(this is a restored post; comments lost)
Alan Mutter runs the numbers to see which newspaper companies could be taken private and Mark Potts fears they could be taken private by private-equity blood/cash-suckers. A few examples: Mutter says the Times Company would need to borrow $2 billion to go private, Gannett $4.5 billion, and McClatchy a K-Mart flashing blue-light special of only $467 million.
But what are you buying when you buy a newspaper? And in a buy-or-build debate, which is the better bet? And if you just wait, will some of the giants just topple, leaving holes in the ground that’d be easier to fill from scratch?
Well, to start with, you’re buying cash flow, but that is only going to diminish and as too many private buyers of newspapers are finding, it’s getting tougher and tougher to cover debt expenses. You’re buying physical plants but — unlike, say, retail or fast food — they tend not to be in desirable areas. You’re buying union agreements; whoopie. You’re buying huge physical costs: presses, trucks, and other fast-depreciating assets. You’re buying shut-down costs galore.
Oh, but why be so gloomy? You’re also buying advertiser relationships, but those tend to be with the diminishing arenas of retail, jobs, auto, and homes — while Google is grabbing the growth by finally serving the mass of underserved small advertisers… and you’re not buying any expertise in how to compete. You’re buying reader relationships, but that, too, is shrinking and after witnessing the shrug that has met the killing of newspaper sections, one wonders how firm that relationship is. You’re buying a newsroom and though it has expertise in the locale, it is generally not prepared for the future and getting it retrained is a cost and a risk (lots of buyout expense there). And you’re buying a brand, but I fear that most of the equity there is in familiarity over affection (or, in some markets, trust). (I’d say the Times brand is worth proportionately more than a local brand.)
So I wonder whether even at bargain prices it’s any bargain to buy a newspaper.
Or would it be better to build? We’d need to look at a business plan to see what it would take to create a meaningful local news-and-advertising network (note that I said network, not product).
Or would it be better to find a perch and wait for the roadkill? I think that’s what HuffingtonPost is doing by installing an editor in Chicago. As we said the other day, one can also use Google and other technical, sales, and distribution platforms to build with little cost or risk.
I’d take those bets in reverse order. Knowing that carnage is inevitable, I’d figure out how to position myself to swoop into these markets. Then I’d start at least one strong local network so I had a proven template to take to other markets. And I wouldn’t invest a dime in an old newspaper company, no matter how cheap. That, of course, is why they’re getting cheaper and cheaper.