Wednesday, February 14, 2007

Now or never for newspapers

The evident failure to find a buyer willing to pay more for the Tribune Co. than the present value of its depressed shares represents the last, best opportunity for publishers to save their businesses from stumbling to extinction.

Newspaper executives have only a few short years to get this right. Otherwise, their once-enviable franchises will enter a prolonged liquidation phase characterized by collapsing readership, withering revenues, uncontrollable fixed operating costs and, eventually, unsustainable losses.

Publishers gained the precious gift of time to fix their businesses when Tribune’s restive investors failed to spark a hoped-for auction of the company’s enviable assets. (Much as I hate to say I told you so, I told you so in June, when I asked, “What if they held an auction and nobody came?”)

Next to a windfall of unexpected cash, time is the greatest gift a troubled business can get, because it permits management to objectively assess its problems, assay its opportunities and enact an action plan to the fix the former and capitalize on the latter.

Publishers of publicly held newspaper companies are getting extra time to fix their businesses, because the investors angry over the poor performance of the industry in the last few years know that they can’t pump up the value of their holdings by forcing the company to the auction block, as they did with Knight Ridder and attempted to do with Tribune.

In addition to KRI and TRB, you may recall, the New York Times Co. and Dow Jones have been fending off disgruntled institutional investors calling for everything from major corporate restructuring to their outright sale.

With metropolitan newspapers fetching approximately half the value they did only two years ago, the investment professionals who have been terrorizing newspaper managers know they now have only two choices: Sell their shares at a steep loss or sit tight and hope for the best. In all likelihood, they’ll do some of each.

This gives publishers an opportunity to stop worrying about financial engineering and start concentrating on the strategic plans required to stabilize their publishing businesses while building vigorous new digital franchises.

The substantial revenues and profits still flowing through most newspapers give them the ability to do this. But the respite won’t last long.

So, it’s now or never.


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