Who jumped first from the newspaper sinking ship?
It was probably in the 1990s, when the business better resembled a cruising blimp than it did the dotcoms like Pets.com, Boo.com, and TheGlobe.com, which all went kerblewy around the turn of the century. Unlike the bombing dotcoms, the high valuation of newspapers was based on real, not imaginary profits, and the belief that the profits from these deals would extend for years, if not decades, into the future.
And such deals there were. The New York Times Co bought the Boston Globe for $1.1 billion in 1993. In 1997, McClatchy acquired the corporation that owned the Minneapolis Star Tribune for $1.4 billion and Knight-Ridder purchased the Kansas City Star and Fort Worth Star-Telegram (and two other smaller papers) for $1.65 billion. On the sidelines, newspaper consultant John Morton crunched the numbers and expressed the market consensus about these transactions in the headline for his January/February 1998 American Journalism Review column: “Expensive, Yes, But Well Worth It.”
Morton’s column provides no sense of the impending doom, no inkling that an entire industry is arrowing its way to a hospice, no clue that all these newspaper people have booked passage on a death ship. Even after the Hearst Corp ditched its San Francisco Examiner for a $660 million deal to buy the San Francisco Chronicle in late 1999, more happy talk ensued. If anybody cited Warren Buffett’s 1991 warning that newspapers had lost their special “franchise” value and that he wouldn’t be buying any more of them soon, I missed it.
The newspaper faithful were still such strong believers at the end of the century that the Washington Post, one of the most prudent newspaper operations in the universe, opened a new $130 million press facility in 1999. By 2009, the company had to shutter the place. The Post wasn’t being stupid when it built the plant, it just misread the contraction of newspapers by a decade. Many newspaper owners continued to think that profits would fund expansion forever. Arthur Sulzberger Jr. completed a modern Renzo Piano-designed Manhattan office tower for his New York Times in 2007, and as recently as 2008, Rupert Murdoch was completing construction of a new $290 million printing complex for his London newspapers.
Every seller has good reason for unloading his property, but until bubbles pop the news coverage accentuates the buyer’s brilliance and vision. Thanks to the genius of hindsight, we know that the sellers of the Globe, the Star Tribune, the Chronicle, the Star, and the Star-Telegram were the dealers and the buyers were the marks. But I doubt if any of them were making a shrewd market call when they sold. The Globe, Chronicle, and Star Tribune went on the market primarily because the sprawling families that owned the properties had lost interest in the business and preferred cash to dividends. The Star and Star-Telegram went to the block because their owner, Disney, which had recently acquired them in another deal, wasn’t interested in the press.
Newspaper owners who spied the newspaper bubble early were the small fry at Harte-Hanks and Park, who got out of newspapers in the late 1990s, and the multibillionaire Canadian overlords who issue my paycheck, the Thomson family. Thomson started selling its 140-plus chain of newspapers in the mid-1990s and had basically exited the market by 2000, collecting at least $2.44 billion along the way. The company used the proceeds to expand their investments in electronic information and later, in 2007, went more electric than Dylan at Newport by acquiring Reuters.
What did Thomson know that the other newspaper operators didn’t? Perhaps nothing, except for using a cold eye to look at its profit margins. In a brilliant feature about the company written by William Prochnau and published in the October 1998 American Journalism Review, we learn that Thomson’s newspaper profit margins fell steadily from 33.9 percent in 1987 to 17.6 percent in 1997. Thomson, which was as good as any company at extracting high margins out of its newspapers, wisely read the data as a market directive to escape the bubble and get out of newspapers.
Around the time Thomson was using some of its proceeds to buy Reuters, the last of the fool’s money was rushing in to buy Knight-Ridder (McClatchy dropping $4.5 billion), the Wall Street Journal (Rupert Murdoch spending $5.6 billion on the paper and the other Dow Jones properties), and the Tribune Co (Sam Zell orchestrating an $8.2 billion bid). Not long after, Tribune was stumbling into a bankruptcy filing, Murdoch was writing down the value of his new toy by a half, and McClatchy stock had disintegrated. And the market cap for the entire New York Times Co dropped below the $1.1 billion it paid for the Boston Globe in 1993.
By the end of 2008, New York Times media reporter Richard Pérez-Peña had pronounced the newspaper bubble pricked. He reported:
Looking back, what happened to newspapers in 2006 and 2007 directly paralleled the bubble in the housing market, with similar results.
“There was very cheap credit available,” despite risks that should have been obvious to everyone, Mr. [Dave] Novosel [an analyst at a research firm] said. “The banks were willing to lend, and people were willing to buy at these prices because they figured if asset prices kept going up, they’d be fine.”
The great recession, which arrived in December 2007, completely degassed the newspaper bubble, driving print newspaper advertising revenue to the bottom of the Marianas Trench. In a widely reproduced chart by Mark J. Perry based on Newspaper Association of America data (and made viral by the Atlantic‘s Derek Thompson), we see that newspaper ad revenues peaked in the early 2000s but have now dropped to levels not seen since 1950. Perry noted that it took newspapers 50 years to go from $20 billion to $63.5 billion in print ad revenue (1950 to 2000), but only 11 years to go from $63.5 billion back to about $20 billion in 2011.
Unlike the tech bubble, the newspaper bubble won’t come back because it can’t. Many of the businesses that once supported newspapers with ads don’t exist on the same level anymore (such as competing department stores and grocery stores) or have found better places to put their ad dollars (the Web, television and Craigslist) or have discovered that they don’t need to spend ad dollars anymore to sell their goods and services (Craigslist again).
The expired bubble won’t take all newspapers down with it immediately. One theory (pdf) gaining currency is that because the current generation of print newspaper readers isn’t being replaced, major U.S. print dailies will be dead in five years with only small-town newspapers and the national dailies surviving.
This is at least the second time in newspaper history that collapsed advertising revenues and rising production costs have thrown the newspaper biz into a crisis. In January 1918, American journalist Oswald Garrison Villard decried the “tragedy of journalism” that was destroying newspapers in Boston, New York, Cleveland and elsewhere. Owners weren’t giving up just because they were incurring losses – they were used to that because many of them published newspapers for the social cachet and political influence it brought them. They were giving up because they were incurring unsustainable losses.
If this 1918 owners’ psychology continues to hold true, we can expect marginally profitable and unprofitable newspapers to persist. But not forever, and certainly not by the time running a newspaper that few read and even fewer advertise in carries all the social stigma of owning Pets.com.
Look, Ma! I’ve inadvertently written a three-part series! This piece goes down well with an Anchor Steam beer and “What happens to Tribune after bankruptcy?” and “The great newspaper liquidation.” BYOB. Send Your Own Mail to Shafer.Reuters@gmail.com and lap up the vinegary goodness of my Twitter feed. Sign up for email notifications of new Shafer columns (and other occasional announcements). Subscribe to this RSS feed for new Shafer columns.
PHOTO: Copies of original newspapers describing the sinking of the Titanic in an exhibit at the South Street Seaport Museum commemorating the 100th anniversary of the sinking of the Titanic, in New York, April 11, 2012. REUTERS/Lucas Jackson