franchises are in decline. AOL is creating local content and launching a group couponing service to help it tap local ad budgets and capture locally focused coupons.

Content credibility. Buying newspapers would send a strong message to the market about the company's commitment to its content-driven strategy; it would pick up some great content brands and content credibility in the process.

Cheap house promotion. Paper and ink are still relatively cheap on the margins, relative to newspapers' power as a local promotion platform. AOL could use newspapers as very powerful house-owned promotion platforms to build audiences for its websites and web services. Done well, this could prove to be a significant unfair competitive advantage relative to others.

Motivated workers. Most newspaper companies have not done a very good job developing long-term strategies for their businesses, when they can no longer afford to put ink on dead trees and truck them to peoples' homes first thing in the morning. How do you think a newspaper employee with a ten-year-old child feels when she's wondering how she can pay future college tuition costs? Being part of AOL would at least give many newspaper employees some sense of a long-term career path for the future.

Do I know if AOL is seriously considering buying newspapers? I do not. Would I pass up a hypothetical merger premium offer from Yahoo to buy a bunch of newspapers? I would probably pick Yahoo.

I fear the inevitability of the long-term decline of the newspaper industries and their heavy fixed cost structures. Plus, it's asking a lot to  integrate and leverage decentralized local newspaper operations into a centralized web services company  working very hard to complete a high-degree-of-difficulty turnaround for some relatively long-shot synergies.

What do you think? Should AOL buy newspapers?

8 comments about "Should AOL Buy Newspapers?".
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  1. Jeff Sherman from OnMilwaukee.com, October 7, 2010 at 4:18 p.m.

    Both Yahoo! and AOL need strong, hyper-local content partnerships. Both could look to content entities with strong community relationships, digital competencies and existing advertising revenues.

    Integration would be tough, yes, but it's necessary for many local/regional publishers.

  2. Douglas Ferguson from College of Charleston, October 7, 2010 at 4:18 p.m.

    It's not April 1, so I guess you're serious. Newspapers, eh? A great way to reach the older demographic. Whenever I'm trapped in the grocery line behind someone writing a check, I think, they're probably on their way home to read the newspaper and watch The Price is Right.

  3. Jonathan Mirow from BroadbandVideo, Inc., October 7, 2010 at 4:25 p.m.

    Ummm - the lamest of the online brands buying a croaking dinosaur of bygone media era. What could be better? I'd pay to be in a Board Meeting: AOL guy to Newspaper Guy "No, third quarter results are YOUR fault! You're still putting ink on paper!" Newspaper Guy to AOL "Dude, you're still mailing out floppy disks disks pimping dial-up!". What could be more fun?

  4. Paula Lynn from Who Else Unlimited, October 7, 2010 at 4:50 p.m.

    1. Patch is a terrible name. 2. As I once asked the publisher of a major metropolitan newspaper who still remembers the question whether decisions were being made to much from a macro view than a micro. The micro meeting with the publisher with the staff ended right after this one. This was right before the slide. 3. Sounds like there is potential on paper. However, the news would then be too centralized and too easily idealogized on a national level. Investigative reporting and journalism will have an unwritten law of under exposure of certain topics (and you are not there anymore to balance it). The truth and truthiness will blur away by key players. 4. Where do most of the on line news stories come from now? Newspapers. Why don't politicians advertise in newspapers although it pulls a strong, older audience? News stories. 5. The merging of sales departments (not to mention others) would be lawsuit alley. You have to keep shaking up the oil and vinegar to keep together enough to pour on your salad. I can tell you personally how bad an idea it is for a newspaper to produce a news program on a TV station and the losses piled up. 6. Newspaper problems (and not what most eveyone believes and thinks) began before the internet gained a news audience.

  5. Dave Morgan from Simulmedia, October 7, 2010 at 5:47 p.m.

    While the notion AOL buying newspapers might seem a bit of a stretch, I really wouldn't be surprised to see some web-based media/ad companies buying analog counterparts over the next year or two to get more scale, cash flow and access to new customers.

  6. Bruce Wilkinson from Nielsen, October 7, 2010 at 6:17 p.m.

    I agree that this, on review, is less ridiculous than it sounds initially. Dave is right on target that even in their diminished state, newspapers still can generate good cash flow, and many are actually growing their total audience, in spite of their decreased print circulation. A selection of key metros could provide winning pool of content, and AOL's broader national platform could help that content find new audiences that it doesn't reach today.

  7. Ned Newhouse from CreditCards.com, October 7, 2010 at 8:19 p.m.

    I am an ex newspaper man. All this would do is speed up the end of traditional printing and distribution of newspapers. I am convinced this is inevitable so its now a matter of when, not if. However what worries me the most is the lacking culture and wisdom that AOL does not have for operating a newspaper and pulling a Sam Zell or some other matter of ignorance that kills the paper entirely. I really could care less who owns them at the end of the day, I just want them to exist. Small to Big newspapers play a key role in our checks and balances of loyal government, corruption identification, local sports and a tool for the business community. No other tool exists that could close to replacing this depletion of information in our communities and country. Think about what death would mean to the deepest source of comprehensive news and information we have.

  8. R.J. Lewis from e-Healthcare Solutions, LLC, October 7, 2010 at 8:30 p.m.

    One one level it comes down to costs. The cost of hiring/buying the true "assets" they would want from the newspaper vs. the cost of buying whole newspaper businesses, taking those parts and shuttering the rest. I don't think newspapers are a good long-term business, but if the market is pricing them wrong, and cashflow can be sustained longer than the market expects, someone (AOL or other) should be buying them. After all, Newsweek just sold for $1 plus taking on debt. I don't think we'll know if even that was a good purchase for some time. It comes down to how its managed.

    One caveat - that I'm sure I'll catch some flack for, but... When it comes to integrating "legacy businesses", particularly those that have been struggling for a long time (like newspapers), there are plenty challenges with remaining staff. Much of the great talent leaves a dying business when they realize they are part of a dying business or business model and are not able to fix it. The good talent leaves when they realize that their leadership either can't or won't act to fix it either.

    So much of the talent that remains at newspapers today is quite frankly "what's left". Many are not trainable into a new digital function. If they had the desire, ambition or ability to change... they would have already left for greener pastures. Alternatively, they have entirely too much vested (including high comp, stock, etc.... where change - including the prospect lower comp in a relatively new career - is simply too painful).

    Loyalty is admirable. But the musicians on the Titanic did not play because of loyalty, they played because they had no where else to go, they had no options. If they had chosen to go down with the ship when a perfectly stable lifeboat was available (and some how still managed to survive), would you want to hire them?

    Digital has had a talent shortage for years (Dave, you've written about it before as the single greatest obstacle holding digital back from even faster growth), the lifeboat is and has been there for those willing to embrace change and face their fears...

    Do you hear it? "fear of change" in C-minor is the song being played on the violins. The paper boat is made of newspaper and leaking like it just struck an iceberg.

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