Australian publishing woes profiled; rumors drive price of tronc stock higher, benefiting CEO, hurting Gannett effort
Morning Brief: Declining paid subscription levels and falling print ad pages is not a situation unique to the US publishing industry, as the news from Australia seems to show
The past few years we’ve been told that the print publishing business woes seen in the US, falling newspaper circulations and declining print ad revenues, are not being seen in other parts of the world. While there were certainly fears that the US was a leading indicator, some in the British or Australian publishing industry continued to put a happy face on the state of the industry.
This week, however, has seen a series of stories appear that show that publishers are struggling in Australia. Yesterday, The New York Times published a lengthy story on the struggles at Fairfax Media, the publisher of The Sydney Morning Herald and The Age. Also, this week, new ABC figures were examined by the trade press and show many magazines slipping.
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Trouble at Fairfax Media “constitutes a crisis in civic journalism in our country, because the resources will no longer be there,” said Eric Beecher, a former top editor at The Herald and at News Corporation who is now the publisher of Crikey, a news website. “The Age and The Sydney Morning Herald have always done the heavy lifting of civic journalism and investigative journalism.”
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Big names like Cleo and Famous have shut down as publishers fail to keep up with online trends. For the broader industry, readership is dropping.
“If you look at their ad revenues, they peaked at about 2008, newspapers were close to $4 billion, magazines doing $1 billion. That dropped back this year to $300 million,” said James Manning the editor of Mediaweek.
He said niche titles have room to thrive.
“The big publishers have big overheads and they can’t really afford to target those small audiences,” he said.
“If you’re just a start-up publisher with a handful of staff you don’t have to reach a certain level of sales. Circulation can be smaller, ad revenue can be smaller and you can do very well.”
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Nick Chan CEO Bauer Media, ruled out transitioning any of the Bauer Media celebrity mastheads to digital-only, similar to what Pacific Magazines’ did with Famous.
“Not at this stage,” he said. “They are down, there’s no avoiding the facts. For us, they’re still profitable and while they are, there’s no reason to consider a digital-only future.”
The speculation continues to swirl around whether Gannett will end up acquiring tronc, the newspaper publisher formerly known as Tribune Publishing. The rumors and public pronouncements from the suitor, though, continue to have a positive effect on the stock price of tronc, which now trades on the NASDAQ.
Despite disappointing earnings, the stock has been on the rise, all due to the raised expectations of the eventual sales price.
The company’s stock, now trading as TRNC, has gone from a 52 week low of $5.42 a share, up to near Gannett’s first offer of $12.50 per share in late April. The Gannett upped its offer to $15 a share and up went the stock price again. Now the stock has risen on rumors yet again and closed yesterday at $15.95 per share.
As Keith Kelly points out, this all benefits one man, CEO Michael Ferro, who would make a killing were a sale to actually be completed.
“Tronc Chairman Michael Ferro will more than double his investment price and pocket close to $50 million in profits if he drops his resistance to a takeover offer from Gannett, based on his buy-in price of $8.50 a share and an $18-a-share sale price,” Kelly wrote last night.
When Tribune Publishing was spun out from The Tribune Company in July of 2014, the stock immediately hit what looks to have been its high water mark of $26.90 a share. It lumped a bit after that, then rose to near its opening price in late December of that year. But since then, it has been on a steady fall – that is, until Gannett came to the rescue.
If Ferro is only in this to make a quick buck then he has already won. A sale would satisfy quite a number of the shareholders, and produce a nice profit for those who leapt on board when Ferro took over the company and forced out Jack Griffin.
But if Ferro likes the idea of owning the dominant newspapers in Los Angeles, Chicago and Baltimore, then he’ll hang on, at least through the election. He then can sell to Gannett before the fourth quarter earnings are announced, likely at a price that doubles his investment.
As for Gannett, if they are serious about a takeover then they need new M&A people. This has not worked out well for them. At first, their effort to negotiate in public seemed to be putting pressure on their target to come to the table. But it also forced Ferro to batten down the hatches and prepare for a battle. The result has been that the price Gannett might have to pay to win the prize.
If this is the entirety of their strategy it has been M&A malpractice. On the other hand, should they wait for the right moment when the news is bad at tronc, then pull the rug out from under the bid, the stock price will certainly fall.
Gannett believes it needs to have a consolidated industry, and is willing to take on debt to get there. But that is a dangerous game, unless like some other newspaper company its ultimate plan is to acquire, then restructure the debt.