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Mystifying Newspaper Business Stories

Interesting stuff:

The possible sale of Yahoo’s HotJobs would be a huge blow for members of the Yahoo (NSDQ: YHOO) Newspaper Consortium, as the alliance is the only source of help-wanted-ad revenue for nearly 200 papers. But that’s apparently not deterring papers from joining. The newspaper alliance announced five new members—Freedom Communications’ California flagship, The Orange County Register as well as The Gazette in Colorado Springs; the North Jersey Media Group’s The Record and Herald News; and The San Diego Union-Tribune.  That gives the consortium 814 newspaper members, accounting for 51 percent of all Sunday circulation.

The Yahoo alliance has been one of the few bright spots for newspapers in recent months. A recent estimate by AdAge found that the two-and-a-half-year-old consortium sold $50 million in Yahoo ad inventory, with about “several million” dollars in sales being added each week. 

E.W. Scripps (NYSE: SSP), which list [SIC] most newspapers has been struggling with online ad sales, has said that the consortium has contributed 30 percent to their online ad revenues in Q1, or roughly $800,000. Also, Cox Newspaper’s Atlanta Journal-Constitution, which, combined with Yahoo, cites comScore (NSDQ: SCOR) figures that indicate it has increased its online audience reach in its home city alone from 15 percent to 80 percent.

So, why sell it off? And if it works, why don’t the papers buy it themselves, or at least a piece of it? (Other than the fact that they, you know, don’t have a dime to their names?) “Several million” dollars worth of sales each week ain’t moldy cheese.

Oddly enough, the new members of the Yahoo consortium haven’t even signed up for the help-wanted ad service. Instead, they’re counting on Yahoo to help them deliver targeted advertising on their web sites, in hopes of developing a wider new revenue model. Washington Post:

For websites still joining ad alliances like the Yahoo (NSDQ: YHOO) Newspaper Consortium and quadrantONE, the appeal is in the targeting and ad assistance?not the job listings. For the Yahoo Newspaper Consortium, HotJobs was initially a main selling point, but with unemployment currently at 9.1 percent, job ads aren’t so hot these days. None of the five new consortium members have signed on for the HotJobs service. Instead, the newspapers all cited a desire to access Yahoo’s targeted inventory and online ad saleforce training.

The consortium’s members have been awaiting the rollout of Yahoo’s APT display ad targeting and distribution service, which has been slower to materialize than they expected.

Looks like leaving money on the ground. But it’s a day for head-scratching media-business news. Consider this nugget from the story about the new CEO of the Orange County Register’s parent company, Freedom Communications:

A privately-held media company, Freedom went into debt in 2004, when it partnered with two private equity firms, the Blackstone Group and Providence Equity Partners, to raise money so family members could sell their interests in the company. Under the agreement, Freedom’s family shareholders maintain control of the company.

I love the OCR and hold Freedom Communications in high regard, especially its great founder, R. C. Hoiles, enemy of government schools and defier of FDR wage controls. But, if I’m reading this story right, this translates: The owners encumber the firm with debt in order to finance their family’s cash-out plan, while managing to retain control of the company. (There was a long intra-family dispute among the Hoiles clan, apparently.) Strange deal, but apparently not the worst one on offer:

… as difficult as Freedom’s financial situation is now, imagine what would be occurring had MediaNews and Gannett succeeded [in their takeover attempt]. Their bid amounted to 14 times cash flow — considered very pricey back in 2003. Now of course, that bid looks downright ludicrous.

Gannett has the industry’s best reputation for handling debt, yet it has lost its investment-grade rating. Singleton’s family-held MediaNews, which no longer files SEC reports, brags that it has never been out of compliance with its loan agreement covenants, but its debt is undeniably huge.

In retrospect, winning Freedom would have been a disaster for Gannett and MediaNews — and likely meant more suffering by the chain than it endures now.

I gave a talk last week on the paradox that newspapers make money but newspaper companies lose money. As with so much that’s wrong in the U.S. economy, the promiscuous use of debt, based on sunshiney assumptions about future asset values, is at the bottom of the problem. More than $1 billion for the Boston Globe? No wonder the newspaper industry is going broke.

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