Online Ambitions, and a Dash of Real Estate, Drive Newspaper Deals
By Tanzina Vega / New York Times / January 29, 2012
IF the future of media is digital, who would want to buy a newspaper? Many people, it turns out.
Investors acquired the newspapers in several major American cities in the second half of 2011, including The San Diego Union-Tribune, The Chicago Sun-Times, The Omaha World-Herald, The San Francisco Examiner and the 16 newspapers that made up The New York Times Company’s Regional Media Group.
Seventy-one daily newspapers were sold in the United States last year, for a total “just under $800 million,” said Owen Van Essen, president of Dirks, Van Essen & Murray, a company that specializes in newspaper mergers and acquisitions. Investors included billionaires like Warren E. Buffett and Philip F. Anschutz, a newly created media company called Wrapports, and media investors like Halifax Media Holdings and the Black Press Group.
Answering the question of why is a little more difficult. Advertising revenue and circulation, two industry benchmarks, have come under tremendous pressure in the last few years. According to the Newspaper Association of America, from 2006 through 2010, print advertising revenue declined to $22.8 billion from $46.6 billion for daily and Sunday papers. In the same period, paid circulation figures declined at many newspapers as users migrated to the Web.
The notion of newspaper pages whipping through printing presses, then being bundled with twine and tossed onto street corners might be considered romantic by some while others view it as bad business. But while newspaper companies can be bought on the cheap these days, some investors seem persuaded they can turn a quick profit while others may view owning a paper as a civic duty.
“A lot of these companies are acquiring newspapers and looking for underperforming assets,” said Agata Kaczanowska, a media industry analyst for the research company IbisWorld. “They’ll acquire the local newspapers and they’ll go in and slash operations to where these newspapers are profitable. It’s kind of like flipping houses.”
Ken Doctor, a news industry analyst, highlighted the “historically low prices” for newspaper properties and the potential for the buyers to make a profit. So far, he said, “the way they have maintained profitability is cost-cutting” — staff reductions, outsourcing and consolidating printing operations and call centers.
Alan D. Mutter, a lecturer for the Graduate School of Journalism at the University of California, Berkeley, and a former newspaper editor, pointed to the deal made by the private equity group Platinum Equity, which bought The San Diego Union-Tribune in 2009 for a sum reported to be less than $50 million and resold it for more than $110 million in 2011.
“They’re hoping for the same miracle that occurred with Platinum,” Mr. Mutter said. “That’s what all these guys are trying to get.”
On Platinum’s Web site, the company cites the actions it took to make The Union-Tribune profitable. A video features interviews with Ed Moss, the publisher of The Union-Tribune, and Jeff Light, the editor, highlighting the new production system, a redesign of the paper and upgraded facilities as reasons for the company’s recent success.
“After five consecutive years of double-digit declines, we’ve now stabilized the revenue,” Mr. Moss said in the video, adding that the company was now profitable every month.
Real estate assets may also play a part in decisions to buy, some analysts say. “Newspapers have big buildings,” Mr. Doctor said. “They are usually in a somewhat valuable location.”
Douglas Arthur, a publishing and media analyst at Evercore Partners agreed. “There’s no doubt that people who have looked at these companies, part of their equation is to look at the value of the real estate.”
Mr. Anschutz, owner of the Anschutz Corporation in Denver, bought the Oklahoma Publishing Company in September. The Broadmoor, a luxury hotel in Colorado Springs, Colo., was part of the sale.
In San Diego, the real estate interests of the paper’s new owner have been on prominent display. Douglas W. Manchester, chairman of the Manchester Financial Group and a developer who bought The San Diego Union-Tribune from Platinum Equity, recently wrote a front-page editorial for the paper, which was renamed U-T San Diego, calling for development of downtown waterfront land.
In an interview with Voice of San Diego, a nonprofit news organization, Mr. Manchester made no secret of his desire to redevelop “the prime Mission Valley parcel on which the paper’s headquarters sit.” Mr. Manchester, like many other newspaper buyers, did not return requests for an interview.
Mr. Van Essen, the merger specialist, said that while some buyers weighed things like real estate in their buying decisions, the real value in purchasing a paper was in its content. “You recognize you’re buying more than just the printed product,” Mr. Van Essen said. “You’re buying the entire organization, which is the backbone to be able to produce a digital product.”
Papers have an advantage in the market for local online advertising. Mr. Mutter, the Berkeley lecturer, said, “You have to think of it as an audience gathering, advertising delivery system.” In addition to credibility and visibility in local communities, newspapers offer advertisers “hundreds of millions of marketing impressions a day,” he added.
Online ad revenue in the United States has increased steadily since 1999, according to the Interactive Advertising Bureau, reaching $7.9 billion in the third quarter of 2011, a 22 percent increase from the period a year earlier.
Timothy P. Knight, the former publisher of Newsday and one of the co-founders of Wrapports, which bought The Chicago Sun-Times for $20 million in December, said the company’s goal was to make additional investments in print and digital properties.
“Print will continue to be an extremely important part of the product offering we use in our local communities,” Mr. Knight said. “We think this is a terrific opportunity to invest in using digital technology to deliver content and being able to leverage the trust that local newspapers have.”
Mr. Arthur, of Evercore Partners, said the industry was experiencing “brief surges in optimism” from the initial success of recent digital subscription plans. Among those with such plans are The New York Times, The Financial Times and The Wall Street Journal.
The MediaNews Group, based in Denver, announced in August that it would begin a digital pay model for the online versions of 23 of its newspapers outside of Colorado. Other newspapers have experienced increased payments for mobile and e-reader versions of their print editions.
“There is the beginning of a slow paradigm shift on the Web, where suppliers of content and consumers of content are beginning to realize that they need to pay for content,” Mr. Arthur said. “The free lunch will not go on forever.”