The market for metropolitan daily newspapers is stone cold. Experts are convinced that daily newspapers, even those with a promising online presence, are becoming obsolete. That suggests that the Union-Tribune, which was sold to hotelier Doug Manchester on November 17, went cheap again.
Five or six years ago, the U-T was worth a billion dollars. Platinum Equity of Beverly Hills bought the paper in 2009 for between $35 million and $52 million, according to reliable estimates. Manchester claims he paid more than $110 million, which would still probably be below the value of the real estate. Papa Doug’s partner John Lynch publicly stated he wants editorial fluff. That could wallop circulation. It’s possible the U-T will become the first major metro paper to drop the print edition and go strictly online — departing its Mission Valley headquarters in the process so Manchester can tear it down. Again, that’s speculation.
Deep doubts about the future of metropolitan daily newspapers pervade the financial community, and they are reflected in stock prices of publicly owned newspaper chains. Prices plunged in 2008 and 2009, and then they snapped back as the overall market rallied. But now they are nearing those recessionary lows.
The numbers tell the story. According to the Newspaper Association of America, industry ad revenue has dropped every quarter since the third period of 2006. Newspaper revenues have plunged about 50 percent since then. Adjusted for inflation, newspaper advertising is at about the same level as 50 years ago. Ad revenue per capita is down 63 percent from its all-time high in 1988. Revenue from classified advertising, which was once a major profit center, last year was one-fourth what it was in the year 2000, according to Pew Research Center.
“People are abandoning newspapers, and for that reason you should sell all your newspaper stocks,” says a columnist for TheStreet.
“More readers choose to get news free online, thereby making the print-advertising model increasingly irrelevant,” says Zacks.
Stock prices reflect such views. In 2004, you could have paid $40.01 a share for Lee Enterprises, which owns 49 dailies (including the North County Times) and 300 weeklies. By March of 2009, that price was down to 28 cents. Then it rose to $4.24 last year; as of last Friday, it was back down to 63 cents. Gannett, the largest newspaper chain, fetched $91.38 in 2004. It got as low as $1.85 in early 2009, bounced back to $19.69 last year, and Friday was down to $10.99. McClatchy, which owns several dailies, including the Miami Herald, sold for as high as $63 in March of 2005, dropped to 9 cents in early 2009, bounced back to $5.35 last year but on Friday was down to $1.15. The New York Times, which owns the Boston Globe and 16 other dailies, sold for $53 in 2003, sank to $3.44 in 2009, rebounded to $14.87 last year, and Friday was back to $7.19.
Advertising on newspapers’ internet sites is now about 14 percent of total revenue. It had been growing robustly but was walloped by the Great Recession. According to Pew, newspapers’ online revenue was $3.17 billion in 2007, plunged in 2008, and only made it back to $3.04 billion in 2010. There is a general agreement that online represents the future, but internet profits are anemic. The papers would like to charge for their online service, but people can get so much online news for free. Many papers fear an online charge will backfire. The New York Times and Wall Street Journal are among those that have clamped on fees.
On November 14, the New York Times ran a story about John Paton, the chief executive of Denver’s MediaNews Group, the second-largest newspaper chain by circulation. He’s known as “the digital apostle.” Newspapers must go online quickly and “stop listening to newspaper people,” preaches Paton. He is convinced that “if newspapers are to survive, they will all but have to set themselves on fire, eventually forsaking print and becoming digital news operations,” the Times said.
Newspapers in their most recent quarters have suffered. Total ad revenue at the New York Times dropped 7 percent, with print down 10 percent. McClatchy’s revenue was down 10 percent. Print ad revenue at the Washington Post was down 20 percent, as the company lowered prices. By contrast, ad revenue at Google soared 33 percent. No wonder Wall Street analysts think the metro daily print-advertising model is outmoded.
Newspapers are improving profits by slicing employment, pay, and contributions to employees’ 401(k) plans, while closing printing facilities. Joscelyn MacKay of Morningstar Research fears that the New York Times “will run out of fat to trim and have to cut into muscle, hurting the quality of its product.” And she doubts that online revenue will ever become a meaningful part of overall sales. MacKay expects Gannett’s revenue to continue sliding as print declines offset any online gains.
Joseph Agnese of Standard & Poor’s says McClatchy’s sales will drop 6 percent next year following this year’s declines, as circulation also slips.
The Union-Tribune has some advantages. In combined print and online, the paper has a 52 percent penetration of the local market, according to Pew. That puts it in the top 20 of American papers. But it’s well below the 72 percent of the Rochester Democrat & Chronicle, the leader. It’s frigid and snowy in Rochester. People have more time to read newspapers.
That’s more evidence that it will be a cold day in hell when the Union-Tribune sells for a fat price, and it certainly didn’t on November 17.