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.