In the past 20 years, a great American newspaper has lost 96 97 percent of its value.
The New York Times bought the Boston Globe in 1993 for $1.1 billion. The Times today announced the sale of the Globe and related New England properties to John W. Henry, principal owner of the Boston Red Sox, for $70 million.
I used the Bureau of Labor Statistics’ inflation calculator to figure that $1.1 billion in 1993 is worth $1,777,540,000 today. And $70 million is less than 4 percent of that.
I’m not going to do the research, but I’ll bet anyone who wants to do the research a beer (or other beverage) that the deal includes at least $50 million in real estate. In fact, I expect that the real estate may be worth $70 million or more. As I noted after Warren Buffett bought the Omaha World-Herald, I thought that was a deal for the value of the real estate, with a newspaper thrown in. I think that’s what newspapers cost today. Update: Dan Kennedy speculates that the Globe real estate is worth $70 million and added some more information in tweets:
@stevebuttry Don’t forget that the Times Co. paid $295m for the Worcester T&G in 1999. http://t.co/dBbbJlDNzA @eclisham
— Dan Kennedy (@dankennedy_nu) August 3, 2013
@stevebuttry $70m paid by Henry also includes the Times Co.’s 49% share of Boston Metro. @eclisham
— Dan Kennedy (@dankennedy_nu) August 3, 2013
@palewire Good question. But $70m is within most pre-sale estimates, which included the property. @stevebuttry @latimes
— Dan Kennedy (@dankennedy_nu) August 3, 2013
OK, I updated my math based on the inflation-adjusted purchase price of the Worcester Telegram & Gazette (I couldn’t find a purchase price for the share of Metro). And the sale price was actually just 3.2 percent of the original investment in those two properties. Either rounding that number off or figuring the Metro investment would knock off another two-tenths, I’m saying the New England properties have lost 97 percent of their original investment.
As Bill Mitchell pointed out on Facebook, Henry is paying less for the Globe than for second baseman Dustin Pedroia.
So a great newspaper is worth about the value of its real estate, but less than a 30-year-old second baseman.
Also, I should clarify a point about the lead and headline here: This value loss hasn’t been over 20 years. For the first dozen years or so under Times ownership, I presume that the Globe was growing in value. So the loss since 2005 or so has been greater than 96 percent.
And, if you think paywalls are helping newspapers, keep in mind that the Globe has one.
I say this with no pleasure at all. I wish my friends at the Globe success and prosperity under the new owner. I cite this as another in the endless list of illustrations of the urgency of developing a new business model for news. The old business model has lost more than 96 percent of its value, even with paywalls. We need new revenue streams. We need to figure out what size of staff those revenue streams can support and how to use those staff members.
In a weekend when the Cleveland Plain Dealer and Gannett cut hundreds of journalists from their newsrooms, we are a long way from figuring this out.
Updating to add some tweets from Damon Kiesow (of the Globe’s Boston.com) and others:
@stevebuttry And thank goodness. Last thing the industry needed was another overleveraged consolidation followed by cuts.
— Damon Kiesow (@dkiesow) August 3, 2013
@stevebuttry Just not sure the ‘value’ matters unless we are looking to extract it for short-term profit. Sustainability matters.
— Damon Kiesow (@dkiesow) August 3, 2013
@stevebuttry With you on that one. Hope we hear more next week.
— Damon Kiesow (@dkiesow) August 3, 2013
NYT-BOS: Common mistake to gauge total value of an acquisition over time on price tags. Ditto for looking at cash paid as total cost.
— Staci D Kramer (@sdkstl) August 3, 2013
@stevebuttry If we are talking only about sales price, that is different from value as it pertains to resources, mission and community.
— Damon Kiesow (@dkiesow) August 3, 2013
While we are on the subject – is ‘journalism’ even a business in the traditional sense. More a hopefully self-sustaining public service.
— Damon Kiesow (@dkiesow) August 3, 2013
@ianhillmedia I think the distrust is overstated, but we do need to work on understanding and serving our communities better. #UX
— Damon Kiesow (@dkiesow) August 3, 2013
@stevebuttry Or perhaps the NYTimes WILDLY overpaid for the Globe when it bought it. Kinda like a certain baseball team tends to do …
— Elaine Clisham (@eclisham) August 3, 2013
While these people make valid points, it is also completely valid to use sale price as a measure (not the only measure, but an important one) of value. A news company is not a car, which you buy expecting to extract all or nearly all the value before you sell it. No one at the New York Times in their wildest dreams imagined selling the Globe for $70 million when they bought it 20 years ago for $1.1 billion.
Now, if they got good profits from it over the years, that still might have been a good investment. But don’t tell me the market value of the company hasn’t nearly vanished. Maybe my calculation is off and it’s 95 percent or 98 percent that it lost. Or even 90.
Damon is also right that sustainability matters and that a news organization has community value beyond its market value. That community value perhaps used to inflate the value of newspapers. But right now their market value appears to be about worth the value of their land and buildings.
What role, if any – in your mind – did the previous owner play in the loss of value? Always heard lots of grumbling about the way the Times ran things there…
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I don’t pretend to be knowledgeable enough about Globe operations to address that. I am sure, though, that most of this loss reflects the loss in value of the newspaper industry at large.
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Steve, you’re right as usual. More good analysis from a sharp business and journalism mind about our industry.
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Thanks, Rob!
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Reblogged this on Journalism Ends Here.
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Thanks for ruining my Saturday, Steve.
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It’s actually even worse than that when you add the amount they paid for their western Massachusetts newspapers.
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Good points as usual…..Not to be a Pollyanna, but with an ante this low, maybe some new and creative investors will want to get into the newspaper game.
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The Plain Dealer has no paywall, and that is not working either.
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True. I’m not saying anyone has figured out what we need to do, just that the paywall didn’t add any notable value to the Globe. If Advance sold the PD, they’d get a similar pittance of former value.
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On the pay wall point, I’m hesitant to factor it into the Globe’s price tag. It hadn’t been around that long. I was impressed during the paper’s marathon bombing: Lowering the pay wall showed me the first-rate reporting I had been missing (Boston.com is a poor substitute for the real thing). If I lived in New England I would have bought a subscription then and there.
Of course, I am a print reporter and expect I will pay for WaPo’s online coverage when that wall eventually goes up.
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I am not an actuary, but the Times also agreed to pay the pension costs. What value is that ?
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Huge.
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Any way to find out how much?
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$100 million, according to media reports. In other words, just like with an aging, overpaid baseball player who gets traded to Oakland, the NYT is actually paying $30 million to make the Globe just go away.
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That may be an oversimplification, but this Reuters report does say the Times is maintaining the pension obligations. And this Bloomberg report says the pension liabilities are $110 million. Buyouts could certainly reduce that number, but by any measure, the pension aspect of the sale may push the percentage of value lost to 100 percent or higher.
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I am now convinced that it was at least 100% loss. BTW, who is paying Evercore Partners Inc. (EVR), the people that are handling the sale ? How much ?
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It’s very sad that the great American newspaper has lost 97 percent of its value.
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I’m not going to do the research, but I’ll bet anyone who wants to do the research a beer (or other beverage) that the deal includes at least $50 million in real estate.
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Their market value appears to be about worth the value of their land and buildings.
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Its great that you clarify a point about the lead and headline here.and this value loss hasn’t been over 20 years.
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