Sunday, February 24, 2013

Why traditional publishers won’t buy Globe

When the New York Times Co. bought the Boston Globe for $1.1 billion in 1993, many of the nation’s newspaper publishing companies happily would have paid the same price for the same opportunity. 

With the Globe now on track to be sold for a tenth (or, perhaps less) of the value it commanded a decade ago, it is safe to assume that no traditional newspaper publisher will be in the scrum of wealthy individuals and private-equity funds said to be bidding for the honor of owning this iconic brand.  

There is no way of knowing who will buy the Globe. Oft-mentioned candidates range from Aaron Kushner, the publisher of the Orange County Register, to members of the Taylor Family, which pocketed better than a billion bucks by selling the paper to the NYT. Other, less-probable names include Jack Welch, the former General Electric boss, and Ernie Boch Jr., a Boston auto dealer. 

One thing is all but certain.  The traditional newspaper publishers are likely to sit this one out.  What do they know that the newbies don’t? We’ll discuss that in a moment. First, the background:

After writing off $814 million of the value of the Globe in 2006, the NYT Co. put the paper on the auction block last week because the ongoing advertising slide at the paper is proving to be an unmanageable distraction at a time the parent company is seeking to build the Times into an even bigger cross-media brand than it is today by delving deeper into video and digital publishing. 

Like the Wall Street Journal, the New York Times is must reading for the world’s elites in government, politics, business, the arts and academia.  A borderless brand whose appeal is not defined by its geography, the reporting and commentary in the Times is as valuable in Pakistan and Peoria as it is in Park Slope. 

On the other hand, the Globe, like every other metro newspaper in the land, has none of these advantages. With staffing and newshole squeezed in response to the 38.8% slide in revenues in the last decade that brought sales to $394.7 million in 2012, the Globe is trying to remain relevant to a dwindling number of readers and advertisers in a 1,422-square-mile metro area that includes 22 cities and 79 towns inhabited by 3,067,000 people.  (The revenue figures include the sales of the affiliated Worcester Telegram & Gazette, which also is up for sale.) 

With circulation today of 225,482 on weekdays and 365,512 on Sunday – or less than half the audience that NYT Co. bought in 1993 – the paper is purchased by barely 7% of the population in its primary market area.  

Despite the contraction of its business in the years it has been owned by NYT, the Globe, like all metros, must contend with many of the fixed production and distribution costs that were required when revenues and circulation were nearly double what they are today. 

Variable costs, like newsprint and newsroom staffing, were pared over the years to try to salvage a semblance of the historic profit margins that newspapers commanded before the digital media lured their audiences to alternatives ranging from the Drudge Report and YouTube to Beantown Bloggery and 52 Weeks 52 Restaurants.  

With the newspaper audience ferociously fragmenting, marketers are forsaking high-priced newspaper advertising by listing jobs on Craig’s List, connecting with condo shoppers at the Boston Real Estate Blog and intercepting car buyers on Facebook.  

Traditional newspaper publishers, whose advertising sales collectively have fallen by more than half since peaking at $49.4 billion in 2005, have not figured out how to solve identical problems at the papers they already own. So, they are unlikely to belly up for more of the same in Boston, even though the paper probably would sell for, give or take, $100 million    a historically low price for this once-prized asset. 

Beyond the global (pardon the pun) reasons why publishers would be averse to buying the Boston paper, many of the traditional newspaper companies would have particular reasons for avoiding the auction.  

Digital First, which owns the Detroit News and Denver Post, has explicitly sworn off print.  Ditto, Advance Newspapers, which has gone so far as to reduce print publication to three days a week in New Orleans, Syracuse and multiple markets in Alabama and Michigan.  Because neither of these companies successfully has cracked the digital-publishing code, they are likely to focus their energies on optimizing the web, mobile and social operations at their existing holdings before tackling any turnaround projects.

New acquisitions likely would be off the table for heavily indebted companies like McClatchy and Lee Enterprises, which haven’t figured out how to fix the struggling metros they, in retrospect, overspent to buy in Miami and St. Louis.  The creditors of these companies monitor their activities so carefully that it practically takes a committee meeting to authorize the purchase of extra paperclips. 

Gannett, the largest and least indebted of the publicly held newspaper publishers, is working assiduously (as discussed here) to position itself as a digital publisher. The last thing the owner of the battered Detroit Free Press wants is to have to explain to Wall Street why it just bought another troubled metro paper.  

The Tribune Co., which owns the Chicago Tribune, Los Angeles Times and Baltimore Sun, is out of the running, because the new, post-bankruptcy managers of the company are planning to jettison its publishing operations so they can concentrate on the broadcasting business. 

Although Warren Buffett has bought dozens of dailies in the last 12 months, he excluded the Tampa Tribune from the Media General transaction because he wants to avoid the kind of metro market that the Globe represents.  Buffett is going after properties in relatively small and isolated communities, where papers can deliver deeper and more closely targeted news and advertising coverage than possible in a highly competitive urban sprawl. 

Notwithstanding the personal joy Rupert Murdoch might have in tweaking the politically liberal Boston market by taking control of the Globe, there is slim chance his News Corp. would make a play for the newspaper.  Murdoch in the past had no problem subsidizing the money-losing New York Post with profits from his highly successful Fox broadcast and entertainment operations.  But the N.Y. Post, the Wall Street Journal and all of Murdoch’s other print properties are being severed from Fox, making it doubtful that the managers tasked with running a batch of challenged print properties from London to Australia would be eager to add another headache to the list.  

With the usual prospective buyers off the table, the odds are strong that next owner of the Globe will be a newcomer equipped with the resources, determination, vision and daring to create a more successful metro publishing model than the industry stalwarts have mustered to date. 

While veteran publishers may generously welcome fresh blood to their fraternity, the initiation is likely to be bracing. 


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