N.Y. Times Purchase Good News For Globe
Other potential buyers could have been far worse.
By John Morton
John Morton (email@example.com), a former newspaper reporter, is president of a consulting firm that analyzes newspapers and other media properties.
Worries about chain ownership of independent newspapers soared once again when the New York Times Co. struck a deal to buy the Boston Globe.
Comments on media talk shows and in the trade press have portrayed the deal (which could become final early this fall) as one more example of the "corporatization" of American newspapers, and have raised the specter of homogenized news and the loss of an independent editorial voice.
There are ample reasons to worry about the effects of the decades-long concentration of newspaper ownership, but in this instance they are probably overblown. What could have happened to the Globe had not the Times agreed to buy it probably would have been far worse than what will happen.
The Globe became available for what has become a common reason in the newspaper business – a looming crisis in family control. The Globe's parent company, Affiliated Publications, is controlled by two trusts for the Taylor and Jordan families that are scheduled to expire in early 1996.
Then, more than 120 beneficiaries – many without any personal or professional ties to the paper – would be free to dispose of their shares as they see fit. That many shareholders on the loose creates a fertile takeover environment – the same sort of condition that preceded the fall of family newspaper ownership in Des Moines, Detroit, Louisville and dozens of smaller cities in recent decades.
Had the trusts been allowed to expire, any number of corporate giants could have vied for the shares. And not all of the giants likely would be big newspaper companies. With the information business becoming ever more interlocked and global, behemoths like Time Warner, General Electric or, who knows, maybe even Mobil Oil or some foreign combine, might have bid top dollar for a property as attractive as the Globe.
Instead, a distinguished and prosperous major newspaper will be taken over by another distinguished and (usually) prosperous newspaper company. This will surely be a better result than most other possible scenarios.
If the Times' takeover of the Globe is a good thing journalistically, there remains the question of whether the deal is good for the shareholders of the two companies. The shares of Affiliated Publications edged up a bit after the deal was announced (the transaction, valued at about $1.1 billion, offered Affiliated's owners a 21 percent premium), but the Times' shares immediately dropped several points. This decline was due to the fact that the cost of the acquisition would hurt the Times' profits considerably for years until the Globe's earnings rebound more fully from the lengthy New England recession.
On balance, though, the Times' shareholders should be happy in the long run. A newspaper of the size, quality and prospects of the Boston Globe rarely becomes available for sale. Almost all big city newspapers are already in the hands of large companies unlikely to give them up.
Moreover, Boston, absent a recession, is a superb newspaper market because of its large population with high levels of income and education. The Globe's direct daily competitor, the Boston Herald, has such a weak position that its advertising revenues are less than 18 percent of what the Globe pulls in. And unlike many newspapers that have been acquired in the past, the Globe needs no fixing up: It has a quality editorial product, a modern printing plant and better union contracts than the Times.
Still, the Times paid a fat price given the general weakening of newspaper values during the recent recession. It is likely the Times agreed to $1.1 billion – a price that might be more appropriate in a couple of years when the Boston economy is stronger – to persuade the Globe's owners to act sooner rather than later.
The Globe generated a lot of cash before taxes last year – $65.3 million – producing a pretax cash flow margin of 15.7 percent of revenues. That is a high profit margin for a big city newspaper still recovering from a recession. The margin was even better in pre-recession 1988, when the Globe produced $102.6 million in pretax cash, for a margin of 23.6 percent. Because of the erosion of retail advertising and other factors, the Globe may have difficulty achieving its pre-recession profit margins, but my guess is that it can come close.
And while I do not like to predict the fate of newspapers, if history catches up with Boston as it has with all but a handful of other cities, the Globe probably at some point will become the only metropolitan daily in that city. That would not bring the paper much more advertising lineage, since it has almost all of it now, but it probably would boost the Globe's circulation by 100,000 or more, bringing sharply increased advertising rates.
With all these favorable factors, it is understandable that the Times was willing to pay so much to get the Globe. l###