Saturday, May 05, 2007

Thomson's 20/20 foresight

The Thomson Corp. wouldn’t be in a position to take a run at Reuters if Roy Thomson didn’t have the gumption to buy the tiny Timmins Press in 1934 – and his heirs didn’t have the foresight 66 years later to get the heck out of the newspaper business.

Thomson, which has emerged as the not-so-secret suitor for Reuters, was the fourth-largest publisher of newspapers in the United States when it stunned the industry in 2000 by announcing plans to sell 55 daily papers, 75 non-daily papers and 400 other specialty properties.

At the same time Thomson was peddling its papers, the Tribune Co. paid twice the trading price of stock of the Times-Mirror Co. to buy it for $8 billion – or $3 billion more than the combined companies are worth today. Hearst, meanwhile, was stretching to acquire the San Francisco Chronicle for $600 million-plus, a deal it may have come to rue. The Chronicle's cumulative losses since then are estimated to be in the nine figures – and still climbing.

Thomson’s wholesale departure from publishing was the logical result of the company’s decision in the late-1970s to begin acquiring and building specialized, premium-priced information services for the finance, legal and scientific communities. Newspapers represented only 14% of the company’s total sales of $6 billion by the time Thomson decided to jettison its print properties in Canada and the United States.

Whether by luck, intuition or a little of both, Thomson’s management recognized far earlier than any other traditional publisher that electronic delivery would usurp print as the preferred medium for delivering valuable financial data and searchable databases of legal opinions or medical research. They evidently didn't envision Google, MySpace or YouTube, but nobody's perfect.

When Thomson finished selling its publishing portfolio to such companies as Gannett and the predecessor of Gatehouse, it banked nearly $3 billion at an average price of 12.8 times earnings before interest, taxes, depreciation and amortization (EBITDA). This compares with the average value of the public newspaper companies today of a bit more than 10x EBITDA.

For a few years after the newspaper divestiture, Thomson retained a 20% stake in the prestigious Toronto Globe & Mail. But sentiment went only so far and Thomson sold its remaining stake in its former flagship in 2003.

Thomson’s journey is an inspiring, and important, lesson for the mainstream media companies struggling with the changing fundamentals of the modern world. Publishers need to recognize that the core capabilities of their franchises are not their ability to manufacture a particular type of product called a newspaper but, rather, their strengths as content producers, audience builders and marketing organizations – regardless of the medium.

Now, the journey will continue with Thomson going after an international financial-publishing empire that got its start delivering dispatches via carrier pigeon.


Post a Comment

<< Home