Thursday, August 04, 2005

Rearranging Deck Chairs

In a huge shake-up of the market, Gannett Co. has agreed to sell the Detroit News to closely held MediaNews Group Inc., and to acquire the larger-circulation Detroit Free Press from Knight Ridder Inc.

With the purchase of the Free Press, Gannett is raising its bet on Detroit's long-term viability as a newspaper market.—Wall Street Journal

While such a shifting of ownership from one un-readable newspaper to another (I spend a week each year in Michigan, and am always struck by how terrible the Detroit papers are) might have been a “huge shake-up” in the old days—i.e. two years ago—today I believe this kind of deal is about as notable as two fence post manufacturers merging.

Take the New York Times, for example—a highly readable newspaper, with very strict editorial controls (I had a piece published on the op-ed page many years ago, and they do not mess around with what goes on the printed page) and reporters around the world pumping out Pulitzer Prize-winning stories.

In the quarter just ended, during the fattest part of a multi-year economic upturn, the Times reported a 1.1% increase in revenue. In the mid-to-late 1990’s—the last period of multi-year economic growth, the company was turning out 6-8% annual revenue increases until the 2001 downturn.

What has changed since the last upturn, of course, is that consumers, advertisers and corporations now have Yahoo, Google and Craig’s List—not to mention Expedia and a lot of other ways of putting stuff out there—to reach end-users, without spending money and time sticking a classified ad or a full-page color ad or a fat, coupon-loaded insert into newspapers that lose thousands of aging customers each and every day, through no fault of their own.

It’s just demographics.

Google’s revenue, for example, grew 110% last quarter; Yahoo’s grew 50%.

Lest you think these are apples-and-oranges comparisons using percentage growth off small bases, well, in dollar terms the comparison is even starker.

The New York Times added about $10 million in revenues (excluding an acquisition) and Gannett added $63 million in revenues last quarter—a total of $73 million.

Google, on the other hand, added $685 million in revenues and Yahoo added $420 million—a total of about $1.1 billion.

Hmm…let’s see…$73 million growth in newspaper revenue versus $1.1 billion growth in internet revenue…hmmmm.

So, if the big news in newspapers today is that Gannett swapped one doomed newspaper—fully loaded with union employees, aging plant and a dying customer base—for another…well, I guess it’s more fun than watching that big iceberg dead ahead.

Jeff Matthews
I Am Not Making This Up

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.


m j davey said...

you're confusing the business with the stock...yes the businesses are DOOMED...does it follow then that they are LOUSY investments. No. So I think you have to go deeper into these companies than saying they are all doomed because there is some damn smart money betting that the stocks ARE NOT. And btw, every business is going to get mature. So is it really useful to compare brand new businesses with businesses that are on the downslope? In my book not really.



whydibuy said...

I don't get it? The Sunday paper is a joint publication of both the Free Press and the Detroit News. There's only one Sunday edition. Daily each publishes its own but, you're right, neither is anything to write home about. Looks like shuffling the cards in a game of 3 card monte to me.

Prudent Investor said...

No kidding Jeff! With many newspaper stocks still trading at 9-11x EV/EBITDA, the cheerleaders in Wall Street still REITERATE their buys despite having to lower their EBITDA numbers in 05 and 06. You see, the stocks are still RELATIVELY cheap compared to the last 5 years period during which every media stock valuation had been hyperinflated. Cheap is 4-5 ev/ebitda or Wall Street hated it but has to up their estimate for instance, those are the times to go long. I'm afraid the smart money are betting on the sinking boat.

BRD said...

Take the New York Times, for example—a highly readable newspaper, with very strict editorial controls (I had a piece published on the op-ed page many years ago, and they do not mess around with what goes on the printed page)

That is HILARIOUS. Thanks Jeff. I appreciate the humor. I had a deep belly laugh this am!!