Stock prices for Gannett (blue) and Tribune Publishing (orange) suggest advantage Gannett now
that its offer to buy the Tribune company is public. Prices April 2015-April 2016, from MSN Money.
Gannett says it's a cash deal, implying Gannett won't take on debt. That reduces Gannett's risk if the merger doesn’t generate substantial profits. Gannett and Tribune Publishing are old-line newspaper companies that have been transformed by digital competition. Gannett is probably well aware that other once-profitable newspaper companies failed after taking on enormous debt to finance mergers in the early years of this century.
Gannett, and some analysts, claim the merger will generate millions of dollars in “synergies,” which means reduced production costs. That is easy to say, but hard to do.
Focus instead on the value of the Tribune company assets. Are those assets undervalued at the Tribune’s current stock price? Is Gannett’s offer price still below the book value of the assets?
If undervalued assets are a factor that may explain why, according to Gannett, the Tribune has been reluctant to negotiate a sale. Changes in the Tribune's ownership and board of directors may be influencing the company's response to Gannett's offer. But we should also ask if Tribune executives have evidence that Gannett’s 63% premium is still less than the underlying value of their company.
Sixty-three percent surely sounds good to Tribune stockholders, which is why Gannett went public. But Gannett’s offer might not be the best available deal.
Focus also on the local markets where a merger might consolidate the ownership of local media that currently compete with each other. Consolidation would reduce the elasticity of audience demand. If local audiences have multiple media choices that are all owned by Gannett, that will make it easier for Gannett to sell advertising in those markets.
In a classic economic model, consolidation creates the possibility of increased power to raise prices for the owner that dominates the market. But Google, Facebook and other new media also sell local ads in local markets. One possibility is that Gannett only hopes to gain enough pricing power to become profitable in these markets.
In any case, a post-merger Gannett will have to manage audience demand. Audiences increasingly consume news only on social media sites like Facebook. The fraction of the audience that leaves social media to visit news company sites doesn’t stay long or visit often.
It’s true, and often overlooked, that about half of newspaper readers still only read the print edition. But the trends are clear, more and more people are consuming news online or on social media.
Gannett will face the tricky problem of (a) trying to stop the migration of audiences away from its traditional or digital media platforms while (b) trying to persuade social media audiences to engage with those platforms.
So, the financials of the proposed deal may favor Gannett. But managing the merger to produce anticipated cost reductions, pricing power, or profits is likely to be challenging.
(A version of this post first appeared on my Twitter account @HughJMartinPhd)
Monday, April 25, 2016
Saturday, April 19, 2014
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As readers of this blog know, the business model for Internet-based news organizations is unlikely to replace the thousands of journalism jobs that are vanishing at traditional media organizations. Newspapers have always been the major source of jobs for journalists who produce local news across the U.S.. Stabilizing newspaper revenue is critical for preserving some of the jobs that are left.
The chart above shows inflation-adjusted advertising and circulation revenues since 1991. Print advertising revenues peaked in 2000 at about $38 billion, followed by a brief decline.
In 2003 the industry added digital advertising revenue generated by newspaper websites to its advertising figures. Revenue increased slightly that year, and stabilized until 2006.
In 2007 the last recession began, and advertising revenue began a steep decline that devastated the newspaper industry. The recession exacerbated an underlying trend caused by the shift of advertising to websites and search engines. In 2010 the decline slowed, but digital advertising only accounted for 13% of the industry’s total ad revenue that year.
Some newspapers now offer discounts to encourage subscribers to select bundled digital and print subscriptions. These bundled subscriptions are designed to slow or stabilize declines in print circulation.
Digital subscriptions can also generate new revenue to offset some of the losses from print advertising revenue. And the first chart does show that subscription revenue has stabilized, which may be partly due to double-digit growth in digital subscriptions.1
The first chart also provides perspective on the second chart, which shows the ratio of circulation revenue to advertising revenue since 1991.
This ratio declined throughout the 1990s when newspaper advertising revenue enjoyed its last period of sustained growth. In 2007, the ratio began a pronounced increase that continued until 2013. If the trend continues, newspapers will generate $1 from circulation for every $2 from advertising in the next year or two.
A naïve reading of this chart would suggest that circulation is on track to replace the advertising revenue that newspapers are losing. But the first chart shows the increase in the circulation/advertising ratio is mostly the result of steep declines in ad revenue. This increases the industry's reliance on circulation, but circulation revenue is not yet increasing enough to replace the ad revenue that is being lost.
So I’m not ready to agree that newspapers revenues have stabilized.
Advertising is still the industry’s primary source of revenue. Ad revenue declines have slowed, but they have not ended. Circulation revenue appears stable, but it still cannot replace the ad revenues that continue to disappear.
Even if inflation-adjusted revenue was steady from year to year, the industry would still be falling behind. An industry has to grow faster than inflation to be considered truly healthy.
I do expect that if enough newspapers adopt economically sensible digital subscriptions, those subscriptions will help stabilize industry revenues. But it’s going to take a couple more years of data before we can tell if that is happening.
1 The amount of revenue from digital subscriptions has not been released. The report only includes percentage changes in revenue. Without the base numbers, it's impossible to know how much real growth has occurred.
Monday, April 14, 2014
This was a careful study, but it used circulation data from 1997. We need newer studies that account for the shift of audiences to the Internet before we can be sure the Pulitzers are still associated with significantly larger audiences. The second and third studies are from a line of research that examines the overall quality of news instead of focusing on Pulitzer Prizes.
We concluded newspapers that raised ad prices or reduced quality would probably accelerate the loss of circulation. However, newspapers that published quality content might stabilize or slow declines in circulation.
The third study had unusual access to 12 years of internal revenue and circulation data from an individual newspaper. The study looked at newsroom spending, subscription revenue, and advertising revenue from the print and online editions of the newspaper.
Thursday, April 3, 2014
But the benefits of this change are not guaranteed. Reducing offline production costs is a complex problem to solve.
Wednesday, May 5, 2010
This development illustrates why some proposals for preserving first-class newspapers and magazines are unlikely to succeed.
The company has owned Newsweek since 1961. The company's record of journalistic excellence rests on reporting in both the Washington Post newspaper and in Newsweek. Despite this fact, the Post Co. has for years not relied on either publication to ensure its economic survival.
The majority of revenue at the Post Co. comes from the educational testing giant Kaplan. The long-term decline in print advertising revenues has forced the company to use Kaplan's earnings to offset losses from the continued operation of Newsweek and the Post newspaper. This could not be sustained, so the Post is now forced to try and sell Newsweek.
What does this mean for other journalistic organizations?
First, Newsweek has tried to adapt to the digital world where a week's delay publishing news or commentary is far too long to satisfy audiences. This report says Newsweek's "digital side" generated just $8 million last year, too little to pay for the magazine's production.
The cost of producing print newspapers and magazines is relatively high. But advertising revenue per reader in print is also relatively high. The cost of producing digital news is much lower, but ad revenue per reader is much, much smaller than print revenue. Print journalism organizations face the problem of transitioning from high-cost high-revenue markets where audiences are still sizable, but stagnant, to low-revenue markets where audiences are growing.
Newsweek probably had unusual support for making this transition because the Post Co. is controlled by the Graham family, which has a commitment to journalism. The family was probably more willing than other Post Co. stockholders to subsidize losses at Newsweek while trying to make the transition work.
But in the end, no company can afford to keep losing money in one division and subsidize the losses with profits from another division. At some point, the company's ability sustain itself will be questioned.
So the second lesson is that suggestions for subsidizing journalism -- with profit-making parts of a company, with donors or endowments, or with government funds -- ignore a fundamental economic reality. Journalism that cannot sustain itself economically will always be at risk of economic failure.
Thursday, March 11, 2010
Hal Varian was already a distinguished research economist when he turned his attention to information economics. His knowledge and authority were well-established when he joined Google, so his words reflect more than the company's self interest.
Varian's description of the problems facing newspapers in this post on Google's policy blog won't surprise anyone who follows the business side of the industry. What deserves consideration are his suggestions about which parts of the problem matter most.
Why newspapers are losing the race for online advertising
Varin points out that print editions of newspapers are still attractive to advertisers because people actually read them. Online readers average less than two minutes on a day looking at newspaper web sites, which sounds to me as if they mostly skim headlines.
As a result, newspapers aren't attracting much of the rapidly expanding pool of online advertising revenue. Varian says search engines are not the real culprit. Search engines actually account for almost half of the revenue newspapers have managed to attract.
The real problem is readers don't find newspaper web sites engaging. Meanwhile, lucrative advertising in categories like automobiles and real estate has migrated to independent web sites that provide information about, well, automobiles and real estate.
Varian doesn't say this, but he is clearly responding to proposals some publishers have made to block search engines like Google from indexing their stories.
Those publishers should listen.
Cutting costs vs. charging for access
Varian also reminds us of a basic economic fact, one that I've also tried to stress. Most news is a commodity. Readers can find the same basic headline and story on lots of different websites. When competition is intense, prices are always low.
If newspapers want to differentiate themselves enough to persuade readers to pay for access, they must find and pay for better ways to provide unique news that readers will pay for.
Varian points out that newspapers could instead cut the costs of producing the news. He estimates printing and distribution accounts for half the cost of producing a physical newspaper. Covering the news accounts for just 15 percent of the cost.
Varian suggests newspapers try to cut costs by producing news only on the internet.
I think this makes sense, but only as a long-term response. Companies that produce physical newspapers cannot just abandon their financial obligations, such as loans to finance a building or a printing press.
Varian's real message is that it's late in the game for print newspapers that want to compete on the internet. Perhaps they should consider focusing on the issues he highlights if they want to start catching up.
Wednesday, February 24, 2010
This had the feel of a gimmick when it began two months ago. As I recently noted, the print editions of most newspapers don't generate enough reader revenue to survive. They rely on advertising.
So it's hard to take seriously any talk about generating reader revenue to support general news coverage on the web. Alternate sources of free news are plentiful and likely to remain so.
However, Herald executives may not be entirely daft. They are continuing efforts to expand online coverage of local communities with news reported by "partners" who live or operate in those communities.
The partners apparently include a paella of local web sites, weeklies, and small dailies. The Herald is trying to attract readers without having to pay journalists and others to produce the local coverage. This might help the Herald sell more local advertising.
What do the partners get? Access to a larger audience and a share of any advertising revenue generated by the experiment. Now that is an idea that makes sense.
Monday, April 6, 2009
This threat has stirred understandable shock, given the Globe's reputation as a newspaper dedicated to journalism that represents the profession's highest ideals. The first order of business for those not directly involved might be considering the best way to fend off the threat, even though some believe it's just a hard-nosed negotiating ploy.
So, it's strange to see the folks at the Huffington Post -- who routinely attract audiences by featuring stories from newspaper web sites -- coming to the conclusion that this is the wrong moment for the Globe to launch a marketing campaign.
This story by the Globe's staff touches on the underlying problem, the risk that more and more people in Boston will decide the paper is not necessary to their lives. This marketing campaign that the Globe launched today shows executives are trying to address that problem.
Of course, marketing alone will not save the Globe. The underlying problem is a large debt and a steep decline in advertising revenue that makes it impossible for the Times Co. to continue paying off the debt.
But it's far from clear that advertising revenue will come back to the Globe when the recession finally ends.
Ad revenue follows readers, not sentiment, and readers in markets like Boston are shifting to new, more convenient media to access the news. Even if readers turn to the Globe's website for news, ad revenues will be much smaller because competition is more intense on the Internet.
Whatever the marketing campaign costs, it probably won't decide the Globe's immediate fate one way or the other. But the last thing the Globe can afford right now is to reduce efforts to attract readers and advertisers.
Friday, February 27, 2009
All of this so unnerved the American Society of Newspaper Editors that it canceled its annual convention saying '"the challenges editors face at their newspapers demand their full attention.”'
The newspaper industry's problems are real, but the causes vary from newspaper to newspaper and so do the implications for the industry's survival.
The closing of the News is likely to be followed by the closing of the Seattle Post-Intelligencer, leaving each of those cities, like most cities in the United States, with a single newspaper. This is sad, but not surprising to economists who have long understood that exempting from anti-trust laws newspapers in Denver, Seattle, and a handful of other cites only delays the inevitable.
The exemptions, called Joint Operating Agreements, are granted by the U.S. justice department if competing newspapers in the same market can prove that one would fail without the agreement. These agreements allow the newspapers to save money by combining sales, production and other business operations, but they must continue operating separate newsrooms.
Newspapers argue that JOAs benefit to their readers by preserving two editorial voices with diverse views and information about the issues of the day. But Robert Picard at The Media Business points out that newspaper companies had other reasons to seek these arrangements:
Joint operating agreements have been seen by many in the industry as a way of keeping two newspapers operating within the same city, but JOAs have been a continual failure since they were authorized in 1970. The biggest problem is that JOAs ignore the basic economics of newspaper publishing and merely provide benefits from a newspaper antitrust exemption that allows collusion on advertising and circulation prices, market division, and other acts prohibited by federal law. Those benefits were never enough to “save” papers in the long run, but allowed publishers to gain a limited period of time to try to squeeze more money out of the operations.
The failure of the News was probably inevitable, and I expect the Post-Intelligencer will soon suffer a similar fate.
The News' demise was certainly hastened by the loss of audience and ad revenue to new forms of media exacerbated by the general economic collapse. But even though the loss is sad, it doesn't have much to teach editors at other newspapers who are staying home this year as they try to sort their way through all of this.
Wednesday, February 18, 2009
But by concentrating on newspapers, the chart paints a misleading picture of digital competition to attract audiences interested in news.
The New York Times has the largest number of visitors in the Nieman chart, but its website ranked 5th among Internet news sites in October 2008 behind MSNBC, CNN, Yahoo News and AOL. The Times had about 20.3 million unique visitors that month, barely trailing AOL but far behind the other three sites. Yahoo News was in third place with 37.3 million unique visitors, so the Times would have needed 85 percent more visitors just to catch up.
I don't have access to data for the entire period listed in the Nieman chart, but the October 2008 figures are probably representative of the real online market for news. Large newspaper web sites compete with broadcasters such as Fox, ABC, NPR and the BBC, and with Internet only sites such as Topix, Google and Yahoo news, or the Huffington Post.
There is some evidence of how this really works in the chart, but it's not explained. In July 2007 The Times, NBC, and MSNBC announced a deal to share political coverage on the web. One goal was to increase each company's audience for news.
Apparently, it worked. The Nieman chart shows a sharp increase in visitors to the Times site over the next three months. The increase resulted in a substantial lead over its nearest newspaper rivals that persisted through December of 2008.
Meanwhile, the October 2008 data shows election coverage by two of the Times' longtime print rivals -- The Washington Post and USA Today -- produced substantial increases in visitors to their web sites. But neither came close to matching The Times and its partners on the web.
The chart posted by Nieman reflects a wider mindset in the newspaper part of the journalism industry that just won't go away. The mindset is mistaken -- this is a different market, with different rules and different competitors, and it should always be talked about that way.
Monday, January 5, 2009
The result was always the same. I learned something, usually more than just one thing, that was important and useful. Barry Litman made my work better. It wasn't just me. He made everyone's understanding of media economics better.
So it came as a shock to hear that Barry, 59, died Dec. 26 after battling cancer.
Barry was one of the first classically trained economists devoted to understanding producers of and audiences for newspapers, television broadcasts, and film. You cannot call yourself a student of media economics if you don't know his work.
Barry and a doctoral student completed the first study linking the quality of news to the financial performance of newspapers.1 He later helped update the fundamental model of newspaper competition developed in the 1970s to reflect three decades of changing technology and markets.2 He then took an overused, ill-defined buzzword -- convergence -- and gave it meaning by showing how people select news from different media based on differences in characteristics like speed of delivery, convenience, and quality.3
Barry developed a model predicting what will happen if people can't get reliable information from the media about urgent topics like birth control, showing they will instead assemble an understanding from whatever sources they can find.4
He identified a major flaw in the long line of studies examining diversity or its absence in media content, refuting the underlying assumption that there is an unlimited demand for diversity.5 Barry offered a more realistic model showing that the desire for diversity is balanced against the desire for other characteristics of content, always within the limits of available time for reading, watching and listening.
Barry helped examine the creation of the Fox network, showing how a confluence of regulatory and economic factors made possible the enormous gamble for News Corp.6 The study is a valuable reminder that what now looks like a taken-for-granted success was anything but that at the time. In another study, Barry and his co-authors showed why networks prefer programs that are predictable, making truly innovative television the exception, a finding that holds up well in the cable universe.7
Barry was a professor at Michigan State University for more than 30 years, one of a handful of faculty who made the College of Communication Arts & Sciences the center of gravity for understanding media economics.
This spring, as always, I will teach a graduate course where Barry's work appears multiple times. I like to quote Barry because it always makes me sound smart. This semester won't be nearly so much fun. Mostly, I'm going to think about what we've all lost.
Barry's obituary is available here, and an announcement from the college can be read here. A Facebook page to post memories of Barry can be found here.
1Litman, B. R., & Bridges, J. (1986). An economic analysis of American newspapers. Newspaper Research Journal, 7(3 spring), 9-26.
2 Bridges, J. A., Litman, B. R., & Bridges, L. W. (2002). Rosse's model revisited: Moving to concentric circles to explain newspaper competition. Journal of Media Economics, 15(1), 3-19.
3 Litman, B.R. (2006). The convergent society and the media industries. In Bridges, J. Litman B. R., &Bridges, L.W. (Eds.), Newspaper competition in the millennium (pp.23-32). New York, Nova Science Publishers.
4 Litman, B. & Bain, E. (1987). Information search and banned product advertising: An indifference curve approach. Current Issues and Research in Advertising, 39-59.
5 Litman, B. R. (February 1992). Economic aspects of program quality: The case for diversity. Studies of Broadcasting, 121-56.
6 Thomas, L., & Litman, B. R. (Spring 1991). Fox Broadcasting Company, why now? An economic study of the rise of the fourth broadcast "network." Journal of Broadcasting and Electronic Media, 35(2), 139-158.
7 Litman, B. R., Shirkhande, S., & Ahn, H. (2000). A portfolio theory approach to network program selection. The Journal of Media Economics, 13(2), 57-79.
Wednesday, September 24, 2008
Professor, Department of Communication and School of Journalism
Michigan State University
Newspapers are struggling with how to attract online visitors. This reflects the need to replace readers who are leaving the print newspaper, but more importantly, increasing online visitors will be essential for attracting advertisers to newspaper Web sites. Traditionally, advertisers follow audience and not the other way around.
As a result, how newspapers can gain online visitors remains the primary issue deciding the future of newspapers. A one-size-fits-all solution is unlikely to emerge. The key to attracting visitors will vary from market to market and from demographic group to demographic group.
* The high profit margins that news organizations have enjoyed during the last 40 to 50 years cannot be maintained when advertisers can go straight to consumers rather than using media, and when competition for people’s time has become so intense. Companies will have to adjust profit goals or they will cease to exist. In times of industry restructuring, potential profit margins shrink and surviving restructuring requires higher levels of investment.
* News organizations will need to create multiple forms of financial support. This can range from e-commercial to selling specialized information to small audience segments. The exact form of new revenue sources will vary from market to market and will need to be determined through experimentation.
* The digital media distributed through the Internet does four things well: 1. It provides depth of news and information at low cost. 2. It delivers news and information quickly. 3. It is multimedia. 4. It is interactive. Newspapers will need to use all of these Internet strengths when generating content on their sites.
* The ways news organization can best use the Web’s strengths for delivering journalism and attracting audiences remain unclear. The immediate future will require news organizations to experiment with a variety of content to discover how to best serve their audiences.
* This experimentation must be combined with formal and informal evaluation of reader feedback. Newspaper companies need to conduct periodic market research about the news and information their audiences need and want, the best ways to present that news and information, and types of interactivity their audience members want and need. But the companies also need a continuing, formal system for acquiring feedback from a wide range of audience members.
If you visit the Lasvegassun.com, you will find news stories, blogs, photographs, and video about events and issues that concern the city of Las Vegas and surrounding areas, just as you will you will on any modern newspaper web site. The more experimental work can be found on the multimedia page.
The Sun also emphasizes “evergreen” content about the city. This includes a video history of Las Vegas and interactive maps of downtown Las Vegas, the Strip, and the Valley. The maps allow you to see what the city was like at various times, along with important events and entertainers from that time. The map includes icons representing important buildings. If you click on an icon, a popup will reveal information about the location, size, and history of the building. In some cases, you can see video of the building’s implosion.
Out of fairness, it should be mentioned that Lasvegassun.com has some advantages not enjoyed by all news organizations. In addition to the Web site, Greenspun Media includes the Las Vegas Sun, seven weekly newspapers in the Hometown Community News group, several local magazines, such as Las Vegas Magazine and In Business Las Vegas, and a low-power TV station. These media provide a wide range of community content that can be leveraged online.
Tuesday, August 12, 2008
Yesterday, I argued the paper's plan to delay online publication of some stories makes economic sense because revenue per reader is still very small online. The paper did not say it would never publish the stories on its website, just wait until the stories had a chance to circulate in print.
The new memo says these stories will instead "appear online concurrent with print publication." The memo also clarifies the kinds of stories that will be published immediately on the web, such as breaking news or time-sensitive stories that help readers plan for a night out.
The original plan made sense because it tried to separate readers into groups based on the amount of revenue the paper earns. Print readers are far more valuable than readers on the web. Publishing a story in print first might therefore limit the number of readers who abandon print to read the story on the web.
The new plan to publish stories "concurrently' may have a similar effect if some stories don't appear on the web until the paper's print deadlines. Print deadlines are often very late at night, when many readers are either watching television or getting ready for bed.
Meanwhile, columnist Will Bunch at the rival Philadelphia Daily News has a good suggestion for using web videos to promote stories the Inquirer wants to delay publishing online, building anticipation to increase readership once the article finally appears.
Bunch, unlike many others who responded to the original memo without much thought, gets this one. It's all about the revenue, ...
Monday, August 11, 2008
Times media columnist David Carr sought out an entirely predictable quote from a former newspaperman turned "Web evangelist" denouncing the Philadelphia Inquirer for delaying online publication.
But the Philadelphia Inquirer's new policy to publish "signature investigative reporting, enterprise, trend stories, news features, and reviews" in print first, and then online, makes good economic sense.
Many newspapers still make startlingly small amounts of revenue on the web. I suspect that is the case at the Inquirer, so delaying publication of their best material is a smart move entirely consistent with the economics of new media.
It's the revenue, ...
A bit of arithmetic using statistics from an industry survey shows some newspaper web sites were earning only $0.33 to $0.83 per visitor for the entire year in 2006.1
I presented these calculations last week at a conference, and the next day heard an executive at a major metropolitan newspaper cite figures for their current web operations. The paper earns less than $4.00 per visitor each year. Revenue per reader in print is probably much higher at all of these papers.
Publishing a story online probably increases the number of readers compared to a story published only in print. But some print readers will also move online to read the story, reducing the revenues earned in print.2
This means any online gains in readers and revenue have to be large enough to offset losses of print readers and revenue. And the very small online revenue numbers suggest this is unlikely to happen if the story is published both places at the same time.
So the Inquirer is probably doing the right thing economically. Withholding publication of expensive to produce investigative and enterprise stories will limit the immediate loss of print readership. Meanwhile, the paper plans to keep publishing breaking news on its website, which is probably what most online readers are looking for in the first place.
Several newspaper and television employees responsible for publishing online and in mobile media spoke at the conference, and all complained about having small staffs. The majority of journalists at these organizations still work in the print or broadcast part of the operation.
But this is also sensible so long as revenue per reader or viewer is much higher for distribution in print or over the airwaves. Keeping web operations small when online revenues are also small shows these companies are economically rational.
That may not satisfy the naive view that Carr promotes in his column, but it should make everyone at the Inquirer and elsewhere feel a little better about what their bosses are trying to do.
1 Newspaper Association of America: Newspapers Online Operations – Performance Report 2006.
2 Wildman, S.S. (in press). "Interactive channels and the challenge of content budgeting." The International Journal on Media Management.
Wednesday, March 26, 2008
The Clear Channel sale was announced months ago, but six banks that agreed to finance the deal are getting cold feet. The banks contend the original terms of the deal would place them in the ranks of lenders who've been bitten in all kinds of unexpected ways by cascading effects from the collapse of the market for subprime mortgages. Bain Capital and THL Partners, the private equity firms buying Clear Channel, are suing to get the financing restored, according to The New York Times.
Newspaper companies are vulnerable
This development also reinforces questions about the sale of several large newspaper companies that left the buyers with large amounts of debt. Ordinarily, these companies might not be affected by the shaky credit markets because their loans would have been for very long periods, with the actual newspapers providing collateral. Advertising revenues shrink whenever the economy turns down, but historically that was a short-term problem for newspapers. Many companies responded by cutting variable costs, like wages and benefits until advertising began to expand again.
But it's likely that long-term declines in newspaper advertising revenues will accelerate in the current slowdown and may not recover. This is not a helpful development given extraordinary levels of concern about the true state of financial markets. The Tribune Co., which was sold in December, has been put on a watch list, meaning its credit rating is under review. The $8.2 billion sale put the company deeply in debt.
Alan Mutter's Newsosaur blog argues credit problems could potentially cause severe damage to newspaper companies already weary from repeated rounds of cost cutting. There is a lot to like about the new technologies and media that are siphoning audiences and advertising from old media like newspapers. But the plight of these once proud companies, the people who work for them, and their readers, is nothing to celebrate.
Tuesday, December 18, 2007
Today's victory on the cable issue may also be temporary given strong and continuing industry resistance. But for now Martin appears to have reconciled the complex array of competing interests at stake in both of these votes.
The importance of competition
Competition is at the heart of all the arguments voted on today. Newspaper companies argued increasing competition for advertising revenue makes obsolete a rule against owning a broadcast station in the same market. Huge numbers of readers disagreed, arguing the restriction preserved competition covering local news, increasing the range of information and ideas available in those markets.
The FCC voted to ease the cross-ownership restriction in the 20 largest markets.
Cable companies argued they need to get larger because subscribers have more and more alternatives in the new media world. Consumer groups and Chairman Martin disagreed, arguing cable rates keep rising and subscribers don't have access to the full range of possible program choices.
The FCC voted to keep individual cable companies from reaching more than 30 percent of the national market. This is expected to have an immediate effect on Comcast.
Reasons to be skeptical on cross-ownership
My immediate reaction is mostly to the cross-ownership vote. The competitive problem for newspapers is not local radio or television stations, but new forms of media such as the Internet and cell phones. Putting resources into broadcast stations is an odd response, especially when you consider some newspaper companies such as The New York Times and Belo recently divested their television stations.
The expense of acquiring radio and television stations will also force newspaper companies to cut operating costs, so be skeptical of claims that these companies will increase news coverage in these markets.
More broadly, the competition arguments rely on differing definitions and models. Newspaper companies, and both sides in the cable argument, are using economic models concerned with efficient use of limited resources, and providing goods and services at the lowest possible cost.
Supporters of cross-ownership restrictions are using a First Amendment model concerned with expanding the range of ideas, and the emergence of a workable consensus on matters of public concern.
Sunday, July 22, 2007
Dow Jones owns the Wall Street Journal, respected for prize-winning news coverage viewed as independent of the newspaper's ardently conservative editorial page, and of the Bancroft family interests. News Corp. owns companies like the New York Post and Fox News, viewed as spiking journalism with sensation and conservative politics that reflect Mr. Murdoch's views. Much coverage of the pending sale has therefore focused on whether News Corp. will remake the journalism at Dow Jones to conform with Mr. Murdoch's desires.
As of this post, it seems likely the sale will go through. Directors at Dow Jones voted for the deal last week. The Bancrofts control almost two-thirds of the shareholder votes needed for final approval. The International Herald Tribune reports the family's stock generates about $20.6 million in dividends each year that must be divided among more than 30 people. The newspaper reports a sale could give the family enough cash to generate $52 million a year if the cash were invested conservatively.
The family is divided about the sale, but even members who regard Mr. Murdoch as a threat to good journalism have searched for alternate buyers or investors . Newspapers in markets with high-speed wireless and Internet connections are taking stiff financial blows as advertisers move online. Mr. Murdoch is offering a premium for Dow Jones stock, making a vote to reject his offer a vote against the best financial interests of other company stockholders. Journalistic principles, alas, cannot generate enough immediate revenue to overcome this financial imperative.
If the deal goes through, the sale of Dow Jones to News Corp. will join the sale of Knight Ridder to The McClatchy Co., the sale of The Tribune Co. to real-estate investor Sam Zell , and the sale of Reuters to The Thomson Corp. on a list of acquisitions involving companies deeply involved in the production of news. In each case, at least one of the companies is also known for its founding family, or families.
Family ownership has cachet in the newspaper business. The New York Times Co. and the Washington Post Co. are controlled by families that place a high value on journalistic excellence, sometimes at the expense of their short-term economic interests. There is also systematic evidence that control by families or executives at public companies increases the financial commitment to those companies' newspapers.1
However, the four deals show family influence varies. A significant number of Bancrofts want to sell Dow Jones. Mr. Murdoch's father was a journalist.
The Chandler family, best known for owning the Los Angeles Times, had a significant minority stake after their company merged with the Tribune Co. The Chandlers pushed hard to sell the Tribune Co. when Mr. Zell offered a deal that would maximize their financial returns and minimize the taxes they owed.
Knight Ridder was known for distinguished journalism, and its last CEO was a member of one of the founding families. However, Anthony Ridder was unable to fend off stockholder pressure to sell the company's 32 newspapers. McClatchy is also controlled by a family that values journalism, but it did not keep 12 Knight Ridder papers, including some with national reputations, because they weren't in growing markets.
Roy Thomson said money, not news, drove his ambitions, and he built Thomson into a multinational company. The company owned dozens of dailies in the United States, but their news coverage was considered mediocre. Thomson sold its U.S. newspapers around 2000 as it reinvented itself as a provider of specialized information. Reuters, which began as a news service in 1851, is heavily invested in financial services. The acquisition by Thomson will merge established news companies that refocused their operations to take full advantage of new media technologies.
These four cases show the relationship between good journalism and family ownership varies, particularly at companies facing enormous economic pressure. There are other variables that probably play an important role in determining the outcome of such deals. Those variables will be examined in my next post.
1 Lacy, S., Shaver, M.A., & St. Cyr, C. (1996). The Effects of Public Ownership and Newspaper Competition on the Financial Performance of Newspaper Corporations: A Replication and Extension. Journalism & Mass Communication Quarterly 73,(2): 332-41.