Opinion

Jack Shafer

The great newspaper liquidation

By Jack Shafer
June 5, 2012

In his 2004 book The Vanishing Newspaper: Saving Journalism in the Information Age, Philip Meyer imagined “the final stages” of a “squeeze scenario” by a newspaper owner who wanted to exit the business but didn’t want to actually sell the title: He would start charging more for his newspaper and delivering less, commencing the “slow liquidation” of his property. This slow liquidation would not be immediately apparent to observers, Meyer wrote, because the asset “being converted to cash” would be “goodwill” – the newspaper’s standing in the community and the habit of advertisers and subscribers of giving it money.

One reason an owner would want to extract a newspaper’s goodwill value before selling its physical assets – its real estate, presses, computers, trucks, paper, ink, etc. – is that traditionally, goodwill is where most of a newspaper’s value has resided. When Meyer asked two newspaper appraisers to estimate how much of a newspaper’s value was locked up in goodwill versus physical assets, both gave him the same answer: 80 percent goodwill, 20 percent physical assets.

Selling goodwill is a dangerous strategy because once sold, it’s difficult to reacquire. But a newspaper owner who feels trapped by losses and can’t find a new owner at what he considers a fair price may feel he has no alternative but to cheapen his newspaper bit-by-bit, month-by-month. He may explain the goodwill sell-off as temporary economizing to be reversed once business conditions improve, or even as the exploration of a new business model. Sellers of newspaper goodwill might protest that the financial losses they’re absorbing constitute a serious investment in the newspaper’s future, that they’re harvesting nothing. But don’t be fooled. If you’re winding your company down with no strategy to wind it up, you’re burning goodwill even if you don’t acknowledge it.

It’s hard to blame newspaper owners for winding their print operations down, even if you devour four dailies a day, which I do. All of the industry’s vital signs are pointing south. Profit margins are way down, its stock prices have collapsed, daily circulation has fallen about 30 percent over the last 20 years, the percentage of adults regularly reading newspapers has been falling steadily since 1999 (especially among younger adults), and advertising revenue, which stood at $50 billion in real terms in 1984, fell to $23.9 billion in 2011. The corresponding decline in newspaper valuation is illustrated by three recent sales of the Philadelphia Inquirer and Daily News. In 2006, the papers went for $515 million. In 2010, they commanded $139 million. Just two months ago they sold for $55 million.

Of course newspaper owners aren’t the only heavies in the story. “The owner didn’t decide to shrink the paper,” said Detroit News reporter Charlie LeDuff in 2008 as the Detroit papers decreased home delivery from seven days to three. “The reader decided to shrink the paper.”

Other salient financial data points: Rupert Murdoch’s News Corp. bought the parent company of the Wall Street Journal for $5.6 billion in 2007, but wrote down $2.8 billion of that in 2009, essentially admitting that its value had halved in two years. The New York Times Co, once worth $7 billion, is now valued at less than $1 billion.

If you were a newspaper owner, you’d be liquidating and harvesting, too, and with the exception of the New York Times and the Wall Street Journal, that’s what most owners appear to be doing. Last week, Newhouse Newspapers* announced it was going to reduce the number of days it prints its New Orleans Times-Picayune and its Alabama titles from seven days to three days a week. This follows similar cutbacks in printing by Newhouse’s Michigan papers announced in 2011 and by the Detroit Free Press and the Detroit News in 2009.

Almost everywhere you look across the newspaper landscape, page count is down. Coverage areas have contracted, and newsroom staffs have shrunk dramatically. Over the past decade, newspapers have deleted features readers long took for granted, such as reporting from their own foreign, Washington and state bureaus. Last month, the Los Angeles Times folded its Sunday magazine, further winnowing the number of newspapers publishing a Sunday glossy. Newspapers have dumped free-standing book review sections, abandoned late-breaking news to websites, given up on providing comprehensive stock listings, winnowed comics pages, cut editorial cartoonists from their staff, and reduced the number of community listings and announcements.

In exchange for less and less, owners are charging readers more and more. The Chicago Tribune recently doubled and tripled some readers’ subscription rates. The New York Times boosted home-delivery rates in January. And in DC, readers gave the Washington Post ombudsman hell in January after the paper pushed through a stealth price increase for single-copy sales from 75 cents to $1, providing its customers no announcement or publisher’s note about the increase in the paper or online. Publishers can rightly claim that falling display and classified revenues give them no other choice but to make readers pay more. But that doesn’t erase the fact that most readers are paying more for less now, one of the hallmarks of liquidation.

Everybody blames the Internet for the decline of newspapers, but the Web is only the most recent of electric interruptions to have disturbed their profitability, which began with radio in the late 1920s and was followed by broadcast television, car radios, transistor radios, FM radio, and cable television. Newspapers were in so much advertising trouble in September 1941 that Time magazine ran a piece (paid) about their “downward economic spiral.” Press scholar David R. Davies argues in his 2006 book The Postwar Decline of American Newspapers, 1945-1965 that daily newspapers were in serious trouble by the mid-1960s, because, among other things, they had failed to hook the baby boom generation. Los Angeles Times press reporter David Shaw sounded the alarm in a 1976 piece in his newspaper. It began: “Are you now holding an endangered species in your hands?” Update the figures and change a few dates and the names of the principals in Shaw’s piece and you could almost pass it off as a 2012 diagnosis of newspaper industry ills.

Newspaper owners may be running out of time to beat the liquidation clock if the prediction (pdf) made in January by the USC Annenberg Center for the Digital Future proves accurate. Because the current generation of print newspaper readers aren’t being replaced, most major U.S. print dailies will be dead in five years, the report concluded. Very small newspapers might endure as dailies, as well as the large national newspapers – the New York Times, the Wall Street Journal, and USA Today – and the local Washington Post. For other newspapers to beat the reaper, said the Annenberg report, they must downsize from daily to once- or twice-a-week publication.

One tycoon who nosed the smell of death about newspapers early was Warren Buffett, penning a letter to his Berkshire Hathaway investors in 1992 saying that newspapers were over as a lucrative, “franchise” business. He didn’t blame the Web for the decline of newspapers in part because he couldn’t. The Web did not yet exist as a business. Other media properties, including television and magazines, had diminished the newspaper, he said. Buffett basically swore off acquiring any newspaper properties beyond his Buffalo News and his investment in the Washington Post Co until last month, when he purchased most of Media General’s newspapers.

The Buffett purchase doesn’t necessarily nullify the curse of liquidation. He told the Daily Beast’s Howard Kurtz he has no interest in bidding on the Los Angeles Times or Chicago Tribune and any other Tribune Co newspapers when the company exits bankruptcy. Nearly all of the Media General titles he bought are published in small towns, which Annenberg predicted will survive, so he has that going for him. He also indicated that weekly or thrice-weekly production isn’t in the cards for his dailies, nor is “shrink[ing] the news hole.”

Philip Meyer volunteers some optimism about the Buffett purchase.

“Somewhere on the downhill slope there might be a viable and stable [newspaper] business, and that is what Buffett is counting on,” he said in an interview. “Maybe the Internet has done all the damage it can. I sure hope he’s right. He does understand that community influence is a paper’s most important product, and I think he will invest in it.”

Even if Meyer is right, which I hope he is, it still won’t be a happy ending to a century (and then some) of newspaper glory. The papers that escape liquidation will still be watered down.

*CORRECTION: This article originally stated that Newhouse had reduced the frequency of publication of several of its papers in the South. Newhouse announced the reduction, which will take effect in the fall. The article has been changed to incorporate the correction.

******

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PHOTO: Newly printed Detroit News newspapers run through the presses at the paper’s printing plant in Sterling Heights, Michigan, December 16, 2008.  REUTERS/Rebecca Cook

Comments
11 comments so far | RSS Comments RSS

This just in!
Blame it on leadership, not medium.
Newsprint and the medium of home delivery were never the problem; it falls on the shoulders of (devoid) leadership within the walls of corporate America journalism.
If you’re a journalist, EBITDA is your enemy.
For 20 years there was no innovation at the top of the food chain, just greedy check cashers.
It’s always been about profits, led by Gannett.
You can bet when all these Gannett execs die, their graves will be templated: exactly the same. Bland.
Clearly, that company should have been named “Can Net!”
I just left a company after six months that has zero — Z E R O — systems and protocols to hiring journalists, or annual PIPs to hone their skills.
They don’t track work or hold their editors accountable.
However, they do spend tens of thousands annually honing sales talent and improve sales managers and publishers (glorified ad directors).
They have a 27-step process just to hire a “Sales Associate.”
They don’t have a process or a recruiting mechanism to hire a journalist.
For my career, I was in markets at war where content ruled the day.
Now, owners care nothing about content and only about how to track and therein charge for online ad placement.
In most markets, the daily newspaper became your father’s Buick, something no teen-ager would get caught dead driving!
They fell asleep at the wheel of the monopoly and crashed it into the wall of boredom.
People don’t want to read about cops, fires, accidents, city council’s same loud voices, and all the predictable happenings that never move the needles.
They want more! Stories about what’s really happening around them!
The model for the newspaper of record is dead.
Sure, those elements are vital, but they can be boiled down.
Readers want more than just reporting; they want writing. They want storytelling, context, descriptive writing, and depth.
Today’s newsrooms look like Marriott call centers: clean work spaces, head sets on everyone, no single person over 40. God forbid a journalist should want to simply report for their career!
Newspaper leadership killed the medium when they scrubbed their payroll of the 20-year journeyman who simply wanted to log on and write every day for a living.
Instead, they were either forced out, or forced up.
If you had 15 years in a daily, you had to manage people to afford to manage your household. Most journalists I know hated managing. They wanted to poke, prod, uncover and learn. They’re dissidents by nature, challengers. It’s counter-intuitive to them to take a pack of creative thinkers and make them conformists.
So you can pretty much understand why I did fare well in corporate journalism as an editor. Because I wanted to do dynamic journalism without worrying who we could package the content for out there on Main Street.
I was lucky enough to work for F. Gilman Spencer, who believed in shaking the rug and seeing what fell out. He had unconditional trust in all journalists and was deeply allergic to any corporate recipe for news-page production or templating based on some focus group near the corporate HQ.
Now, the Internet is king and newspapers aren’t worth the paper they’re printed on.
Leadership, in its wave of arrogance, made the great mistake of not respecting the vastness of the Web, so they just loaded up their content and gave it away on the Web.
Imagine McDonald’s making the drive-thru window free instead of paying for your meal if you came inside!
It’s the great tragedy of my life, the demise of what really keeps our county in check: investigative reporting. There are more people covering the White House on West Wing repeats then in real life.
The last bastion in-depth reporting resides in only a few newsroooms: Oregon (Peter Sleeth), the New York Times (but only from one side of the aisle), the Washington Post, which is untouchable and the last great paper on the planet, and a handful of others.
There’s a generation of School of Journalism grads that have nowhere to go but to the blogsphere, which means we’ll have a lot more fact-less opinion clogging the Web.

God bless the dead gray ole lady.

Posted by MichaelConnelly | Report as abusive
 

Since before the dawn of the Industrial Revolution hundreds of thousands of businesses have been obsoleted by advancing technology. Why should Newspapers be immune? Frankly, I’m sick of the whining.

Posted by GLK | Report as abusive
 

One can’t help but wonder whether the LA TImes’ hiring of political cartoonist Dave Horsey was a desperation move to coerce right-wing trolls to purchase online subscriptions so they can post insults to his work.

Posted by Art_In_Seattle | Report as abusive
 

@Art_In_Seattle

Bingo, and we have a winner. Saw an on-line article a year or so back on veterans’ benefits. Headline and lead included the name Jane Fonda, and, briefly, some comments by her. Utterly irrelevant, but her name and veterans together, god, the rev-stream off the hits for that day caused some smiles.

Still, I’ll be happy to see that idiot Krugman hit the bricks.

Posted by ARJTurgot2 | Report as abusive
 

I think it might be interesting to look at news delivery in aggregate. What is the sum value of the industry if you roll in yahoo-news, google-news, msnbc-web, maybe even delivery services like Comcast. I suspect the total value of news as a service is way up, but some sectors obviously way down. I access way more stuff now than I ever did, but I don’t get it in my mailbox or on the porch. The old woman reads many more books now, but gets whiny if she can’t have them on her kindle.

Posted by ARJTurgot2 | Report as abusive
 

I commute to the city every day, riding the train for 45 minutes. I used to buy the paper each day. For the last 5 years, though, I have been using computers, iPads, etc. instead. If you look around, most other commuters have made the change to Kindle, Nook, iPad, or whatever. I suspect newspapers are dinosaurs that will be going extinct soon.

Anyone have a subscription to the WSJ these days? It comes in the mail now. What good is a market oriented paper if it comes long after the market opens? They cut their costs by going to the US mail service, but they reduced their value to near zero by doing it.

Posted by Dragos111 | Report as abusive
 

i love the “paper newspaper”, i hope it don’t share the same fate as the pony express

Posted by running | Report as abusive
 

The only reason I still get the morning paper is because my wife likes to read it over breakfast. If it were my choice I’d have cancelled long ago. I might pop for the NYT or WaPo, but there’s no home delivery where I live here in SE Va. The way I see it the paper just recapitulates what I’ve already read online. And since I don’t give a hoot about the local news (murder, mayhem, city council meetings, blah, blah, blah), there’s no real point. But, I love my wife and she’s a creature of habit, so what is one to do?

Posted by IntoTheTardis | Report as abusive
 

Google seems to be in the process of “liquidating” its goodwill as well. Try searching for a product category on google, one like millions use to narrow down potential suppliers for a purchase. Try “lg washing machines”. Note that of the 9 “hits” the first 4 are all for the manufacturer’s web site. The only entries presented about actually purchasing the item are “billboard” or “pay to play” advertisements.

Most google users intending to make a purchase are probably unaware of this change and naively presume they are getting the same information back that they are used to. Not so. These searches involve money, and that has resulted in a similar liquidation of google’s goodwill, which like newspapers, is its primary asset. It is leaving the market open for an informational search engine, and calls into question the accuracy of the sky-high earnings multiple on the stock.

This raises the question of whether future investor profits in google are more likely to be produced by shorting, rather than holding, the stock.

Posted by usagadfly | Report as abusive
 

I think the NYT is a darn good newspaper, but what they are charging for on-line subscription prices is about 4 times what I’d be willing to pay. I wonder if they’ve done any analysis of price elasticity to see how many more potential readers there are (like me) that they could have by simply lowering the rates. They are, as you said, messing with my goodwill by slamming me with the restrictions on web access and then offering what I see as extortion as my only option for remediation.

Posted by possibilianP | Report as abusive
 

I don’t get WSJ for the simple reason that Rupert Murdock owns it. If he’s involved, as far as I’m concerned, there is an integrity issue.

Posted by possibilianP | Report as abusive
 

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