Jack Shafer

The great newspaper liquidation

Jack Shafer
Jun 5, 2012 22:53 UTC

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.”

So Warren Buffett likes newspapers again?

Jack Shafer
May 18, 2012 23:05 UTC

Just because Warren Buffett blew $142 million in cash on 63 daily and weekly Media General newspaper titles yesterday doesn’t mean that newspapers are back. All it means is that an old cow that’s still a milker has been moved to a neighboring farm’s pasture, where it will be squeezed until it can give no more and will then be ground into pet food.

Buffett has long loved newspapers, having made about a half a billion dollars on the Washington Post Co. after his company, Berkshire Hathaway Inc, started investing in it in 1973. In 1977, he bought the Buffalo Evening News for $32.5 million, and after it vanquished the city’s other daily, it became one of the country’s most profitable newspapers, as measured by return on assets.

But Buffett isn’t romantic about newspapers. He buys when he sees value that others don’t. For instance, in a lecture he gave at Notre Dame in 1991 (pdf), Buffett explained why he bought Washington Post Co. stock.