Sunday, August 17, 2008

Game-changing newspaper buyers

With a growing number of newspapers on the market at a time they most likely will fetch historically low prices, somebody is going to start buying some of them. But don’t count on the usual suspects.

Start thinking, instead, about such unconventional potential purchasers as the multibillion-dollar investment funds created by countries like Singapore or the sheikhdoms of the United Arab Emirates.

For considerably less than $1 billion of the up to $800 billion in its coffers, the Abu Dhabi Investment Council could buy the Newark Star-Ledger, Chicago Sun-Times and San Diego Union and turn them into U.S. editions of The National, the new English-language paper launched in the spring by the state-owned Abu Dhabi Media Co.

In addition to grabbing major publishing platforms with convenient access to three of the nation’s largest and most influential population centers, the oil-rich emirate, which is one of the seven states comprising the UAE, also might consider buying the Austin American-Statesman to gain a major voice in the capital of the state that, with all due respect to Alaska, is the hub of the American petroleum business.

Once established in three or four major U.S. markets, The Nation could expand publication to other cities in the same way USA Today, the New York Times and Wall Street Journal publish via satellite printing plants. Alternatively, Abu Dhabi could continue publishing the newspapers under their existing names, supplementing the indigenous coverage with articles and editorials from The National. Or, it could do both.

Why would Abu Dhabi want to buy a bunch of American papers?

The emirate, like several other wealthy world powers, is eager to diversify its national treasure in a broad array of industries in a variety of countries. Owning a group of widely disseminated publications in the United States would give the emirate the extra dividend of a powerful platform for asserting political and commercial influence.

The investment would leverage the considerable start-up and ongoing costs associated with operating The National, whose staff of 200 journalists is headed by a former editor of the UK’s Guardian. Any subsidies from the sheikhdom required to transition the U.S. papers to the interactive era could be written off as the modest price of protecting Abu Dhabi’s interests and projecting its perspective in key U.S. power centers.

In both motive and means, Abu Dhabi is far from alone.

It is but one of more than a dozen so-called sovereign investment funds created by countries as diverse as Australia, China, Hong Kong, Khazistan, Libya, Russia and Saudi Arabia. Taken together, the sovereign funds, which are unregulated and essentially answer to no one but the political authorities in their respective lands, have perhaps as much as $3 trillion to spend, according to the European Central Bank. (See list below.)

While Abu Dhabi has been investing in enterprises like Citigroup and the Carlyle Group, its neighbor Dubai, which has up to $80 billion to spend, has been buying into such American icons as Barney’s of New York, the Chrysler Building, MGM Mirage and Nasdaq.

One deal that got away from Dubai was its effort in 2006 to buy the company that runs several major American ports. Though the transaction originally was supported by the Bush administration, the deal derailed when U.S. opponents argued that foreign management of the ports could pose a national security risk. Had Dubai or one of its neighbors owned a chain of U.S. papers at the time, would the outcome have been different?

Abu Dhabi is not the only sheikhdom in the UAE that has created media aimed at influencing the English-speaking world. Qatar, whose sovereign fund contains up to $60 billion in assets, launched an English version of its Al Jazeera satellite-delivered news channel on July 4, 2005. But Al Jazeera has been unable to build audience in the United States, because only a handful of cable- and satellite-TV companies have been willing to carry the channel.

Qatar would be even more frustrated if it had tried to get into over-the-air television or radio broadcasting, because the U.S. government limits foreign ownership of broadcast licenses to 20% of the entity controlling the license. Because no such rules govern the print media, there would be no obstacle to a foreign company buying as many newspapers as it liked in the United States.

Beyond the UAE, several of the other countries operating sovereign funds also might find it commercially or politically useful to build a publishing presence in the United States.

In but one example, a chain of newspapers would be a comfortable fit for Singapore, whose Singapore Press Holdings is “licensed” by the government to publish the English-language Straits Times, as well as 13 other newspapers and 100 magazines. Singapore Press Holdings is one of the most profitable publishers in the world, generating a 54% pretax profit in 2007, though its margins would be difficult to duplicate in the more open and competitive U.S. marketplace.

Like the other sovereign funds, Singapore, whose $130 billion endowment is second in size only to China’s in Asia, has been diversifying in many industries in many places. It has bought stakes in Barclays, China Eastern Airlines and Myer of Melbourne, an Australian retailer. In the United States, it has invested in both Merrill Lynch and its headquarters building, the Merrill Lynch Centre. If Singapore intends to heavy up on U.S. assets, it might find it useful to have the power of some friendly newspapers behind it.

The precedent for political- or ideologically-oriented ownership already exists at the Washington Times, which was found in 1982 by Rev. Sun Myung Moon of the Unification Church as a conservative counterpoint to the prevailing media. Multiple press accounts over the years state that the church has put the better part of $2 billion into subsidizing the paper.

Sovereign funds and other non-traditional acquirers come to mind as potential purchasers of American newspapers because most of the conventional buyers seem to be out of the running.

Apart from Gannett, which has more than a half-billion dollars in cash and a conservative balance sheet that could accommodate the debt necessary to finance acquisitions, no other publicly traded American publisher appears to have the financial wherewithal or, frankly, the will to buy any more newspapers. With its stock trading near modern-day lows, Gannett would have a hard time convincing most of its investors that owning more newspapers would boost the value of their holdings.

Apart from Hearst which recently bought the Connecticut Post to help its partner, MediaNews Group, to reduce its debt, such privately held publishers as Advance, Blethen, Copley, Cox, Landmark, MediaNews and Tribune are the ones doing the selling, not the buying.

News Corp., the international multimedia powerhouse, has the capacity to buy U.S. papers. But the intended sale of the Ottaway division acquired in the Dow Jones purchase, which was abandoned when no buyers materialized, signals that Rupert Murdoch probably is interested only in trophy properties like the Wall Street Journal – not any of the more prosaic publications.

While several western European newspaper publishers are faring better in the Internet age than their American counterparts, most are focused on developing new media in their home markets or expanding elsewhere in Europe. Notwithstanding the appeal of favorable foreign exchange rates, most European publishers would regard U.S. acquisitions as dangerous distractions from other, more promising initiatives like websites, mobile media and free dailies, according to several colleagues in Europe. "It's too late" to turn around American papers, one German publisher told Business Week.

While financially oriented private-equity investors in the U.S. and abroad ordinarily would gravitate to newspapers as an appealing asset class priced at historic lows, many potential investors have been frightened off by the rapid distress encountered by the buyouts undertaken at the Minneapolis Star Tribune and Philadelphia Media Holdings.

There always is a chance a wealthy individual or two will turn up to buy any or all of the newspapers that are on the block. Because newspapers nowadays are intrinsically questionable financial investments, the individuals buying them most likely would be doing so to express thier social, political or commercial points of view.

In the event foreign funds, institutions like the Unification Church or agenda-packing individuals start buying newspapers, it will mark the end of the long era of corporate ownership that widely embraced just-the-facts ma’am journalism as a sound commercial strategy for appealing to the bradest number of readers and advertisers.

A return to the vigorous partisanship that was common in the American press in the 18th and early-19th centuries might make for some lively reading. If our papers fall into the wrong hands, however, the consequences for our democracy could be calamitous.


Anonymous Anonymous said...

The prospect of foreign ownership of U.S. newspapers would provoke a political backlash, I believe. There is already considerable grumbling about the Washington Times and there would probably be lot more if the paper ever got an audience. But the Times barely has 100,000 circulation, compared to 700,000 for the WPO, and there are signs the Rev. Moon is tiring of pouring all this money into a newspaper that does not influence the Washington agenda. The staff has been radically reduced, and the Times just recently contracted out its printing operations to the Baltimore Sun (which truly needs the money). The foreign ownership also becomes an issue with the FCC when newspaper properties carry TV stations with the printing product. Note that Sir Rupert became a U.S. citizen, spurring the legion of his enemies to contend it less to do with patriotism than FCC considerations.

11:25 AM  
Blogger tom said...

The problem is that newspapers are in a bear market, so why would somebody buy now when the anticipated price will be much less farther down the road?

Of course the upside of the Emirates trying to buy local papers is that it could inspire local folks to scrounge up a better deal just to keep it out of foreign hands.

5:45 PM  
Anonymous Anonymous said...

I agree with your reference to 19th and early 20th century journalism being more lively, etc. But, your characterization of corporate media as 'just the facts ma'am' is not accurate. If anything, corporate media is most charitably characterized by laziness -- reliance on press releases, essentially no real understanding or conveyance of context, and mild-to-not-so-mild devotion to the status quo.

All of which is, among other things, consistent with cost-cutting as the source of profitability.

5:41 AM  
Anonymous Anonymous said...

And it is going to get worse. See the attached dismal forecast put out by Morningstar on newspapers:
Why would anyone buy with these economic projections?

1:51 PM  
Anonymous Anonymous said...

Nice piece but a little old. Wahhabis already own around 5% of CNN & FOX.

They have been helping Washington Post, NY Times, and CNN with 100s of millions in loans.

No wonder coverage from all these outlets works very hard to ever talk about the Saudis, the real funders and sponsors of global terrorism.

2:31 AM  
Blogger rknil said...

Newspapers already have fallen into the wrong hands -- Sam Zell's. Dean Singleton's.

11:02 AM  
Anonymous Anonymous said...

Haha foreign ownership of the US, what do you think this country is made of? Immigrants... I know we have problems but lets not blame them on folks that can't refute because they don't understand us!

4:05 AM  

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