No Takers   

The market is glutted with newspapers, but buyers are hard to come by.

In past recessions, newspaper acquisitions largely dried up, for a very simple reason: Sellers kept their properties off the block in the belief they would get a better price when times got better. What a difference seven years make.

In this year's newspaper slump, acquisitions likewise are rare, but not for a lack of owners wanting to sell. The market is awash in newspapers, and the principal reason appears to be their owners' fear that times will never get better, and may even get worse. What's lacking so far is a lineup of companies eager to buy.

How newspapers came to this pass tells a lot about the ills facing the industry now and for the foreseeable future. It is a story of falling advertising, circulation and market share, plunging profits, layoffs and buyouts, shrinking newsholes and a general diminution of newspapers' market standing.

All of this has happened so quickly that it is startling to contemplate that as recently as late last year, two of the biggest newspaper deals ever took place – News Corp.'s purchase of Dow Jones for $5.6 billion and Sam Zell's takeover of Tribune Co. for $8.2 billion. This year's rapid newspaper deterioration has already brought fallout from these two transactions. Tribune, under pressure to meet crushing debt obligations, sold Long Island's Newsday for $650 million to a cable-television company, a price probably half of what it would have been five years ago and probably $150 million more than it was worth in the current environment.

And News Corp. this year tried to sell eight community dailies and 15 weeklies held by Dow Jones' Ottaway Newspapers subsidiary, only to pull them off the market. Either nobody was interested or those that were offered so little that News Corp. wouldn't accept it.

Landmark has been trying since January to sell its Virginia dailies in Norfolk and Roanoke and papers in seven smaller markets, so far without result. More recently, Copley, which early last year sold off seven papers in Illinois and Ohio, put its sole remaining daily, the San Diego Union-Tribune, up for sale. An executive at the company told the Los Angeles Times that "the uncertainties pose too great a risk to sit still."

Other newspaper companies that have been exploring "strategic alternatives" (translation: "We've got stuff for sale") include Sun-Times Media (Chicago Sun-Times and numerous suburban Chicago papers) and Journal Register (22 dailies in five states). So far nothing has happened.

The most recent – and surprising – announcement came from Cox, which said it would seek to sell 10 dailies, including the Austin American-Statesman. (Disclosure: I was a consultant to Cox for more than 30 years, chiefly on valuation matters). If completed, the sale will leave Cox owning only its four dailies in Ohio, including the Dayton Daily News where the company was founded; the Atlanta Journal-Constitution (Cox now is based in Atlanta); and the Palm Beach Post and its sister, the Palm Beach Daily News.

Cox's chairman and chief executive, James Kennedy, said the decision came from "an ongoing strategic review of our portfolio," but an inescapable conclusion is that the company has lost confidence in the newspaper business. Cox also owns cable systems, radio and television stations, and the nation's largest auto-auction business.

With even newspaper owners losing confidence, just how bleak is the outlook? Actually, the answer depends on the kind of newspaper. The ones suffering the most now, and likely into the future, are larger circulation dailies in bigger markets. The principal reason for this is classified advertising, which traditionally contributes up to half or more of advertising revenue at large dailies. Classified revenue is down by 35 percent or more at most large newspapers from last year, which wasn't a robust year either.

The three major categories of classified are automotive, real estate and help-wanted, and the three underlying sources are all in a tailspin. Classified won't come back until automobile and real estate sales and job creation recover, which few expect to happen this year and perhaps not next year. And even with a recovery, it is not a sure thing that these newspapers will be able to recapture what they have lost.

In past recession-recovery years, including the last one in 2002, newspapers were able to regain most of their lost classified. The Internet was not nearly so competitive for classified as it is now. Consequently, large newspapers probably have lost forever some – maybe a lot – of their customary classified revenue.

Smaller newspapers will suffer too, but not nearly by so much, because typically classified accounts for only 30 percent or so of their ad revenue. Moreover, the smaller dailies are more closely connected to their readers and better able to retain traditional revenue sources than bigger papers in more complex and competitive markets.

It would be comforting to believe that all this shall pass and that newspapers will regain their appeal. The reality is that newspapers, especially large ones, probably will never be as profitable as they once were. Viable businesses, yes; profit bonanzas, no.