You'd be hard pressed to find a large industry with worse economics than newspapers, from this week's Economist
THE New York Times once epitomised all that was great about American newspapers; now it symbolises its industry's deep malaise. The Grey Lady's circulation is tumbling, down another 3.9% in the latest data from America's Audit Bureau of Circulations (ABC). Its advertising revenues are down, too (12.5% lower in March than a year earlier), as is the share price of its owner, the New York Times Company, up from its January low but still over 20% below what it was last July. On April 29th Standard & Poor's cut the firm's debt rating to one notch above junk. ... Pick almost any American newspaper company and you can tell a similar story. The ABC reported that for the 530 biggest dailies, average circulation in the past six months was 3.6% lower than in the same period a year earlier; for Sunday papers, it was 4.6% lower. Ad revenues are plunging across the board: by 22.3% at Media General, for example. In 2007 total newspaper revenues fell to $42.2 billion, not to be sniffed at, certainly, but a lot less than the peak of $48.7 billion in 2000.
In yesterday’s post, I attempted to estimate the current valuation of the Star Tribune in the context of Blackstone’s negotiations with Avista and Credit Suisse. I surmised that the $100M Avista invested is worth nothing today, and that the remaining $430M in debt was worth no more than $215M, and probably quite a bit less given the fact that the guy on the other side of the table is Steven Schwarzman, a guy who can afford to pay Rod Stewart $1,000,000 just to sing at his 60th birthday party.
Interestingly enough, today’s Star Tribune details with surprising precision, the valuation of the Strib. Avista has, in fact, notified its limited partner investors that at the end of 2007 it had written off 75% of the $100M it invested in the paper, and that the value of the remaining $25M is ‘uncertain.’ Of the $430M in debt, $340M is trading at 56 cents on the dollar which equates to a value of $190M. (I didn’t take the time to look up the debt yesterday but I guess I could have or maybe should have. I suppose that’s why bloggers are bloggers and not professional journalists). Another $96M in subordinated debt is trading at 10 centes on the dollar, for a value of $9.6M. That all adds up to a value of $225M that Avista places on its own company. Keep in mind, this is just the starting point for what type of value ‘the market’ would place on the very same assets.
The Internets are to blame they say, and I do understand you cannot easily change a hard wired industrial age distribution model overnight. But here is one thing I do not understand - one thing newspapers have is reporters. Why don't the newspapers' content reflect the technology age? Why is all the interesting content on computing and the Internet on the web only? Where is the NYT interview with Werner Vogels, for example?
Marc Sewell wrote a great book on Software architecture, in which he foretold a day when software architecture was discussed as much in the NYT as real world, physical architecture. Why has this not happened? Where is the SOAP, Rest, Web 2.0 debate in the NYT? Is IBM's three ESB strategy a good one? Why doesn't Gary McGraw have a weekly editorial in the NYT?
There are very, very few newspapers that cover technology in a meaningful sense - Brian Krebs is a shining example. And, well, I cannot think of anyone else. Why not? These are big honking industries with major impact on our lives. You don't have to be a geek to get the story, you just to use basic reporting skills.
Part of the newspaper's problem is their distribution model is outmoded, but the other more serious problem is their content is not relevant and they are missing the story as the information age unfolds.