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Strib defauls

The Newsosaur brought word yesterday that the Minneapolis Star Tribune defaulted for the second straight quarter on debt payments. The former KRT paper that was spun off in the McClatchy deal to avoid conflict issues (MNI already owned The St. Paul Pioneer Press).

The Strib was purchased in Dec. 2006 by a private equity group, Avista Partners, made up of former investment bankers. At the time The Star Tribune has a paid circulation of 361,172 daily copies and 596,333 on Sunday. Purchase price was $538 million, less than half what McClatchy paid for purchase in 1998. At the time of the deal the paper was reportedly still earning a profit.

To finance the deal, Avista borrowed $340 million initially and nearly $100 million a year later. Since then it has been forced to write-down most of the newspaper’s value and now, because of falling advertising revenue, finds itself unable to meet the payments on the remaining debt estimated at about $436 million.

The company is in the process of attempting to restructure the debt, but that will undoubtedly bring higher interest payments. MNI recently had to cut a similar deal and rates on their extended time table could top 10 percent, according to reports.

Here’s the kicker, under the circumstances some are estimating the Strib is now worth $125 million. However, that figure is based on the price one would pay to purchase all of their outstanding debt paper and not other more common ways of valuing a newspaper (i.e. cash flow or assets). But, under the circumstances the figure quoted may be charitable given the increasingly uncertain revenue picture for newspapers and that some traditional newspaper assets (such as brand or goodwill) likely have little intrinsic value at this point.

I’m sure folks at the Strib take little solace in knowing they probably aren’t alone. The Philadelphia Inquirer, another spin-off from the KRT deal, is struggling in similar waters. Also, the entire Tribune company (owners of the LA Times, Chicago Tribune and Baltimore Sun) could face default on its debt of $13 billion in the coming year according to some reports.


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Fail Efficiently

“The way to get a great idea is to have many ideas. By definition, most of your ideas will fail. You want to be able to generate ideas very fast, very cheaply and fail very often but at very low cost. Magic Labs is optimized for the efficiency of failure. Among the many ideas, there will be great ideas that bubble up and then we will invest R&D efforts to cultivate the great ideas.”

The quote is from John Wang, chief marketing officer at HTC, the company behind the first cellular handset to be powered by Google Android operating system. Find more of the interview here.

What’s the point? I wonder how many newspapers have an R&D mindset? Retrenchment seems all the rage at newspapers these days. It’s always worked in the past — right? However, some might argue it is simply trying to hold onto a past that has already passed. If now is not the time for radical reinvention then such innovation will be done on the ashes of newspapers.

Speaking of the ashes of newspapers, here is a thought from one of the leading innovators in newspapers: Dean Singleton. According to Singleton, most of newspapers problems are related to the recent economic downturn. Here is what he told

“The biggest thing we need right now is an improved economy, because at least 60 percent of the revenue problem we’re facing today is good-old fashioned economic recession.”

Alan Mutter, of Newsosaur, sees things differently.

Newspaper ad sales didn’t just go the wrong way in 2007. They have been declining steadily since 2001, when the economy suffered the twin shocks of 9/11 and the tech collapse. Even after the economy rebounded in 2003, newspaper sales consistently trailed the growth of the gross domestic product, as detailed here. Newspaper sales actually began falling in the second quarter of 2006 – even though the expansion continued for more than a year – and the rate of decline has accelerated ever since.

However, Singleton doesn’t stop there. He rightly adds: “If we lose $1 dollar in print, we don’t need $1 dollar to come back online. We need 30 cents. Maybe even 20 cents, because of the marginal profit that online produces.”

If that’s true and the money can be found online to enable newspaper survival, should those dollars go to profit margins that serve investors or should they be devoted to innovation and quality content production? Which will better serve the business in the long term?

I bet I know where Mr. Singleton stands on that question.

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Q4 newspaper advertising looks thin

Newspaper advertising was falling hard even before the financial markets tanked. Not a good sign heading into the final quarter of 2008.

According to a June Bloomberg News report:

Print advertising sales by American newspapers fell the most on record in the first quarter, tumbling 14 percent as the real estate and job markets shrank and business was lost to the Internet.

Advertisers spent $8.43 billion on newspaper ads in the first three months of 2008, according to the Newspaper Association of America, the eighth drop in a row. Real estate and recruitment ads each fell 35 percent.

The pace of that decline picked up in Q2 of 2008, but NAA is predicting it will stabilize for the rest of the year and the dive will become shallower in 2009. It isn’t clear why they believe the pace won’t continue to accelerate. But chances are all those calculations went out the window in the past few weeks as bank failures and stock market woes have all but guaranteed that advertising dollars will be at a premium for the rest of the year — if not longer.

What a bummer for those of us still trying to make a go in the newspaper business.

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Media stocks slide with Dow

Media stocks didn’t escape the mayhem on Monday, Sept. 29. Newspaper stocks have already been drubbed this year (heck, most have had their pants yanked to their ankles at this point) and some took another beating: Newscorp down nearly 10 percent; Gannett down almost 7 percent; Media General down 4.5 percent.

Oddly, McClatchy — which has dropped more than 90 percent of its value since the ill-fated KRT purchase in 2005 — rose nearly 2 percent. The bump was on news of a new agreement with lenders regarding the $1.2 billion debt it is carrying. But even that silver cloud had a lead lining because the deal — negotiated due to reduced revenue expectations — required the newspaper company to put up more collateral and accept a higher interest rate.

Does it mean anything that broadcasters were hit harder than most newspaper companies? Or is that simply because there is more value remaining in the TV company stocks than in most from newspapers?

The following figures are from Al Tompkins blog.

News Corp. and Viacom hit their lowest levels in more than four years, while CBS and Time Warner fell to one-year lows.

Here’s my summary:
News Corp. down 9.6%
Viacom down 7.83%
CBS down 7.14%
Belo Corp. down 4.27%
Time Warner down 9.22%
Walt Disney Co. down 9.22%
Gannett Co. down 6.59%
New York Times Co. down 3.82%
Media General down 4.33%
Washington Post Co. down 4.18%
McClatchy Co. actually rose 1.78% on news that a new debt agreement had been struck with lenders.
Hearst-Argyle Television was only down 2.87%
Meredith Corp. was down even less, only .69%
Charter Communications down 2.38%
Cablevision Systems Corp. down 5.47%
General Electric Co., a Dow Industrial Average component and parent of NBC Universal, saw a 8.51% stock price drop Monday.


What’s the plan?

Newspapers are in the midst of the greatest retrenchment in their modern history. Almost weekly there are reports of a few hundred more jobs being cut or eliminated. According to the Paper Cuts web site, created to track the loss of jobs at US newspapers, there have been nearly 11,000 jobs lost this year and there are still three months to go. That’s up from about 2,200 in all of last year.

It isn’t like this hasn’t happened before. In the late 80s and early 90s I worked at a mid-sized daily in the Philadelphia area. There I survived three rounds of layoffs. In one I saw a photographer with 12 years at the paper ushered out the door because he had the least seniority in that department.

But the difference in the past was that the newspapers didn’t really need a plan. They cut back and rode it out, confident that the economic factors affecting their bottom line would eventually be reversed and all would return to business as usual. That doesn’t seem likely this time.

The newspaper industry is in the midst of the longest and most severe advertising revenue downturn in US history. And rather than finding a floor, indicators are that everything up to now has just been the beginning of a deepening decline.

Here is what Alan Mutter at Newsosaur had to say on the subject:

In the longest sales setback ever, advertising revenues at newspapers declined for 9 or 10 consecutive quarters in the period ended on June 30, 2008. This surpasses the downturns in 1990-91 and 2001-02, when sales in each case slid for six of eight consecutive quarters before they revived.If sagging newspaper sales don’t turn around in the second half of this year – which few expect they can do – then the decline will be on track to be twice as long as any in history.

What will make matters worse? More major retailers are expected to go bankrupt and the credit crunch will discourage others from spending cash on hand for newspaper ads. But what may be most telling is that advertisers are losing confidence in newspapers.

As evidence Mutter cites a report to the NAA Retail Advertising Forum that just concluded in Dallas, TX.

While most of the retailers appearing at the NAA conference continued to profess their appreciation for newspaper advertising, David T. Clark of Deutsche Bank said in the report that nearly all of them are moving ever-greater percentages of their advertising budgets to the interactive media – especially when young people are the targets.Marketers “are ‘flummoxed’ by the multitude of media choices they have right now, so there is an opportunity for newspapers to step in and offer a multi-platform ‘big idea’ to major retail advertisers,” says Clark. “However, it is unclear whether many newspapers are up to the challenge, though there appear to be some that are.”

And newspapers may have a limited window in which to prove they deserve continued advertiser support. According to Clark.

“The next year to 18 months may be ‘make or break’ for the newspapers,” he said in the report. All signs point to weak retail sales and lean advertising budgets for the balance of this year and much of next, [making] it “unclear” whether newspapers “are moving fast enough to secure local market share for when the economy climbs out of its hole.”

What’s your newspaper doing? Do it have a plan to stop the slide or climb out of the hole? Or is it just cutting jobs and hoping things will all turn around on their own?

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How to become a millionaire

An old joke is making the rounds for newspaper folks these days. It goes like this: Want to know how to become a millionaire? Invest a billion dollars in newspapers.

That bit isn’t funny to anyone. But it is true for people investing in newspapers these days. Newspaper stock values are crashing. McClatchy has lost 95 percent of its stock value since purchasing KRT. Gatehouse Media stock has essentially become a penny player. Journal Register company stock is basically worthless. Even the strong public chains have lost significant amounts of stock valuation (Gannett down 80 percent since the beginning of 2005, New York Times down 70 percent for the same period, Newscorp down 36 percent).

If one had invested $1 billion three years ago in some of the world’s biggest public newspaper companies, there is a good chance the investment would be approaching $1 million today.

So what’s the good news? For those who like to see the world through a rosè-tinted wine glass, there is the possibility of a white knight. Or maybe just a gray one.

Alan Mutter writes at Newsosaur:

With a growing number of newspapers on the market at a time they most likely will fetch historically low prices, somebody is going to start buying some of them. But don’t count on the usual suspects.Start thinking, instead, about such unconventional potential purchasers as the multibillion-dollar investment funds created by countries like Singapore or the sheikhdoms of the United Arab Emirates.

The upside is those non-traditional players all have multiple billions to pour into newspapers. The downside(s) — numerous. Mutter points out many, including both the agendas some of these investors might hope to push with their media properties and the potential backlash of having the local paper owned by a group of dimm fur’ners (as my Alabama relatives would say).

However, few traditional media players have the where-withal, desire or stock-holder backing to buy the newspapers that are (or soon will be) on the market. Most are cash-strapped, debt-laden or revenue challenged at the moment. But even those who aren’t would have to know something that has escaped the perception of most media analysts before plunking down anything for those rags on the blocks. That something would be how to stop the bleeding.

Mutter has some thoughts on that, as well. Maybe I will get to them tomorrow.

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Bad news burden

Stuff I have been talking about for years is coming to pass. Newspaper stocks are falling and newspaper revenues are rushing to catch up. Desperate journalists are trying to figure out if there is a future in their vocation or whether they should practice flipping burgers so they have a fall back. A guy in my newsroom periodically calls out: “Next window please.” He says he’s practicing for his next job.

People have long told me I am too much doom and gloom. Frequently a conversation concludes with: “Thanks Dave, now I really feel like killing myself.”

Funny thing is all of this doesn’t make me feel good. Quite the opposite, in fact. So I was right. What’s my reward? The death of the entire industry I have known and loved for 30 years.

I try to keep hope. There is still a chance after all. Though the desperate efforts of desperate newspapers remind me of a dying animal flailing, I want to believe somebody will find something that will make things work out in the end. What’s more, there are business opportunities in this, especially if you can be satisfied with profit margins of less than 30 percent. In fact, there may be some pretty significant business opportunities if, say, one could work out a syndication model for news that works something like Google ads, paying content creators something per view of a piece. That would reward those who make better content as well as the sites that package and promote it well. Most likely it will be a company like Google or Amazon that devise something like this. Few other sites have the yank to bring all newspapers to the table, the expertise to execute effectively, and the deep pockets to pull it off.

Can that save newspaper journalism without the paper component? Not unless somebody invents it, surely. But possibly not even then.

It’s likely there is no single solution. It will be a bunch of little innovations coupled with the willingness of journalists to work for even less money and ever longer hours. Things like EveryBlock hold out the hope of a technological solution that will help people find the news most pertinent to their community or even neighborhood (though that may benefit bloggers more than newspaper sites). The reluctant venturing into niche web sites holds the hope of incremental revenue sources that will help offset the monumental losses of classified and national advertising.

But there is still too much uncertainty, too much stumbling, too much fearful hesitation, and far too much anger to be sure that many newspapers will survive. The overall U.S. economic malaise is just the icing on the cake.

Sure, I’m Mr. Doom-and-Gloom, but it’s not because I want to blow out the candles.

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