Many newspapers are going to be changing hands in the coming months for rock-bottom prices. But whether the shifts will mean a boost for share prices is far from certain.
According to Bloomberg News, Tribune Co. is interviewing bankers to sell its eight papers, including the Los Angeles Times and Chicago Tribune. Not surprisingly, Rupert Murdoch’s News Corp. (NYSE:NWS) is expected to take a look at the papers. Conversely, Bloomberg L.P., the media organization’s parent company, is reportedly keen on buying the Financial Times Group, whose properties include the bisque-colored Financial Times and a half interest in The Economist magazine.
Like everything else, it will come down to money — particularly how much these wannabe William Randolph Hearsts are prepared to lose.
Take the Los Angeles Times. The paper was a money-losing financial train wreck even before the Great Recession. Billionaire David Geffen reportedly offered to buy California’s largest paper for $2 billion about six years ago out of some sense of civic duty. Chicago-based Tribune probably regrets turning down Geffen’s offer — especially after Lazard valued all eight Tribune papers at $623 million as of January.
Murdoch has coveted the LA Times for years as well but may not be able to overpay as much as he did for Dow Jones & Co. in 2007, especially now that his publishing business is splitting off from the rest of the News Corp. empire. He can no longer use the profitable entertainment properties (20th Century Fox, Fox News, etc.)) to subsidize unprofitable ventures such as the New York Post. Getting the numbers to work for the Los Angeles Times and the Chicago Tribune would be difficult for Murdoch since there are few obvious synergies with the rest of Murdoch’s holdings.
The same holds true for Bloomberg L.P. (where I worked for seven years) and the Financial Times. Michael Bloomberg may be a huge fan of the FT, but he is an even bigger fan of making money. Owning the Financial Times would do little to help Bloomberg the company sell subscriptions to the Bloomberg terminals, which is its core business. It’s for the same reason why it makes little sense for Bloomberg to acquire The New York Times.
The case for Thomson Reuters (NYSE:TOC) to buy the Financial Times — if its current owner Pearson PLC (NYSE:PSO) decides to sell the business, which seems likely — is a bit stronger, since Thomson Reuters lags behind Bloomberg in the financial information market. The Bloomberg terminal is designed to offer its subscribers their entire world. Subscribers, in theory, don’t need to buy The New York Times or the FT because the Bloomberg terminal will summarize for them what those papers are reporting.
In its article on Bloomberg, The New York Times argued “Bloomberg News reporters complain frequently about the lack of a widely read platform for their storytelling.” That’s a little hard to believe given that world’s biggest newspapers use the service. Bloomberg, though, has had an inferiority complex at times. When I was there, employees’ pay was based in part on how often your stories were picked up by The New York Times. That is no longer the case.
Employees at the Tribune papers, the FT and The New York Times aren’t going to have an easy time under any new ownership group, public or private. Though the economics of the newspaper industry are improving, they aren’t improving nearly fast enough. More cost-cutting or layoffs are practically a certainty.
Murdoch, Bloomberg and Warren Buffett, who has invested in the sector because of dirt-cheap prices papers are selling at, are rich enough not to need to worry about the day-to-day travails of their newspaper property. Arthur Sulzberger, the scion of the New York Times’ founding family, and Donald Graham, his counterpart at the Washington Post Co. (NYSE:WPO), aren’t so lucky. The New York Times Co. (NYSE:NYT) has successfully implemented a paywall strategy, which has helped boost its share price by more than 9% this year. But the gains in circulation revenue were not enough to offset the declines in advertising sales. Washington Post is even worse shape because its once-lucrative Kaplan for-profit education business is struggling under the weight of a government crackdown. Its Newspaper Publishing division reported an operating loss of $21.8 million in the last quarter.
One of the biggest ironies of the modern media world is that the best newspapers seem to have the gloomiest financial outlooks, precisely because they have invested the most in their products.
Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.
