What do you buy when you buy a newspaper?

(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.

  • http://www.buzzmachine.com Jeff Jarvis

    Restoring lost comments……

  • Bob Wyman Says:

    “Knowing that carnage is inevitable, I’d figure out how to position myself to swoop into these markets.” Then, build a shared, geography-independent platform that can provide distribution and funding for a network of distributed news bureaus — many founded or staffed by refugees from the old newspapers.

    The problem, of course, is that as the individual papers go down to bankruptcy or exhaustion, the journalists will be freed up in geographically concentrated batches. If there is no existing network for whom those journalists can build or expand a local bureau, the temptation will be for them to build their own local web site and brand… (to build their own platform) The risk then, is that the pattern of newspaper failings may end up propagating the existing out-moded geo-based and fragmented industry structure into the post-paper era…

    Distribute the journalists but share the platform…

    bob wyman

  • Jeff Jarvis Says:

    Bob,

    Right. The key here is not to try to build a national blanket but to have an infrastructure that allows flowers to bloom where they will.

    (I quoted you and Edward Roussel in my upcoming Guardian column, by the way. Thanks!)

  • Tim Worstall Says:

    Not wholly convinced about not buying at newspaper at any cost. As a financial manouvre buying an asset you know will fail in 20-30 years can be entirely rational….as long as you can sweat out your purchase price and profit before that happens.

    It depends upon that definition of “any cost” for example. McCaltchy at $50 million could almost certainly be asset stripped (or sweated if you prefer) profitably. I’ve no idea whether it could at current prices…..which takes us back to trying to define “any cost”.

  • Jeff Jarvis Says:

    Tim,
    Right. Isn’t the big question then the trajectory of that decline? It keeps getting steeper and steeper in its slide.

  • Rick Waghorn Says:

    Bob,

    If there is no existing network for whom those journalists can build or expand a local bureau, the temptation will be for them to build their own local web site and brand… (to build their own platform) The risk then, is that the pattern of newspaper failings may end up propagating the existing out-moded geo-based and fragmented industry structure

    So they pick a sustainable patch and off they go…

    http://www.mylocalwriter.com/queens – or smaller, perhaps. Till we try we don’t know where the ‘tip’ point is size-wise; smaller than Loudon County, one suspects…

    But within that patch-work quilt of take-ups will be an inherent elegance that comes with MLW…

    And, Jeff, that’s what we’re doing; sitting on a perch with a geo-lite network ready to wave every bought-out journalist towards a DIY local news CMS – that they can be the cherry on top of an EveryBlock cake.

    They can even be their own ad dept via http://www.addiply.com

    Well, that’s the theory… in the meantime find me enough redundant sports hacks and they can network themselves into http://www.mybaseballwriter.com ….

  • Bob Wyman Says:

    @Rick Waghorn: “So they pick a sustainable patch and off they go… Till we try we don’t know where the ‘tip’ point is size-wise; smaller than Loudon County, one suspects…”

    I suspect that there are two relevant sizes here:
    1. Size of the optimal “news bureau”: Some might have “size” defined by geographic area, others would have size defined by area of interest (”Internet Technology”, “Political Commentary”, etc.)

    2. Size of the site that hosts the news: The problem here is one of integration. If the sites are very small, there is a massive amount of duplicate engineering, technical support, ad sales, etc. Also, it is cumbersome for people to move between sites.

    My gut tells me that we should have a large number of focused news bureaus which feed into a small number of relatively “large” integrated news platforms. The bureaus would focus on content production and, in many cases, community building while the platform providers would focus on technology, ad sales, support, audience building, marketing, etc.

    Partial models for the division of interests can be found by studying Huffington Post, the traditional ‘news syndicates’ (King Features, etc.), “blog networks” and organizations like the AP.

    bob wyman

  • What’s left that is of any value? Us, the journalists. Our name, our respect, our contacts… Now organise that in a geography-lite fashion. » Out With A Bang Says:

    […] http://buzzmachine.com/2008/07/17/what-do-you-buy-when-you-buy-a-newspaper/#comment-379520 […]

  • Rick Waghorn Says:

    Bob,

    If only for simplicity’s sake, we’ve just set our sights on a traditional, English market town… can we make Stamford our ‘tip’ point; that community has sustained two local newspapers for 300 years; if it’s just – and it’s a big if – if it’s just the delivery mechanism that’s now fatally flawed, shouldn’t we be able to sustain a local news platform for a community of such an ilk?

    http://outwithabang.rickwaghorn.co.uk/?p=75

    If nothing else, it ought to be worth a go…

  • Walter Abbott Says:

    So I wonder whether even at bargain prices it’s any bargain to buy a newspaper.

    No.

    Just ask Sam Zell if he had it do over again, would he. You know the answer.

  • Jay Rosen Says:

    “But what are you buying when you buy a newspaper?” That is a great question.

  • Tim Worstall Says:

    “Isn’t the big question then the trajectory of that decline?”

    Indeed it is. They don’t call such operations financial speculation for nothing…..you remember Niels Bohr’s line? “Making predictions is difficult, especially about the future”?

    I wrote up something a few years back looking at the finances of US newspapers. Classifieds revenues are going to disappear, certainly as soon as Craig’s List arrives in a particular town. And classifieds amount to some 30% or so of total revenue (at least, at the NYT they did at that time).

    By comparison I looked at the UK nationals market: where classifieds are a tiny part of revenue. Also, we don’t have that geographical separation that the distances of the US have previously imposed (and the net is clearing out, as the railways did in the much smaller UK).

    My conclusion was that there’ll be many fewer US newspapers (which I think everyone will agree with) but that they’ll be much more ideologically diverse….as the UK newspapers are.

    In short, competition will be by worldview of the paper, not geographic area.

    Whether this will actually happen….well, back to Niels Bohr I think at this point.

  • Jeff Jarvis Says:

    Jay,
    what’s your answer?

  • Jeff Jarvis Says:

    Tim,

    National papers (or products) then?

  • The economics of going private: If the predators are willing, perhaps their bankers are too weak | Media Money Says:

    […] of this talk incites Jeff Jarvis to say that he wouldn’t “invest a dime in an old newspaper company, no matter how […]

  • Tim Worstall Says:

    National (as far as online makes that important: but it does, in language, shared experience and interests etc and I am indeed assuming that we’re talking about the death of the dead tree version at some point) and competing in ideology, yes. You write for The Guardian and it’s clearly a very different paper in its worldview than the Telegraph is. Which is why some people buy one and others another.

    Worth noting that the academic research isn’t that people have their worldview influenced by the news sources they have (at least, not in a competitive market) but that they gravitate to one that appeases their already extant views.

  • The big question now is whether this many-headed monster of info and apps can ever be tamed into something that’s even vaguely house-trained? » Out With A Bang Says:

    […] http://buzzmachine.com/2008/07/17/what-do-you-buy-when-you-buy-a-newspaper/#comments […]

  • Pingback: Just a flesh wound? The future of local newspapers in a credit crunched world | Media Money

  • Pingback: Just a flesh wound? The future of local newspapers in a credit crunched world | The Fullrunner