• by Erik Sass  @eriksass1, October 30, 2006

In another newspaper shakeup, Dow Jones & Company announced Friday that it will sell six local newspapers to another company, Community Newspaper Holdings, for $282.5 million. The newspaper industry is clearly in transition: the Dow Jones announcement comes as other major groups are contemplating putting major properties up for sale or completing sales. But the news isn't all bad. While established newspaper companies are indeed divesting themselves of legacy print products, smaller papers at least seem to be finding buyers at good prices.

Rich Zannino, chief executive of Dow Jones, left no doubt that the Dow Jones sale of the News-Times of Danbury, Connecticut, the Daily Star of Oneonta, New York, the Press-Republican of Plattsburgh, New York, the Santa Cruz Sentinel of California, The Daily Item of Sunbury, Pennsylvania, and the Traverse City Record-Eagle of Traverse City, Michigan, is part of a bigger strategy: "This sale and the pending acquisition of Factiva are the latest examples of our commitment to transform Dow Jones from a company heavily dependent on print publishing revenue to a more diversified company capable of meeting the needs of its customers across all consumer and enterprise media channels, whether print, online, mobile or otherwise."

Zannino said Dow Jones will use the cash generated by the sale to fund its acquisition of Factiva, an online clearinghouse for financial and business news and information. The sale is expected to be completed in the last quarter of 2006. Zannino boasted that the six papers fetched over 11 times their collective EBIDTA (earnings before interest, depreciation, taxes, and amortization)--a very respectable price.

But bigger papers up for sale don't seem to be generating as much interest. On Friday the Tribune Company announced that it received "expressions of interest" from Philadelphia-area investors for the Baltimore Sun and from private equity firms seeking to purchase the entire business. Tellingly, no other major newspaper company has yet expressed interest in any of Tribune's larger papers--including company flagship the Chicago Tribune or the Los Angeles Times.

Although unloading troubled properties may help the company's bottom line, its big papers are all suffering from long-term structural trends, including competition from the Internet and declining subscriptions and newsstand sales. The company's management only began considering selling its properties under pressure from dissatisfied investors, including the powerful Chandler family.

According to a semi-annual report released in May by the Audit Bureau of Circulations, between March 2005 and March 2006, in Monday-Friday circulation the LA Times lost about 50,000 readers to end at 850,000--a 5% loss. Meanwhile, the Chicago Tribune remained essentially flat at 580,000, and the Baltimore Sun lost about 24,000 readers to end at 236,000--a 9% drop.

Smaller local papers, however, are well-positioned to deal with Internet competition, according to Ken Doctor, an analyst with Outsell, Inc., a consultancy serving the news and information industries. In part that's because broadband Internet service is not making inroads in rural areas nearly as quickly as in cities and suburbs. Also, because of their size, small towns don't afford the same economies of scale to online classified businesses like Craigslist and news aggregators like Yahoo, which focus on urban areas instead.