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Stop the Presses!



Interesting acquisitions in the newspaper industry



By David Savastano



Published August 15, 2013
Americans have turned the page when it comes to the daily newspaper. According to the Pew Research Center, U.S. daily newspaper circulation has fallen from 62.3 million in 1990 to 46.2 million in 2010. The number of newspapers in the U.S. has also declined, from 1,611 in 1990 to 1,387 in 2009.

There has been growth in the digital side, but there are not many newspapers that successfully charge for their digital edition, with the Wall Street Journal being the most lucrative example.

With these challenges, it is no surprise that major newspapers are up for sale. What is surprising is who is buying them.

In 2011 and 2012, Warren Buffett and Berkshire Hathaway acquired 28 daily newspapers, including his hometown Omaha World-Herald, for $344 million. In the past two weeks, two billionaires, John Henry and Jeff Bezos, joined the media field with acquisitions of the Boston Globe and Washington Post, respectively.

The question that comes to mind is why they would make these purchases, considering the state of the newspaper industry. The answers are as different as the new newspaper moguls themselves.

The case of Buffett is interesting. Buffett’s Berkshire Hathaway owns more than 60 newspapers, including the Buffalo News, which he has owned since 1977. His media group, BH Media, announced plans to add dailies in Atlantic City, NJ, and Roanoke, VA, in 2013. While he has a self-professed love of newspapers – he was the largest shareholder in the Washington Post when it was sold to Bezos – anyone who is familiar with Berkshire Hathaway knows that the goal is profit. Buffett’s acquisitions are generally in smaller towns where the dailies are well established and are the primary source for news. He said he expects these papers to be profitable.

Henry and the Boston Globe make an intriguing match. In 1993, the New York Times Company acquired Affiliated Publications, the owners of the Boston Globe, for $1 billion. At that time, the Globe had circulation of more than 500,000 daily readers.

In August 2013, Henry, the billionaire owner of the Boston Red Sox, acquired the Boston Globe for $70 million. Considering that a $1 in 1993 has the buying power of $1.62 today, that means that the Times received $70 million for something they spent the equivalent of $1.6 billion on.

Why did the Times sell? Circulation is down, with daily circulation currently 215,712 and Sunday circulation of 362,849, and ad revenue, print and digital, is reportedly declining with it. The Times likely figured it was time to cut its losses. As for Henry’s motivation, the guess is he wants to further his interests in Boston’s media market – in addition to the Boston Red Sox, his Fenway Sports Group owns a majority position in the New England Sports Network, and there is synergy among all of these properties.

Bezos, Amazon’s founder, acquired the Washington Post from the Graham family for $250 million. The Post has had average weekday circulation of 474,767 during the first half of 2013. By comparison, its peak circulation was 832,232 in 1993.

Its net income for the first quarter of 2013 was $4.7 million, down 85% from first quarter 2012. Its newspaper division revenue dropped 4% to $127.3 million, and print advertising fell 8% to $48.6 million. Digital revenue, including Slate, rose 8% to $25.8 million.

Why Bezos acquired the Post is not as clear. One school of thought is that he will find a way to revamp the paper into a more profitable enterprise, perhaps through adding emphasis to its digital side. Another idea is that this will give him additional power in Washington. While the reasons are uncertain, the acquisition probably brings some stability to the Post.


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