The last three months of 2011 brought a sudden flurry of deals in the newspaper industry, with a number of fair-sized metropolitan and regional dailies trading hands. But the increased pace of deal-making doesn’t reflect improved fundamentals for newspaper publishing, which is expected to suffer another round of losses in 2012.
In the most recent deal, announced earlier this week, The New York Times Co. sold its Regional Media Group, including 16 newspapers and related businesses, to Halifax Media Holdings LLC for $143 million in cash. A week earlier, The Chicago Sun-Times and a number of other daily and weekly newspapers serving the Chicago area were acquired by Wrapports LLC in a deal worth $20 million.
At the end of November, the Omaha World-Herald Company, publisher of The World-Herald, was purchased by Berkshire Hathaway Inc., the investment company founded by billionaire investor and Omaha native Warren Buffett, for $150 million in cash and the assumption of $50 million in debt. In mid-November, The San Diego Union-Tribune was sold by Platinum Equity to MLIM, LLC, a company owned by San Diego real estate developer Doug Manchester, for an undisclosed sum.
Some of the newspapers were profitable when they traded hands, according to owners and buyers -- but the spate of acquisitions in no way suggests an industry that is on the upswing -- or has even hit bottom -- according to Ken Doctor, a newspaper analyst with Outsell Inc. and the author of Newsonomics:Twelve New Trends That Will Shape the News You Get.
In fact, Doctor predicted more revenue declines for the industry in 2012, suggesting that sellers are trying to get out with minimal losses, as indicated by the very low price tags of these deals.
“For the sellers, it’s a letting go,” Doctor observed. “Clearly, things are not getting better -- they’re getting worse. The Newspaper Association of America’s number is that there hasn’t been advertising growth for 21 straight quarters, since 2006. My own forecast is 5% to 12% down, next year, depending on the size of the paper. It’s a death spiral.”
In this context, newspaper publishers are going to have to continue cutting their workforces to trim costs, although the industry now attempts to keep this kind of bad news quiet: “There’s a lot of cutting going on -- even if a lot of it is less publicized,” according to Doctor, who asserted: “The only way they can stay profitable is to cut.”
So what explains the spate of deals as the year draws to a close?
There’s no one single cause, Doctor said, noting that “you have a diverse bunch of buyers” who can afford to dabble in an ailing industry. In the case of the San Diego Union-Tribune, he attributed the purchase to “political motivations," pointing to incoming CEO John Lynch’s statement that he wants the paper to be pro-business, and the sports page pro-Chargers stadium.
Buffett’s purchase of his hometown paper is probably simple “altruism” on the part of the philanthropically minded billionaire. And in the case of the Chicago Sun-Times, buyers Michael Ferro Jr. and John Canning Jr. have displayed an ideological commitment to news reporting that may trump business considerations.
Only in the case of the NYT Regional Media Group do the buyers appear to have a strong financial motivation, according to Doctor, who noted that smaller newspapers generally continue to do better than their large metro daily counterparts. Halifax Media Holdings is the only buyer with an established newspaper business as its main focus, meaning that executives probably already have strategies in hand to reduce costs and maximize profits at their new properties.