The surprising boomlet in newspaper M&A
Beyond the headline-grabbing purchases last week of the Washington Post and Boston Globe, there has been a surprising recovery in M&A activity in the last 1½ years involving newspapers in places like Vicksburg, MS; Everett, WA; Nashua, NH, and Waco, TX.
The boomlet has been fueled by an improving economy, the growing desire of many long-time family owners to exit the publishing business and the arrival of a variety of well-heeled newcomers who believe there is continuing value in the venerable local publishing model – so long as you buy into the business at today’s historically low prices.
Not counting the $250 million sale of the Post and $70 million disposition of the Globe, there were 40 newspaper transactions involving 101 daily publications between January, 2012, and the end of last month, according to Owen Van Essen of Dirks, Van Essen & Murray, a media brokerage firm. Van Essen recaps the newspaper deals in the first half of this year here.
The merger-and-acquisition activity in the last 19 months is a considerable improvement over the combined 21 transactions involving 84 dailies that took place in the full years of 2010 and 2011. Van Essen says the best year ever for newspaper M&A was 2007, when there were 30 transactions involving 91 daily newspapers.
Even as media giants like Gannett Inc., 21st Century Fox (nee News Corp.) and Tribune Co. have sought to de-emphasize or sever their newspaper holdings (for reasons previously discussed here), the market is reasonably healthy for newspapers serving isolated communities in relatively competition-free markets.
The sweet spot in the revitalized M&A market most assuredly is not metros like the Globe, which is being sold for 5% of the aggregate $1.4 billion the New York Times Co. spent to buy the iconic newspaper and the neighboring Worcester (MA) Telegram & Gazette in, respectively, 1993 and 1999. The drastic devaluation of the Globe is not unique:
∷ Purchased for $1.2 billion by the McClatchy Co. in 1998, the Minneapolis Star Tribune was sold for $530 million in 2006 to a group that went bankrupt. When the business was bought out of bankruptcy in 2012, it went for $119 million, or 10% of its value in 1998.
∷ After being owned for years by Knight-Ridder, the Philadelphia Inquirer and Daily News were sold for $515 million in 2006 and then went bankrupt twice. After the first bankruptcy, the papers were sold for $139 million. After the second bankruptcy, the titles were sold for $55 million, or slightly better than 10% of their value just four years earlier.
In light of these sobering outcomes, you can see why today’s newspaper buyers are looking for strong franchises in economically healthy communities that are geographically, culturally and emotionally remote from the sagging revenues, declining readership and receding profitability that encouraged the Graham family to sell the Washington Post to Amazon founder Jeff Bezos in the hope that an astute digital native could pilot the paper to a sounder future.
By most accounts, the appetite for newspapers is healthy in the boonies. “The buyer pool is much larger for standalone mid- and small- market newspapers today than it was a year ago and that is what is making the difference,” said broker John T. Cribb in a recent newsletter. “There is just more competition for these type of properties and they are being purchased by people who believe in the industry and are staying in it.”
Some newspapers, like the ones in Vicksburg, Everett and Nashua, were purchased by such long-time, privately held publishers as, respectively, Boone Newspapers, Black Press and Ogden Newspapers. But a small number of well-financed newcomers have entered the marketplace to liven up newspaper auctions.
The most prominent, and ardent, of the new newspaper buyers is Warren Buffett, a former newsboy who once beat billionaire buddy Bill Gates in a newspaper-throwing contest.
After buying his hometown Omaha World-Herald in late 2011, Buffett tasked the management of the paper to acquire additional newspapers through a new entity called BH Media Group. At this writing, the acquisitive group operates 68 newspapers and other titles in Alabama, Florida, Iowa, Nebraska, North Carolina, Oklahoma, South Carolina, Texas and Virginia. Acquisitions have ranged from the aforementioned daily in Waco to properties in Roanoke, VA; Atlantic City, NJ; Tulsa, OK, and beyond.
“I love newspapers and, if their economics make sense, will buy them even when they fall far short of the size threshold we would require for the purchase of, say, a widget company,” Buffett told his shareholders in March. “At appropriate prices – and that means at a very low multiple of current earnings – we will purchase more papers of the type we like.”
BH Media is not the only new holding company to enter the newspaper business in recent years. Others are:
∷ Halifax Media. Founded in 2010 by Stephens Capital Partners, JAARSSS Media and Redding Investments, it has bought 33 newspapers published in Alabama, Florida, Louisiana, North Carolina and South Carolina, including most of the regional papers divested by the New York Times Co. in 2011.
∷ Civitas Media. Organized in 2011 by Versa Capital Management, the company rolled together four newspaper holding companies, including the former Heartland Media. Civitas operates 35 dailies and 63 weeklies in Georgia, Illinois, Kentucky, Missouri, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia and West Virginia.
In addition to the serial acquisitions undertaken by the new holding companies and some veteran family groups, a number of wealthy individuals in recent years have stepped into newspaper publishing by buying one or two individual properties. Beyond Jeff Bezos, they include:
∷ Wealthy Red Sox owner John Henry, who is buying the Boston Globe.
∷ Billionaire industrialist Philip Anschutz, who bought the Oklahoma City Oklahoman and the Colorado Springs (CO) Gazette.
∷ Greeting-card entrepreneur Aaron Kushner, who bought the Orange County (CA) Register and not only invested in additional staffing and coverage but also is scheduled next week to launch a paper to compete with the incumbent daily in neighboring Long Beach.
∷ Real estate developer Doug Manchester, who bought the San Diego Union-Tribune in 2011 from the private equity firm that acquired the title from the Copley family during the depths of the recession in 2009.
∷ Entrepreneur Michael W. Ferro Jr., who bought the Chicago Sun-Times from another Windy City investment group that had been headed by the late investment banker John Tyree.
∷ Businessman and restaurateur John Georges, who bought the Baton Rouge (LA) Advocate to compete with his hometown paper, the New Orleans Times-Picayune.
The new newspaper buyers for the most part are purchasing properties from long-time family owners who have decided to exit the business after watching industry revenues slide from a record $49.4 billion in 2005 to $22.3 billion at end of last year.
Though the revenue drop may not be as severe at small and medium papers as it has been at metros, many independent newspaper owners and small groups worry about having the financial wherewithal and technical knowhow to pivot to digital publishing.
The new newspaper buyers are not only well financed but also can bring economies of scale and enhanced management to both print and digital publishing operations.
Because they are financially sophisticated, however, the new publishers, like Warren Buffett, tend to be quite disciplined about the prices they are willing to pay.
While the preponderance of recent newspaper auctions have attracted multiple bidders, prices are not moving much beyond 3.5 times to 4.5 times a property’s earnings before interest, taxes, depreciation and amortization (EBITDA), according to knowledgeable market sources. Thus, a newspaper with an EBITDA of $3 million likely would be worth $10.5 million to $13.5 million.
The $250 million that Bezos is paying for the money-losing Washington Post represents an exceptional premium for an exceptional franchise that is not likely to lift the value of other properties, say most industry observers.
However, cautioned experts, there are some circumstances where a buyer will pay more than the average multiple of earnings. This is most likely to occur when a publisher can cut production, sales, editorial, distribution, administrative and other expenses by consolidating the operations of a new acquisition with those of a nearby property already owned by the buyer.
Even in those circumstances, prices are not likely to return any time soon to the mid-teen – and sometimes even higher – multiples that buyers eagerly paid for papers before ad sales commenced their seven-year slide. “The only way multiples will go up is when advertising sales start going up,” said one market participant. “When will that be? You tell me.”
Smartphones are so 2012. What’s next?
With more than 50% of the population packing smartphones and tablet penetration not far behind, it’s time to start thinking about the next-generation mobile devices that will further disrupt the media landscape.
The next wave of mobile devices will change media creation and consumption – and therefore, economics – by autonomously delivering unprecedented levels of personally relevant information to consumers after capturing such disparate digital data as home energy consumption, individual vital signs and even the amount of milk left in the refrigerator.
Thanks to increasingly intelligent artificial-intelligence algorithms, the active and passive digital breadcrumbs you generate each day will be mixed with Big Data collected over time – your demographics, location, credit rating, upcoming airline reservations, music preferences, Amazon purchases and last oil change – to deliver precisely targeted information on entirely new platforms ranging from eyewear to underwear.
The next mobile wave, which will make today’s info- and ad-delivery infrastructure look as clunky as the cellphones once powered by briefcase-sized batteries, will include such heavily hyped products as Google Glass and what, until further notice, we’ll call the iWatch. Following closely behind them in the marketplace, any number of nascent mobile devices will monitor everything from your weight-lifting ergonomics to the barometric pressure in your office.
Becoming commercially available in the near future, Google’s high-tech spectacles will, among other things, let you make calls, take pictures, search for information, exchange email and manage your calendar. At the same time, a steady flow of maps, traffic alerts, headlines, stock prices, social-network updates, advertising and other useful information will flash before your eyes. Because the glasses will be controlled with voice commands, you won’t have to take your hands off the wheel or out of your pocket to fumble for your phone.
Although the latest Android phone from Samsung still has to be plucked from your pocket, you can control it with a number of touch-free gestures. In one neat trick, the articles on the phone’s screen automatically scroll up and down by following the motion of your head as you read. Analysts believe this system is a precursor to the day when the phone actually follows your eyes, so it knows what you are reading and, of course, how long you lingered on the BMW ad.
While the long-rumored iWatch has yet to materialize from Apple (assuming it ever does), a number of early movers in the smartwatch space are delivering much of the same functionality planned for Google Glass. In addition to communications capabilities far surpassing those imagined by Dick Tracy’s Two-Way Wrist Radio, many smartwatches are packed with biosensors to monitor the full range of your vital signs.
Seeking to measure fitness in a more intimate fashion, Under Armor is developing workout clothes that monitor heart rate, speed, calories burned and other metrics that you can plot and ponder over time. Who cares? Well, a separate application called My Fitness Plan reported in May that its traffic in six months increased tenfold to 53 million hits a month.
Apart from devices you might wear, wireless data-grabbing gizmos will be available at every turn in your life. Samsung is shipping a smart refrigerator that tracks the contents to update your shopping list, as well as suggesting recipes for whatever may be spoiling inside. The Nest home energy system not only regulates the environment according to your living patterns (dialing down the heat when you sleep late on Sunday) but also delivers detailed data energy use so you can manage the household budget. Kia offers an iPhone app that provides maintenance alerts and makes service appointments – and, best of all, remembers where you parked the car.
Beyond the devices you elect to acquire on your own, your movements are tracked by a growing array of sensors in public spaces. International travelers are required to remove their hats when entering the Hong Kong airport so overhead meters can detect individuals with high fevers (who then are detained by health inspectors in surgical masks). Because the Golden Gate Bridge has stopped collecting cash tolls, you can't get into San Francisco without paying with a wireless transponder – or having a photo of your license plate snapped by the police.
As systems for collecting, storing, collating, analyzing and acting on these various streams of data get better – and they will – the next mobile wave will enable intensely personal media experiences that are the polar opposite of the traditional formats – and business models – that depend on attracting large audiences for one-size-fits-all content and advertising.
Metrics-driven marketers are bound to seize on the myriad ways the new technologies will efficiently target the right offer to the right customer at exactly the right place and time.
Publishers planning to play in the next mobile wave need to begin thinking about this stuff now.
© 2013 Editor & Publisher
Digital doctor Bezos takes on the ailing Post
The purchase of the struggling Washington Post by Jeff Bezos may be the best news the news industry has had in a long time, because it finally puts a true digital native at the helm of a newspaper company.
Bezos, the billionaire founder of Amazon.Com, is uniquely equipped to bring unprecedented innovation and fresh energy to an industry whose managers run their businesses like the people of Cuba treat their 1953 Plymouths: tinkering with them just enough to keep them running.
While the people in Cuba unfortunately have no other options, the newspaper industry has been sputtering toward irrelevance for the better part of a decade because editors and publishers either don’t like or don’t get digital publishing. Perhaps, it’s a bit of both.
Either way, Bezos, who is paying $250 million of his own money to buy the newspaper from the heirs of the man who purchased it out bankruptcy in 1933, now has the opportunity to show publishers how to do digital. And it’s a safe bet he will grab it.
With a personal fortune topping $25 billion, Bezos has the demonstrated means, insight and patience to re-envision the business model of an industry that has lost more than half of its primary revenue stream since advertising sales peaked at $49.4 billion in 2005.
Bezos has his work cut out for him. The Post’s revenues have declined from $957.1 million in 2005 to $581.7 million in 2012. Its operating profits have plunged from $125.4 million in 2005 to a loss of $53.7 million in 2012. Daily circulation dropped from 706,135 in 2005 to 471,800 in 2012. Sunday circulation slid from 983,243 in 2005 to 687,200 in 2012.
Unlike the editors and publishers who are hopelessly hooked on the romance of thundering presses (and they are wonderful to behold), Bezos undoubtedly views the Post as an iconic but underutilized brand that can transcend the temporal and geographic limitations of print to become a bigger brand than it is today in the whole, wide digital world – specializing, presumably, in government, politics and other capital-centric content.
Though Bezos probably has no intention of silencing the presses any time soon, his success in building Amazon from a garage start-up to a $136 billion behemoth suggests that he is intellectually, emotionally and financially liberated from the obeisance to print that constrains the thinking of traditional newspaper executives.
As such, Bezos will be free to leverage his intuition, experience and contacts in the digital universe to launch new products, build new audiences and create new revenue opportunities on desktops, smartphones, laptops, smart TVs, Google Glass, iWatches and whatever comes next.
As a pioneer in personalizing product offerings based on consumer behavior and preferences, Bezos knows far more about data marketing and analytics than anyone else in the newspaper – or, for that matter, any other – business. He’s almost certain to discuss this with folks at the Post.
Bezos also possesses boldness and self-assurance that are rare among even many Internet entrepreneurs. Unlike the chief executives of most publicly held companies, Bezos has shown exceptional patience over the years in supporting initially unprofitable business initiatives that he deemed to be strategically necessary to his goal of building the preeminent eCommerce business.
With Amazon comfortably dominating digital commerce, Bezos set out to become a major force in media delivery by creating Kindle readers and the Amazon Prime entertainment-streaming service.
In using his own money to buy the Post, Bezos is shielding himself from the scrutiny (and potential wrath) of Amazon shareholders who might not be as patient about the time and expense of a Post turnaround as Bezos might be. But the shareholders nonetheless could reap benefits from the relationship.
While there is no way of knowing exactly what Bezos might do, the acquisition of the Post could be a major enhancement to Amazon's media-delivery business. For instance:
∷ Why couldn’t every Kindle in the future be shipped with a free trial subscription to the Washington Post?
∷ Why couldn’t all past and present Post videos be featured in a prominent position on the Amazon Prime welcome screen?
∷ Why couldn’t every page view on every Post digital platform include helpful product recommendations based on who you are, where you are, what you have read and what you have purchased? And remember: Amazon Prime subscribers get free, two-day shipping.
Those ideas are just for starters. But his track record in revolutionizing the fusty retailing industry suggests that Bezos, whose other avocation is space travel, will be going boldly where no publisher has gone before. The ride should be exhilarating.
Digital usage overtaking all legacy media
Americans this year are likely to spend as many hours consuming content on digital devices as the combined amount of time that they devote to gazing at TV and paging through print, according to eMarketer, a research-aggregation service.
After culling through reports from more than 40 institutions, eMarketer forecasts that the average amount of time likely to be spent on digital media this year will climb to five hours and 9 minutes (5:09), as compared with 4:31 in 2012.
If the prediction holds true, then the amount of time spent with digital media will for the first time surpass the roughly 4½ hours per day that Americans historically have watched television.
While TV heretofore has been unchallenged as the most popular medium, the shift to digital consumption (as discussed previously here) could create considerable static for local broadcasters.
The digital surge is being driven by the explosive adoption of smartphones, tablets and other mobile media, which provide consumers with the sort of intimate and individualized experiences that are beyond the reach of the traditional broadcast and print media. In June, the Nielsen market research service reported that 61% of Americans own smartphones and Pew Research Center said that 34% of Americans own a tablet.
Given the rapid adoption of captivating devices that were nonexistent a few short years ago, eMarketer expects non-voice mobile activity to rise to 2:21 in 2012, as compared with 24 minutes as recently as 2010. This represents a 487.5% increase in mobile consumption in four years.
Noting that many consumers use multiple devices at the same time, eMarketer tallies the use of each device separately. Thus, an individual using a laptop while watching a half-hour sitcom would be counted as having spent 30 minutes with each device. The “other” category in the table below refers to such activities as playing video games or going to the movies.
With the use of digital gear growing, eMarketer expects the consumption of newspapers and magazines will continue to fall in 2013, as they have for the prior three years. Newspaper consumption, which averaged 30 minutes a day in 2010, is expected to drop to 18 minutes in 2013, reflecting a decline of 40% since 2010. Magazines, which averaged 20 minutes in 2010, are forecast to slip to 14 minutes this year, a drop of 30% since 2010.
To be sure, some of the time formerly spent with print has been switched to mobile devices. In a study released in the fall, Pew said news consumption was a top activity among tablet users, ranking second only to email. Pew found that 64% of tablet owners accessed the news at least once a week, while 22% read magazines with the devices at least once week.
Although the appetite for digitally delivered news may be high, the declining utilization of printed media spells further trouble for publishers who historically have generated the preponderance of their revenues from print advertising. In a sampling of the ongoing agonies of the newspaper industry – which has not seen positive ad sales since early 2006 – advertising revenues in the first half of the year were down 5.0% for Gannett Inc., 6.4% for McClatchy Co. and 8.5% for the New York Times Co., according to their respective financial statements.
While most publishers have pledged to pivot from print to pixels, the nagging question is whether the market is moving faster than they can.