Newspaper stock and the paper it’s printed on

There’s more bad news in store for newspaper-company stockholders following the Knight Ridder sale. McClatchy is bound to find that the multiple it gets for the 12 big-city and no-growth-market papers it plans to sell will be lower than the less-than-steller multiple it paid for KR itself…. if it even manages to sell all of them.

This will raise the effective price McClatchy paid for the papers left, but it lowers the multiple the multiple analysts and stockholders will ascribe to newspapers. McClatchy is all the more committed to a shrinking industry and this will continue to hit its share price. The cutbacks the surviving, adopted KR papers avoided for the moment will come eventually. And the orphans are sure to be doing their imitations of Oliver at dinnertime soon. Bad news and more bad news.

And I’ll argue that the same effect is waiting to haunt other big, one-size-fits-all media companies as they are saddled with big costs while smaller, nimbler, more effective, targeted, and efficient competitors eat at them. Newspapers are the cash cow in the coal mine.

Janet Whitman explains it in the NY Post:

The dearth of bidders for Knight Ridder, which put itself on the block in November amid pressure from large investors unhappy with its weak stock price, reflects the uncertain prospects for the newspaper industry. Newer rivals such as the Internet are snagging readers and advertising dollars.

That could make it tough for McClatchy to fetch attractive multiples for the papers it hopes to sell. McClatchy acquired Knight Ridder for a multiple of less than 10 times expected cash flow, well below historic multiples 12 to 13 times for newspaper deals.

“We think the multiple paid is unlikely to produce much cheer for newspaper investors,” said Lauren Rich Fine, who follows the publishing industry for Merrill Lynch. She added that it “will likely cap multiples in the group for some time unless fundamentals improve.”

What’s the solution? There are no white knights left. What the industry needs now is tough, strategic management that drives the news business away from its dependence on paper to a very different future in any media. You have to shrink to grow.

: I just came across a media stock blog — appropriately shrouded in black — where the analysts are at war over this deal. The oft-quoted John Morton says it’s bad news; another says the big papers will get a higher multiple (can I have what he’s smoking?).

  • Perhaps it is time to reconsider the model for big city newspapers. The financial returns expected of a public company may not be appropriate. A private owner could run a paper using a different set of values. We see this model in some of the opinion magazines on a smaller scale.

    Public companies are not only expected to show a profit, but to show growth as well. In fact the pricing of the stock depends more on the expectation of future growth than on the actual earnings, which is why mature companies such as beer and cola trade at a low P/E.

    Rather than looking for a white knight in the public arena perhaps the employees should look into taking the companies private. They have a vested financial interest, and want to put out the best product they can. There have been examples of employee-owned companies in the past, several were quite successful.

  • A few interesting things:

    1) Many of the papers going on the block are unionized. Not sure what legal recourse the new owner will have for breaking those contracts, but clearly delivery truck drivers making six figures in Philly (sources tell me it’s not uncommon) isn’t going to help the profit picture. In the pressroom of a unionized paper I worked at, the pressman broadcast the sound of a train whistle over the intercom whenever the shift went into overtime (the sound of the “gravy train”). Those days of unions milking low-margin papers are coming to a close.

    2) I heard antitrust mentioned in conjunction with the sale of the St. Paul Pioneer Press. Am I the only one who thinks that this is a silly idea given that newspapers are struggling for their existence (someone’s going to have dominance of a rapidly shrinking market given all of those other media choices)?

    3) Employee-ownership has worked well and not. Keep in mind that stockholders are the back of the line when a company goes south — debtholders legally have first dibs. Just look at what happened at United Airlines to see that some things change but some things remain the same.

    Finally, both beer and cola companies trade at decent P/E’s (Coke’s at 21 and Anheuser-Busch is at 19). Both Microsoft and Cisco are around 23.

  • journalist

    1. Moving papers online, as you encourage, leaves behind an enormous number of citizens who are not online in a society that doesn’t support universal computer literacy or universal public access to the Internet. Journalism is not a luxury. An uninformed society quickly becomes feudal.

    If you want to make a killing, sell pet rocks. The business of informing society should not be merely a cash cow for the greedy.

    Corporate demands 30 percent profits from its news operations. When they were private, they thought 25 percent was lavish, and sacrificed down to 23 percent when they needed to make magnanimous investments in their journalism. Top salaries and bonuses gouge investors more than living wages for journalists.

    2. Top union wage at the Philadelphia Inquirer, for experienced reporters and copy editors, is $67,983.24; makeup editors get $50 more a week. Those complaining so bitterly about this make much more, of course. (Source: Guild contract online)

    The person whose job it is to get the paper in on deadline is a nonunion management editor. The drivers are probably Teamsters; do they get overtime because these managers are not able to let go of stories to meet deadlines? Well-run papers have managed to eliminate all overtime.

    3. Jeff, your internet evangelism would make more sense if accompanied by efforts to get everyone online. I would expect someone with your history to care more about the digital divide and less about stoking corporate windfalls because paper and presses are no longer such a chunk of the expenses.

    4. Have you looked at what happens when there’s no budget for newsgathering any more? Where big papers are reducing staff and closing bureaus, small dailies in those areas are expanding to fill the void. Little more than shoppers, they’ll write nice stories about anybody who buys an ad. Meanwhile the big news site still has to struggle to perform the watchdog function with local advertising gone to the Podunk County Daily Times. And the big-paper executives retire to sunny beaches on the multimillion-dollar bonuses they accrued while making one clueless mistake after another, leaving the areas they’ve served so poorly without a reliable source of news and information.

    Helluva revolution, Brownie!

  • Bradysyacht

    Bunk. There isn’t much of a digital divide. Three-quarters of American households have internet access — a huge amount given that the technology has only been around for 10 years or so.

    More people have gotten the internet at a faster rate than any other technology, including telephones or TV. And internet penetration continues to grow.

    Also, all public libraries have internet access. So does virtually every public school in the nation. Anyone can get it for free. And major cities are moving to provide wi-fi access for all citizens for free, from San Francisco to Philadelphia.

    Wake up. It isn’t 1995 anymore. In 2006, the internet is like the telephone. You must have it or you cannot be an informed member of society. The main group of people who do not have access are retirees who choose not to learn how to use it. As they die off in the next decade or two, internet penetration will exceed 95 percent, just like TV penetration.

    Finally, the small number of people who don’t have internet access, won’t ever get it, and don’t go to public libraries aren’t people who were subscribing to newspapers anyway. They were already out of the loop, even before the internet.

    Like it or not, the internet has forever changed the newspaper business and has empowered consumers. Getting mad about it, or claiming it is all unfair because it is creating some kind of new feudal system is not only inaccurate, it makes you the 2006 equivalent of the guy in 1920 who said “who needs these newfangled telephone things anyway? I don’t trust them.”

    – 30-

  • sam glasser

    The elephant in the room, my friends, that no one wants to acknowledge is that the credibility of many newspapers is at about the level of a carney barker. Read some of the better blogs that discuss the press. The AP, once a shining icon of American journalism, is constantly being taken to task for misleading, inaccurate, or downright false reporting. Why is the NYT constantly resurrecting the misconduct at the Abu Gharib prison? Out of 100,000 troops in Iraq a dozen or so acted improperly, were arrested and in many cases convicted. The Times won’t let go of this, but when was the last time they discussed Saddam’s mass graves? Patterico’s blog is a litany of reader abuse at the LA Times. The Washington Post doesn’t have an editor with the brains, balls, or good taste to spike a Robin Ghivens column that went after Chief Justice John Robert’s young children during his confirmation? When the newspapers are called on this garbage they usually arrogantly dismiss the complaints. Why should we, the readers, pay for the privilege of being lied to, talked down to, and dismissed as pests when we do have a gripe? More and more people are catching on to this. That’s one big reason why circulation is dropping and adding its impact to the less than rosy financial results.

  • journalist

    Do the diligence, bradysyacht: “And major cities are moving to provide wi-fi access for all citizens for free, from San Francisco to Philadelphia.” Yup, San Francisco is, and Philadelphia has it, but Verizon successfully pushed for passage of a bill that gives incumbent carriers the right to prevent Pennsylvania cities from creating and charging for municipal Wi-Fi. Whoopee. America’s a big place, and cable — never mind Verizon — isn’t just going to lay down and let free wi-fi replace its investment.

    “You must have it or you cannot be an informed member of society. ” You must live in a major metropolis where most people actually have BlackBerrys, too. (I’ve never seen one.) Newspapers used to penetrate society in order to inform. Kids delivered papers as their first job, and got the habit early. As you’ve pointed out, you have to actively seek out news now, pay for an IP out of your shrinking income after you’ve paid for gas and heat and food. Maybe you only know rich people on your yacht. Most people just watch TV instead: American Idol.

    Library hours have been cut drastically (did you notice?) and their computers have long lines to get on. And I don’t see people passing that lone home computer around so the whole family can get a crack at their favorite section of the news site on their dialup.

    Many more people always read papers than ever subscribed to them, and since advertisers wanted all the eyeballs they could get, newspapers researched and bragged about how many people read every copy sold, multiplying their reach. At some papers’ sites, every reader has to register with a valid email address.

    “Empowered consumers” is marketing mush. First, you “consume” food and beverages; you use, access, or jack into the net. And empowerment only comes high up on the learning curve. Yeah, we’re online, we do email and send photos to our relatives, and the kids like games and myspace. We send each other jokes. At most news sites, readers hit a couple of top stories and leave, no matter how much is there.

    People access the net at work. That’s why traffic drops so much on weekends. And why most people only frequent six sites. How much time can they get away with not working, after all?

    If news organizations actively supported computer literacy in what’s left of their newsholes, pushed for local wifi, distributed recycled computers and worked on real penetration, they could herd their local readers to their online sites with that promise of “free” and own the future. But if people still don’t find the obits when they get there, because they now cost hundreds of dollars instead of being news stories, they still won’t get the information the community most needs: whose wake you have to show up at.

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  • It is rather entertaining to read “journalist,” but he surely can’t be real. He’s such a perfect stereotype of the two things that are gentically wrong with most journalists.

    Rather than deal with the reality of the situation newspapers find themselves in, he wants to argue that it is morally wrong. That may be true, but it doesn’t matter.

    And his acceptance of liberal tropes, the divide between the haves and have nots and the danger of “greed” goes to the other problem the MSM have in attracting an audience — trust. If you were a politician, would you trust this guy to be objective? If you were a reader and saw his byline, would you trust that he’d given both sides a fair shake?

  • Question for “Journalist”

    Dear Journalist:

    Please answer this question…

    Internet = Hitler?

  • buggy driver

    Journalist, you seem like the perfect person to help me with my cause. I doing a petition to allow horse and buggies on the highways. They don’t let you do that and it’s not fair to those who can’t afford cars, plus I’ve lost a lot of customers and people keep telling me my job is worthless cause anyone can just get in a car and drive. would you please help me? no computers necessary

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