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There is a Dallas company named AH Belo Corp. that owns 3 major daily papers: the Dallas Morning News, Press-Enterprise of Riverside, and Providence Journal. The company has little debt: in fact, it has almost as much cash as debt. The stock market values the company at only $20 million. There is another measurement of a company, called the enterprise value. It is the market capitalization plus debt, minus cash on hand. That is generally considered the price which an acquirer would have to pay. AH Belo's enterprise value is $22 million, almost the same as its stock market value. So, theoretically, you could buy the Dallas Morning News, Riverside Press-Enterprise and Providence Journal for $22 million, and you would be getting a company without a debt burden. The company is losing money. So what is the U-T worth? There has been lots of controversy. According to one rumor, it could go for as low as $15 million. Some point out that the Mission Valley office building and plant could be worth $50 million. But asset value is only one aspect of a sale. What's also important is going concern value: what is the business itself worth? As you can see, the stock market thinks daily newspapers aren't worth much. Most newspapers that are going into bankruptcy or liquidating these days are heavily in debt. An example is Lee Enterprises. It owns 49 dailies including the North County Times and St. Louis Post-Dispatch, plus 300 other papers. Yet the market values it at a mere $17.5 million. Its enterprise value is $1.44 billion because of its huge debt load. I do not believe the Union-Tribune is laden with much debt. So it really resembles AH Belo. The question is whether the U-T is losing money, as AH Belo is, or is cash flow negative. I suspect it is in the red now.The rumor about the U-T going for $15 million, which sounds shockingly low, does not sound so low when compared with AH Belo's theoretical value.

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Comments

pascal March 4, 2009 @ 11:43 a.m.

There was a terrific article in the February 23rd Ad Age magazine called “It’s not the newspapers, it’s their owners,” that I’d suggest everyone here take a look at. It points out that if you analyze newspapers’ earnings, you’ll find that most are still making money and even decent margins. The current problems stem from the debt newspaper owners took on based on projections that didn't pan out, and NOT because newspapers themselves are “dying out.”

It says that publicly owned newspapers averaged an operating profit of 10.8 percent in the first three quarters of last year, which were recessionary quarters, even though the recession wasn’t “official.” By contrast, the article said that the “successful” grocery industry had profit margins less than 2%.

They specifically mention Lee Enterprises (owners of the North County Times locally), which reported an $889 million net loss for the 12 months ended Sept. 28. But it’s not that “$889 million of cash flowed from the coffers just to make payroll and keep the presses running,” the author wrote. In fact, if you take away that accounting charge to look at the real dollars Lee papers collected and spent, its operating profit for those 12 months topped 20 percent!

Gannett is similar. The company had an 18 percent profit margin last year. Scripps was at 9.8 percent. Even the newspapers owned by everyone's favorite whipping boy, The Tribune Co., returned a modest 5.4 percent operating profit in the first three quarters of last year. And I saw too that the CEO of Philadelphia Newspapers (who are among those currently in bankruptcy court), said that their “restructuring is focused solely on our debt, not our operations. Our operations are sound and profitable."

The article concludes that “there is no reason for newspapers themselves, whoever owns them to stop the presses, and that most operations are plenty profitable.” When the recession is over, maybe some of the current newspaper owners are not going to be around, but their newspapers, I think, will be around and do just fine. For all the doom-and-gloom vultures here who seem to be just waiting to feed on a newspaper carcass, I’d suggest you plan to keep circling for a long, long time…

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Don Bauder March 5, 2009 @ 9:46 a.m.

Response to post #23: I am not saying that there are not shelving fees. Yes, there are, and they are fat. But I have always wondered how the grocers hide them in their profit and loss statements, and how the payers of the fees (Procter & Gamble, for example) hide those under-the-table payoffs. Anybody know? They all have offshore subsidiaries that I have always assumed were for the purpose of enhancing competitiveness with foreign companies (dodging U.S. taxes is effectively like a foreign company getting a government subsidy. But maybe those offshore subsidiaries play other roles.) Best, Don Bauder

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Don Bauder March 5, 2009 @ 9:48 a.m.

Response to post #24: Magic Jack has toned down its advertising, but only somewhat. Best, Don Bauder

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Don Bauder March 4, 2009 @ 12:04 p.m.

Response to post #13: There is no question that newspapers used to be extremely profitable, and now are only fairly profitable, or losing money, depending on which newspapers you look at and what accounting manipulations you employ. The owners of the Rocky Mountain News, Seattle Post-Intelligencer, and San Francisco Chronicle all say the papers are (or were) losing money by the bushel. Were they only accounting losses and not cash flow losses? I don't remember seeing whether the owners commented on that. Remember: both the stock market and the bond market have drastically marked down the value of newspaper investments. Newspaper stocks are down 90 percent in many cases over the last 52 weeks (see posts above.) Newspaper bonds have also dropped further into junk territory: Black Press, McClatchy, and MediaNews, just to name a few. There have been a bunch of bankruptcies. Statisticians can always find a bright spot: look at those defending the banks, or institutions such as Bank of America defending their own stability despite the crashes in their stocks. Stock markets are supposed to be a discounting mechanism. Obviously, the stock market sees little future in daily newspapers. But the stock market can be quite wrong, too -- both irrationally exuberant and irrationally depressed. Best, Don Bauder

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Don Bauder March 5, 2009 @ 9:50 a.m.

Response to post #25: That claimed 1 or 2 percent is return on sales. Return on invested capital is better for grocers. However, that return on sales is actually higher. Best, Don Bauder

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classico March 4, 2009 @ 12:53 p.m.

Bauder: "The company spends money on readership research and focus groups, but just can't adjust the product to the findings: personal whims, close friendships, personal hatreds, management remoteness from average readers -- all keep that paper from connecting with its market."

Believe me, the U-T is not the only paper with this problem. Why are TV cable companies -- who make newspapers seem like pinnacles of customer service by comparison and who provide something skeptics once said people would never pay for -- so successful in yanking huge amounts of money out of people's pockets each month? I will be intriguing to see if Cablevision's promise to start charging for some Newsday content works out. If anyone can make 'em pay till it hurts, it's a cable company.

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pascal March 4, 2009 @ 1:29 p.m.

Don: I think we'd agree that Denver and Seattle are special cases, in that those two newspapers were both the smaller of the two large metro dailies in their respective markets, so they had competitive issues that most other newspaper markets don't face today-- at least I don't hear the Seattle Times or Denver Post saying, "we're next!" As you well know, there has been no Union and Tribune here for a very long time, but that has nothing to do with the disappearance of newspapers overall-- just afternoon ones. San Francisco too is special, in that their financial woes go back more than a decade, well before the key financial issues facing papers today fully emerged.

Newspapers surely have taken more than their share of the hit on stock prices, even as those prices across all industries are tumbling right now. But I wouldn't count any of them out over the long haul. If they get their acts together-- learn the value of the information that they supply, and how to charge for that, and finally develop a model for making money on their GROWING audience when their website traffic is figured in-- I still firmly believe when the overall recession ends, "newspapers" will thrive again, in one format or another.

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SurfPuppy619 March 4, 2009 @ 1:34 p.m.

Why are TV cable companies -- who make newspapers seem like pinnacles of customer service by comparison and who provide something skeptics once said people would never pay for -- so successful in yanking huge amounts of money out of people's pockets each month?

OK-Im going off topic here for a second;

Funny you mention cable TV-I have NEVER used cable because of the very reason you point out-high costs and low customer service-which is the result of a monopoly.

I always just used the free UHF/VHF airwaves.

One thing I read was that when everyone is using digital TV, the free digital TV with the converter boxes gives up to 50 free stations-so you pretty much don't need cable if you're not living a coach potato life style.

Oh-one more-phone bills. In the late 90's and before, my phone bill (which did not have longdistance service, just local) averaged $5.50 per month. Al Gore got a huge $5 internet tax added on which was supposed to supply internet to schools, and doubled my phone bill. My last phone bill had 23, yes 23, seperate taxes on it.

My uncle just signed up with a new company called MagicJack that runs the phone through your computer- $49 for 5 years-Im trying that next!

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Don Bauder March 4, 2009 @ 6:12 p.m.

Response to post #15: You are correct: this is true of many other newspapers, magazines, TV, websites -- you name it. Hell, it's true of poets who write for themselves and a handful of other poets, then wonder why they can't sell their poems. This mentality is more pervasive at the U-T than at other dailies; that's one reason the paper has done worse than other dailies in circulation. Best, Don Bauder

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Don Bauder March 4, 2009 @ 6:21 p.m.

Response to post #16: Yes, the P-I and Rocky were second dailies in cities that can't support two papers. Some others are vulnerable, as we have discussed on this blog endlessly. You can argue that most of the papers that went bankrupt were "special cases;" Zell's love of debt and real estate speculation dragged down Tribune; Philadelphia only needs one paper; the Journal-Register was moribund; etc., etc. (I can't think of such an explanation for the Minneapolis Star-Tribune, but I'm sure somebody has.) You may well be right that newspapers will learn how to make money online and survive. I hope so, because without newspapers or their online cousins, the democracy is in trouble. Best, Don Bauder

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Don Bauder March 4, 2009 @ 6:25 p.m.

Response to post #17: Funny you mentioned Magic Jack. Their TV ads, that run on respectable stations such as Bloomberg, seem to be appealing to a downscale market. They are aggressive and, well, smack of ads for car wax. I'm wary but don't know anything about it. Best, Don Bauder

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Don Bauder March 4, 2009 @ 6:31 p.m.

Response to post #18: That's an interesting complaint about Magic Jack. Best, Don Bauder

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Burwell March 4, 2009 @ 9:21 p.m.

By contrast, the article said that the “successful” grocery industry had profit margins less than 2%.

This is a myth the grocery industry uses to confuse the public. This 2% margin does not include shelving fees, what the grocery industry charges vendors annually to place their products on shelves in stores. If you wanted to sell a window cleaner to compete with Windex, you would have to pony up $10 million or more per year just to place your product on the shelves of a single major grocery store chain.

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SurfPuppy619 March 4, 2009 @ 9:27 p.m.

Thanks for the heads up on MagicJack Ponzi-I went to the link-lots of comments to the original post.

"Caveat Emptor" is how it goes I think.

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SurfPuppy619 March 2, 2009 @ 5:01 p.m.

First off, the Dallas Morning News is a first class paper while the Press Enterprise is a right wing rag. No comparison. Not even close.

Second, although stock market value is one way to measure the business value, I would use a capitalization rate on the positive cash flow income, using a 7-8 cap rate, and see what that value is. Could be substantially different than the stock market capitalization.

My feeling is the UT is in bad shape or they would have nailed own a deal by now-with someone. Of course the credit markets are probably wiping out about 80% of the credit needed to make a deal today.

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Don Bauder March 2, 2009 @ 7:46 p.m.

Response to post #1: In the past, there have been various ways to measure the worth of newspapers, using circulation, revenue, etc. Most of those have little use these days. Admittedly, stock market valuation can be far off -- the market often goes goofy, both on the upside and downside. If you use a cap rate on positive cash flow, you are assuming the U-T has positive cash flow. I don't know that. Best, Don Bauder

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PaperGirlSD March 3, 2009 @ 3:25 p.m.

You sure seem obsessed with the worth of the paper. Are you interested in buying? If you really want to know, the value of the paper has no monetary measurement. The real value lies in the people who are working hard every day to make sure the good people of San Diego have a daily newspaper and website. I honestly think you would be happy if the Union-Tribune closed its doors. Why not make your next blog “Why Don Bauder hates the Union-Tribune”. That is really what we would like to know.

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SurfPuppy619 March 3, 2009 @ 4:09 p.m.

Why not make your next blog “Why Don Bauder hates the Union-Tribune”.

By PaperGirlSD

LOL!!!.....................Don, your up buddy.

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Don Bauder March 3, 2009 @ 4:26 p.m.

Response to post #3: I am quite interested in the stunning decline of the newspaper business, as well as the collapse of the U-T. The plunging stock market prices of media companies fascinate me. I have spent 4 years in PR-advertising, 9 years in the magazine business, 30 years in daily newspapers and now 6 years with a weekly newspaper and its blog. That's almost 50 years in the media. However, I would not write so much about the U-T if readers weren't interested. They are, as my mail shows. It is the biggest business story in many years in San Diego. Would I be happy if the U-T closed its doors? I doubt it; the long-running saga would come to an end. Do I hate the U-T? No, although I believe that years of mismanagement are coming home to roost. Every business and executive I criticize claims that hatred is my motivation. Best, Don Bauder

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Don Bauder March 3, 2009 @ 4:31 p.m.

Response to post #4: Think of those blog entries claiming that you hate government workers and firefighters in particular. I knew it wasn't the case. Such accusations are what we get for being critics of society. It goes with the territory. Besides, I can't help it. I am a born bitcher. Best, Don Bauder

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SurfPuppy619 March 3, 2009 @ 5:44 p.m.

I hear ya- you need a thick skin to make tough choices and decisions.

I have never taken the comments (like JW's requests to remove my posts) personally.

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Don Bauder March 3, 2009 @ 7:01 p.m.

Response to post #7: You not only have to have a thick skin; you have to enjoy it. Best, Don Bauder

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Burwell March 3, 2009 @ 7:51 p.m.

Bauder is treading lightly when he criticizes the U-T and its failing management. Bauder called Sanford Sigoloff, President of Wickes Furniture, “Ming The Merciless” due to the number of jobs he cut. Forrest Shumway of the Signal Companies also took a pounding in the column. Both were better men for it. Bauder is going easy on the U-T, and management should be grateful for his restraint.

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Ponzi March 3, 2009 @ 9:21 p.m.

I feel the UT is the paper we San Diegans love to hate. We know they could do better in so many ways. But they don't listen to their audience.

It's also amusing to see the occasional "teamsters union troll" pop on and say something bad about Don... we know they are really just insecure for their union job. What will they do when the golden goose is finally dead? Do they admit they are also part of the reason? If the teamsters would leave, you might milk another year or to out of the paper. As it is, I bet the UT is gone by the end of summer.

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Don Bauder March 3, 2009 @ 10:40 p.m.

Response to post #9: Here's some hearsay, but a step up from latrine rumor: I hear on fairly good authority that one reason the U-T has not made progress with a potential buyer is that it thinks it should be valued by measurements that were relevant five or ten years ago, but are far from realistic in today's extremely depressed newspaper valuations. On this blog, I have been trying to point out how the stock market has creamed valuations of newspapers. Here's one that should sober up anybody trying to sell a newspaper: Gannett is the nation's largest newspaper chain, and also has TV stations. The stock sells for $2.22, down 92.45 percent in the last 52 weeks. It goes on and on: newspaper stocks down 90%, 95%, even more in the last year. The U-T should wake up to this new reality or take the paper off the market. Best, Don Bauder

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Don Bauder March 3, 2009 @ 10:49 p.m.

Response to post #10: Gone by summer's end? I doubt it. Remember, the U-T has little debt -- at least, that is my best guess. It has a monopoly (in the daily newspaper market) unlike other papers that are failing. But you are correct: the product is not tailored to the market. The company spends money on readership research and focus groups, but just can't adjust the product to the findings: personal whims, close friendships, personal hatreds, management remoteness from average readers -- all keep that paper from connecting with its market. Only new ownership and management could make the necessary changes -- but the changes may be too expensive now. Best, Don Bauder

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SurfPuppy619 March 4, 2009 @ 9:43 p.m.

By contrast, the article said that the “successful” grocery industry had profit margins less than 2%.

This is a myth the grocery industry uses to confuse the public. This 2% margin does not include shelving fees, what the grocery industry charges vendors annually to place their products on shelves in stores.

By Burwell

Yes, that number is total baloney.

When I worked for Safeway (a quarter of a century ago) they claimed their profit margin was less than 1%. Don't fall for that line.

Any company with a profit margin of only 1%-2%, or less, would be out of business because of the ups and downs in a bsuiness cycle.

In a market like we have today where sales in every industry are off by double digits (50% in auto sales) a 2% profit margin would have pushed any grocery store into the red and out of business within 6 months.

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