The fast-approaching death of newsprint

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The fast-approaching death of newsprint

By Steve Eggleston

The last 2 weeks have been momen­tous in the media world, as three major mul­ti­me­dia com­pa­nies, includ­ing the nation’s largest news­pa­per pub­lish­ing group, announced they were spin­ning off their print oper­a­tions, and a fourth com­pleted its previously-​announced spin-​off of the second-​largest news­pa­per pub­lish­ing group:

  • On July 30, Cincinnati-​based E.W. Scripps announced that, as part of its takeover of Milwaukee-​based Jour­nal Com­mu­ni­ca­tions, set to close in 2015, it would be spin­ning off the com­bined com­pa­nies’ print prop­er­ties, along with the print prop­er­ties’ asso­ci­ated elec­tronic prop­er­ties, into a liability-​free com­pany with $10 mil­lion in “seed money” and the Jour­nal name.
  • On Mon­day, the Tri­bune Media Com­pany com­pleted the previously-​announced spin-​off of the second-​largest news­pa­per group into Tri­bune Pub­lish­ing. Notably, Tri­bune Media kept own­er­ship of the elec­tronic pres­ence of the news­pa­pers, and bur­dened the new print com­pany with $350 mil­lion in debt and $120 mil­lion in office space lease costs through 2017.
  • On Tues­day, Gan­nett, pub­lish­ers of USA Today, announced that it would be split­ting off the largest news­pa­per group in 2015. Much like the Scripps/​Journal deal, the news­pa­per side will retain the Gan­nett name and the newspaper-​specific dig­i­tal prop­er­ties, with the broad­cast com­pany assum­ing all the cur­rent debt.

These moves are on the heels of last year’s suc­cess­ful spin-​off of Rupert Murdoch’s news­pa­per empire, head­lined by The Wall Street Jour­nal, from his larger mul­ti­me­dia empire. A New York Times arti­cle from last year announc­ing the Tri­bune spin-​off explains why this is happening:

Despite the imme­di­ate inter­est from bid­ders, Tri­bune faces a tough mar­ket for news­pa­pers, espe­cially large regional dailies that have been hit hard by changes in adver­tiser and con­sumer behav­ior. In Octo­ber, The Tampa Tri­bune sold for a scant $9.5 mil­lion; Philadelphia’s news­pa­pers sold for $55 mil­lion in April 2012 after fetch­ing $515 mil­lion in 2006.

Some investors are so con­cerned about print that they will not buy any com­pa­nies with pub­lish­ing stakes, accord­ing to Reed Phillips, a man­ag­ing part­ner for DeSilva & Phillips, a media bank­ing firm. “Share­hold­ers aren’t reward­ing com­pa­nies for being diver­si­fied any­more,” he said. “Print media, there’s a real neg­a­tive connotation.”

He said investors wanted to see com­pa­nies that were exclu­sively focused on print and were try­ing to show how they would make a prof­itable tran­si­tion to dig­i­tal. “They’re going to have to be trans­formed,” said Mr. Phillips about these print com­pa­nies. “Then investors may get re-​excited.”

Given the eco­nom­ics of newsprint have only declined since then, there con­tin­ues to be no upside for a vertically-​integrated mul­ti­me­dia com­pany to include newsprint. To put it bluntly, the pop­u­la­tion of those who like the feel of newsprint rather than star­ing at a screen is dying off quite quickly, and the fixed costs of deliv­er­ing that newsprint are skyrocketing.

Another rea­son the mul­ti­me­dia com­pa­nies are split­ting off their newsprint oper­a­tions is the FCC’s anti­quated cross-​ownership rules, which between 1975 and 2007, and again since 2011 fol­low­ing a court order, pro­hibit a sin­gle non-​grandfathered com­pany from own­ing both a news­pa­per and a TV or radio sta­tion in the same mar­ket. That was a stated fac­tor in Gannett’s dives­ture of its print prop­er­ties, and was likely a fac­tor in Scripps/Journal’s dives­ture of their print properties.

By Steve Eggleston

The last 2 weeks have been momentous in the media world, as three major multimedia companies, including the nation’s largest newspaper publishing group, announced they were spinning off their print operations, and a fourth completed its previously-announced spin-off of the second-largest newspaper publishing group:

  • On July 30, Cincinnati-based E.W. Scripps announced that, as part of its takeover of Milwaukee-based Journal Communications, set to close in 2015, it would be spinning off the combined companies’ print properties, along with the print properties’ associated electronic properties, into a liability-free company with $10 million in “seed money” and the Journal name.
  • On Monday, the Tribune Media Company completed the previously-announced spin-off of the second-largest newspaper group into Tribune Publishing. Notably, Tribune Media kept ownership of the electronic presence of the newspapers, and burdened the new print company with $350 million in debt and $120 million in office space lease costs through 2017.
  • On Tuesday, Gannett, publishers of USA Today, announced that it would be splitting off the largest newspaper group in 2015. Much like the Scripps/Journal deal, the newspaper side will retain the Gannett name and the newspaper-specific digital properties, with the broadcast company assuming all the current debt.

These moves are on the heels of last year’s successful spin-off of Rupert Murdoch’s newspaper empire, headlined by The Wall Street Journal, from his larger multimedia empire. A New York Times article from last year announcing the Tribune spin-off explains why this is happening:

Despite the immediate interest from bidders, Tribune faces a tough market for newspapers, especially large regional dailies that have been hit hard by changes in advertiser and consumer behavior. In October, The Tampa Tribune sold for a scant $9.5 million; Philadelphia’s newspapers sold for $55 million in April 2012 after fetching $515 million in 2006.

Some investors are so concerned about print that they will not buy any companies with publishing stakes, according to Reed Phillips, a managing partner for DeSilva & Phillips, a media banking firm. “Shareholders aren’t rewarding companies for being diversified anymore,” he said. “Print media, there’s a real negative connotation.”

He said investors wanted to see companies that were exclusively focused on print and were trying to show how they would make a profitable transition to digital. “They’re going to have to be transformed,” said Mr. Phillips about these print companies. “Then investors may get re-excited.”

Given the economics of newsprint have only declined since then, there continues to be no upside for a vertically-integrated multimedia company to include newsprint. To put it bluntly, the population of those who like the feel of newsprint rather than staring at a screen is dying off quite quickly, and the fixed costs of delivering that newsprint are skyrocketing.

Another reason the multimedia companies are splitting off their newsprint operations is the FCC’s antiquated cross-ownership rules, which between 1975 and 2007, and again since 2011 following a court order, prohibit a single non-grandfathered company from owning both a newspaper and a TV or radio station in the same market. That was a stated factor in Gannett’s divesture of its print properties, and was likely a factor in Scripps/Journal’s divesture of their print properties.