Removing The Gloss

I was on CNBC earlier this morning to discuss possible buyouts of newspaper companies. For the uninitiated, both Tribune Co. and Trinity Mirror are on the block, while various folks have expressed interest in buying the New York Times and/or its Boston Globe subsidiary. My basic point was that these are basically vanity plays – albeit, in some cases, altruistic vanity plays – and that return-driven institutions should steer clear.

But fellow conversant Charlie Gasparino disagreed, saying that I was glossing over several key points. Specifically, he said that many newspapers still have strong profit margins of 20%, and that papers like the Wall Street Journal have successfully navigated the online waters.

First, I plead entirely guilty to glossing over certain points. You only get about 120 seconds of total speaking time on a typical CNBC segment, so glossing is essential. I briefly responded on the WSJ/online point, by noting that WSJ is not representative of the overall newspaper market because it has a more targeted audience and does not rely on classified ads for used cars and apartment rentals. WSJ vs. NY Times might not be apples to oranges, but it’s at least apples to a very different type of apples. In fact, I’d liken the WSJ’s biz model much more to that of magazines than to that of newspapers.

What I did not have time to respond to was the profit margin issue. First, a quick search on Yahoo Finance seems to dispute his 20% figure. The New York Times Co. has a profit margin of 5.16%, and an operating margin of 11.10 percent. The Tribune Co. reports an 8.85% profit margin, and a 20.41% operating margin. If I’m wrong, I’m sure one of you analysts will correct me. If Gasparino was wrong – as it seems he was – this will serve as his correction.

But far more important is an indisputable downward trend in newspaper circulation and revenue. Gasparino said something like “We’ll have to see what kind of impact the Internet has on them…” – but we already know! Unless someone pulls the online plug tomorrow (or, as Sen. Ted Stevens might say, stuffs the tubes), newspaper circ and revenue will continue to decline. It’s no surprise that firms considering formal bids for Tribune Co. are talking about bids either at, or below, its current stock price. This is not a healthy industry, as Gasparino implied.

Which brings us back to vanity. I completely understand wanting to own the hometown paper. I think it ranks just below owning the hometown sports franchise: Less fun but more influence. And if I were uber-wealthy like Jack Welch, Eli Broad or Bruce Toll, I also would make a bid.

But they are only investing their own money, and can afford a future hit. Private equity firms are investing on someone else’s behalf, and should not back these deals unless they have a revolutionary plan for turning the ship around (like Yahoo might have were it to have bought the Mercury News). Added operational efficiencies like combined bureaus and Mumbai copywriters will only go so far.

Maybe Carlyle, Bain, Providence, etc. do have such a plan in their head. As a journalist, I hope so. But also as a journalist, I doubt it.


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