Dire condition of the newspaper business opens up the floodgates to media consolidation; new News Corp
Back a decade or more ago the news that the Tribune Company would be buying Local TV Holdings for $2.73-billion deal to make the company the largest television station group in the country would have brought down the Feds. But then, when newspapers were considered the local media giants, the concern was about monopolies. Today, with newspapers in dire straights, few voices will be heard protesting yesterday’s big TV deal.
In fact, most stories about the record deal still talked about Tribune’s plans to sell off their newspaper properties, so hard is it for media reporters to keep their eye on the ball and understand the real story.
The Tribune Company’s newspaper holdings are becoming more and more irrelevant. While, from a business perspective, the deal to buy Local TV Holdings really does make the Tribune Company relevant again – it also makes them wildly in debt. But now that debt is held by investment banks, so no one cares.
The money to do this deal is coming from JPMorgan Chase, Bank of America Merrill Lynch, Citigroup, Deutsche Bank and Credit Suisse, companies that play the dance of M&A – mergers and acquisitions. With revenue and income falling – income fell 41 percent in the last quarter, on revenue that fell 3.3 percent – the easiest way a banker sees to drive up value is through acquisitions.
But those that will only get you so far, investors also like to see asset sales. So while the Trib’s CEO may be saying the right things about their newspapers – “we’re in no rush,” Peter Liguori said – the days are numbered for the local metro papers. With investment bankers Evercore Partners and JPMorgan looking for buyers, there is no way a sale doesn’t go through – there is too much money to be made (I used to do M&A, it’s where the real money is on our industry).
The public, and the government, doesn’t really look at television consolidation the same way it does when local newspapers are involved. A station that broadcasts reruns of I Love Lucy, has happy talk news at 6, and American Idol in prime time, is not going to draw the attention of regulators the way it would if that same station also owned the local newspaper.
Since my expertise is really publishing, it is hard for me to evaluate the value of the Local TV Holdings deal. With more and more young people cutting the cord on their cable, one might think that the effects of all this would lead to local TV stations being of less value. But broadcast remains the bright spot in the media business (in the radio world, Emmis Communications reported strong radio ad revenue, even as their regional magazines were suffering).
But it is not hard to evaluate the value of newspapers, though: even with new metered paywalls in place, total revenues are falling at most chains. Most publishers either want out, or want to limit the damage their holdings can cause. This is the real strategy behind Advance’s moves – to lower costs down to a less painful level (if they really cared about digital first strategies wouldn’t they at least announce some new digital media initiatives?).
So from the perspective of smart business, the Trib’s move is a blockbuster. But with the bankers now in charge, it certainly won’t be the last big deal the company makes this year. The next one, though, will involve newsrooms and press rooms.
Yesterday, the two parts of what was once News Corp – the new News Corp and 21st Century Fox – began trading as separate companies. The publishing side, the new News Corp, which is made up of the newspapers like the WSJ, book publisher HarperCollins. and its educational division, Amplify, is solidly funded. The question is whether the executives at the company will want that funding in the bank, or on the balance sheets through acquisitions.
Most reports says News Corp. is looking at the Tribune Company newspapers. Then there is the fact that the Boston Globe is also on the blocks. I can think of few other times when so many metro properties were available. We’ll know how the new News Corp. will be run simply by seeing whether they plan on expanding their newspaper holdings or if they plan to sit on the sidelines and watch the bankers.
Originally published as the Morning Brief on July 2nd