The Ultimate Newspaper Survival Guide: Sell The Business

Philip M. Stone August 6, 2008

Some newspaper families are now resorting to the ultimate decision to maintain their fortunes – just plain sell the business. Witness Copley in San Diego and Newhouse in Newark.

In Southern California the real families of influence were the Chandlers in Los Angeles via their ownership of The Times, and in San Diego still the Copleys via ownership, since 1928, of the Union and Tribune, merged in 1992 as the Union-Tribune.  There’s good reason why one of the three halls in the Los Angeles Music Center is called The Dorothy Chandler Pavilion, home of the Los Angeles Opera, and why in San Diego the home of the symphony orchestra is the Copley Symphony Hall and why at the Museum of Contemporary Art there is a David C. Copley Building.

From humble beginnings

The Chandlers sold out to Tribune back in 2000 and we all know what has happened to that once powerful and feared newspaper in the intervening years. But the Copley family held onto their San Diego newspaper while busy the past 18 months or so selling all their other media properties including the Daily Breeze in Torrance, California, and three weeklies to Hearst in 2006 for $25.9 million, and then in March, 2007, selling seven dailies and two weeklies in Ohio and Illinois to Gatehouse Media for $350 million. At the time those deals seemed low-ball, but given how newspaper valuations have dropped in the past year alone now with the benefit of hindsight they look pretty smart. Earlier this year it sold its Copley News Service to Creators Syndicate for an undisclosed price which usually means “not for very much, if anything”.

David C. Copley, chairman and chief executive officer and publisher of the Union-Tribune, said at the time of the Gatehouse sale that it would allow the family to focus on its San Diego flagship. “A primary goal of putting these properties up for sale was to ensure the company's ability to keep The San Diego Union-Tribune in the first tier of American newspapers and to make sure that we could maintain its independence in the future,” he said.

And yet just 17 months later the family announced it has hired Evercore Partners, an investment  firm, to look into various ways the family can exit the business, not just “any” business, mind you, but what is believed to be the oldest business in San Diego County and the second-oldest newspaper in Southern California. Obviously, newspapers are not the cash cows they once were and no use in flogging the family silver to maintain a relic of the past. Not that the Copleys are hard up – the publisher recently gave $6 million to create a center for costume design at the University of California, Los Angeles.

“It's the end of an era for those of us who've worked for the Copley family and those who've read our family-owned newspapers for many decades,” said Karin Winner, editor and vice president of the Union-Tribune. Local politicians have mostly expressed sorrow and voiced the hope the newspaper can remain in local ownership rather than be bought by a chain without a close relationship to the community.

“The last couple of years have been a difficult period for the newspaper industry, especially those in a real estate-dependent market like San Diego,” said Harold Fuson Jr., Copley Press executive vice president. “We have every reason to believe the business will rebound with the economy, but the uncertainties pose too great a risk to sit still.” In other words, try and get out while one can.

The problem now, however, seems to be that no one wants to buy newspapers these days unless it is at really silly prices. Murdoch had wanted to sell the Ottaway newspapers once his Dow Jones deal was complete but he had to take them off the market after six months when either there were no buyers or the offered prices were ridiculous.

Just look at the problems the Philadelphia newspapers and the Minneapolis Star Tribune are having making their debt payments, look at Journal Register that had to beg borrowers for some grace time or it would have filed for bankruptcy – its shares are now worth less than half a buck each – less than the newsstand price of most dailies (same is true with Gatehouse shares). Look at the share prices of such giants as McClatchy (barely above $4 a share), the New York Times (around $12.90) and even Gannett (around $17.60) and it doesn’t take a genius to see that newspapers are not the financial flavor of the month.

In December 2006, the Union-Tribune offered buyouts to employees who had been with the company for at least 30 years and then earlier this year it reduced its staff by 10 percent through buyouts and layoffs, meaning it now has around 1,240 employees. Its weekday circulation is around 314,000, and about 350,000 on Sundays, ranking the paper 21st among U.S. dailies.

Privately-held Copley doesn’t release public financial results so one doesn’t know the profitability of the Union-Tribune. Ken Doctor at Outsell estimates the company made $350 million in revenue last year so figuring a conservative 10 – 15% margin with a selling price of around six times cash flow today’s value would probably be around $200 million, about half of what it would have been five years ago.

But what buyers now recognize, from Sam Zell to local entrepreneurs, is that when buying a newspaper in such an economic downturn there needs to be enough cash flow to service debt let alone enough to cover the cost of running a daily newspaper.  The more leveraged the sale price the more the newspaper can expect cutbacks to conserve cash for the debt payments and in the Union-Tribune’s case that could mean under new ownership eliminating the separate business news section and/or reducing its extensive daily opinion section. 

Meanwhile on the East Coast Newhouse, another media family powerhouse, has announced it will sell the Star-Ledger in Newark, New Jersey and the Trenton Times unless about 26% of the Star-Ledger’s 750 full-time nonunionized staffers agree to buyouts and another 25 staff accept buyouts in Trenton.  

Billionaire Donald Newhouse says he believes the Star-Ledger will lose $35 - $40 million this year  -- petty cash to a family that owns 37 newspapers as well as the enormously profitable Condé Nast magazine group (think Vogue, W. Glamour)  but they don’t stay rich if they don’t look after their pennies -- and if the family cannot get newspaper costs under control then the family wants out. The Star-Ledger has seen its circulation fall by more than 15% in the past five years and is now at 345,130 – still the 15th largest US daily circulation.

And in what was truly a shock, the company is closing its admired Newhouse News Service based in Washington D.C. that served not only the Newhouse newspapers but other publications buying its syndicated content.

Publisher George E. Arwady’s note to Newark and Trenton staff certainly made things sound life threatening. “Although we have implemented a variety of plans to reduce expenses and create new sources of revenue, our financial picture continues to deteriorate. We simply have been unable to offset the unprecedented and continuing steep decline in advertising revenue. Therefore, we now have a genuine crisis. The situation is critical – we are currently on life support.”

So, there for perhaps the first time, a publisher of a major American metropolitan  newspaper has publicly acknowledged it is down to “life-support”. And with forecasts calling for the advertising picture to get even worse just how many more  patients (newspapers) are going to need such resuscitation? If never before, it is now the time of “survival of the financially fittest”.