Lawyers, bankers, media execs strike it rich in spin-off deals; readers, journalists not so much
The spin-off of the newspapers from Gannett – or rather the spin-off of broadcast and digital, as the print side will retain the Gannett name – is probably the last of these deals we will see this year. Belo, News Corp, Tribune, Journal Communications-Scripps having already announced or completed their transactions.
For media reporters, who only refer to Ken Doctor when wanting information on the newspaper industry, this is all shocking stuff made more reasonable by the fact that Doctor forewarned them a day or so ago. But others have been talking about these divestitures for a while.
“Wall Street has started nudging CEO Gracia Martore to spin off the newspaper business from broadcasting post-Belo,” Jim Hopkins wrote last year. “This would create two publicly traded companies, freeing the more nimble TV business plus the CareerBuilder stake and other purely digital businesses from the sluggish publishing division. USA Today and the U.K. Newsquest division, with 17 dailies plus hundreds of weeklies, could be sold separately.”
“Martore isn’t sold on the idea. Gannett’s U.S. dailies and TV stations occupy a combined 111 markets, offering economies of scale no one else can match, she says. Still, if newspapers become an even bigger drag on growth, analysts will surely push harder for a breakup,” Hopkins wrote.
For some media reporters, the break-up of publishing from broadcasting makes perfect sense due to the declining fortunes of print. But this ignores the real reasons such deals are completed: they are profitable for those directly involved. Between legal and financial fees, stock bonuses and dividends, these deals prove quite lucrative and hard to resist. (Media executives often are richly rewarded for these deals, just as they are for laying off staff and wreaking havoc with their companies.)
Each deal is couched in terms of the spin-off being good for both new companies. Does anyone really believe this? How does removing the profit and revenue growth area of a media company improve the prospects of the publishing side? How do readers benefit when new publishing companies are often loaded with debt, forced to pay dividends to shareholders and lose their digital assets?
“We believe separating these businesses will unlock shareholder value both in the near term and increasingly as they develop independently in the future,” Gracia Martore, president and chief executive officer, said today of the Gannett split.
It has often been argued that the growth of digital is at the heart of the decline of the newspaper business, a claim I often have ridiculed. This simple answer ignores the history of the industry before the Internet boom. From my own personal experience in the newspaper business I can tell you that no website forced George Hearst to fight unions in L.A. for nine years, or for Hearst to choose to publish in the afternoon, leaving The Times for the morning, or to bring in an East Coast exec who wanted to turn the L.A. paper into a tabloid for easier reading on subways that did not exist.
No website was involved when newspapers ignored the threat from auto shoppers and real estate tabloids to their classified business. No website forced managers to continue to raise their ad rates even as readership fell and cheaper alternatives arose.
But when the Internet did explode, the reaction was retrenchment. Rather than launch their own classified web products, they invested in outside entities which will now be aligned with broadcasters.
Media diversification was supposed to be the cure. Own a few broadcast outlets, even if not tied to the market a newspaper serves, and things will balance out, or so the thinking goes. But the reason it will prove easy to spin-off both broadcast and digital assets from publishing is because they were rarely integrated into the whole. When deals were struck one line often used was that there would be synergies, that dreaded word that is still in search of a definition that works in the real world. If connections were forged it would be far more difficult today to break-up these companies.
From the perspective of analysts and media executives, their publishing divisions are cost heavy and revenue light. Broadcast, on the other hand, is all about managing programming costs and keeping overhead low. A DJ is on air only a few hours, but there is only one or two of them on air at any given time. But in newspapers, a reporter may generate a story for print or online, but there are lots more reporters working and getting paid at the same time.
But I was originally a newspaper man and I look at all this differently. When I see a newsroom I don’t see a cost center, as so many newspaper (or former newspaper) executives do. I see the engine that drives the enterprise. The question is what products can be created that utilizes this content engine. The new publishing company that starts producing those products will be the one that succeeds.
So the mission for these recently created publishing companies is to do what the old media company did: diversify. Launch products, experiment, develop digital capabilities. The new companies, after all, have a huge advantage over their old masters: they don’t have those executives around anymore.