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Thursday, November 02, 2006

Newspaper Private Equity Deals Could Fail

Stocks: (NYT)(TRB)(GCI)

The newspaper industry never had so many fans. Funny. Most people have written newspapers off for dead. The circulations are falling, and companies like The New York Times and Gannett find their stocks at multi-year lows.

But, there are some fairly bright player who think they can still make money in the newspaper game, especially if they can take the promising parts of some of the chains and leave the rest to the “vanity” buyers like Jack Welch, who says he wants to buy the underperforming Boston Globe from The New York Times Company.

Much like Knight-Ridder before it, The Tribune Company has investors who want the company sold, in pieces if necessary. The stock has just underperformed too much. The company says that several private equity groups have expressed interest, but the prices have been too low. There are some vanity buyers, rich citizens from Southern California who would like the have a new toy, The Los Angeles Times. Local groups in Long Island and in Hartford and Baltimore have expressed interest in Tribune properties in those cities. Civic pride.

The real question is whether the industry is in a flat spin. The average daily circulation of the 770 newspapers followed by the Audit Bureau of Circulations dropped 2.8% in the six months ending September 30. And, that has been going on for awhile. Some papers are worse off than others. The LA Times lost 8% of its circulation. The Boston Globe was down 6.7%.

The conventional wisdom is that the internet killed the newspaper industry. Cash flow at many papers is still good, but with dropping circulation and ad lineage, it won’t stay that way forever. Cost cutting may help, for awhile.

The paradox about newspapers is that the web is killing them, but it may be the only thing that can save them. Companies like The New York Times see 10% to 15% of their revenue coming from the web over the next year or so. They have to hope that the online revenue increases faster than the print sales fall.

The vanity buyers may be looking at newspapers for reasons other than a big payday. But, the private equity crowd is in for the cash. They know that without improved internet metrics, buying a newspaper is probably not a winning hand.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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