If reports are correct, my former company, Digital First Media, is going to sell to Apollo Global Management for about $400 million.
I’m not going to pretend I can analyze what that means for DFM, my many former colleagues there or for the news business. I hope for the sake of my many friends remaining in the company’s newsrooms across the country that the Apollo’s management will find a path to prosperity that doesn’t involve endlessly cutting staff. I hope the company will genuinely pursue the kind of digital creativity that the future demands and will have the staying power to let good ideas flourish.
Since seeing initial reports about the pending deal, I’ve wondered about the meaning of the $400 million sale price, reached in a long “auction” process that sought the best deal(s) to sell the company as a whole or in pieces.
The reported price tag is a breathtaking fall from what newspapers used to be worth, even in the past few years. I hope this means Apollo’s strategy isn’t to keep cutting staff to maintain profits. DFM doesn’t have much left to cut, and values have dropped as newspapers have been cutting. The best way to maximize this $400 million investment will be to build value by developing new revenue streams.
Comparisons of sales prices of media companies can be misleading. One sale might include more real estate, while another might include more debt or pension obligations. Successful subsidiaries can add value to a company. In a sale such as the DFM deal, which is essentially between two private equity companies, full terms may never be disclosed. You might not be comparing apples and oranges, but apples and lawn mowers.
I was not involved in the sale at all, other than losing my job last year as the company was preparing for the sale. But I understood DFM enough to know this was an extraordinarily complicated deal, with an array of factors that make it unique:
- The two companies that combined to become DFM — MediaNews Group and Journal Register Co. — went through three bankruptcies in the past decade, seeking to straighten out their financial messes.
- The company was in the process of selling lots of real estate.
- The 70-plus daily newspapers and many more weeklies include some operated in partnerships with Gannett and Stephens Media. (I’m not sure of the exact number of dailies. I’ve seen 75 and 76 thrown around in various reports. But I also remember that when I was there, the number was 75 before they cut at least two dailies back to three days a week and folded the North Adams Transcript into the Berkshire Eagle. All three newspapers that have been merged or cut back to three times a week are still listed as dailies on the DFM website.)
- DFM is in joint operating agreements in Salt Lake City, York, Pa., and Charleston, W.Va.
- In addition, MediaNews owned the Detroit News, part of still another JOA, though it never was integrated with the rest of DFM, because Journal Register owned some dailies and weeklies in the Detroit area, and no one wanted to open the Justice Department can of worms that would be involved in working all that out. Initial reports on the pending sale have said it was unknown whether the Apollo deal would include the Detroit News. (Adding the Detroit News to the old figure of 75 dailies would explain the count of 76.)
- In addition to its newspapers and their websites, DFM includes some other digital properties, including AdTaxi Networks and some investments in media-related technology startups through Digital First Ventures. The Reuters story that broke the news of the Apollo deal said it excluded some assets that produced $25 million of the company’s $125 million in EBITDA (earnings before interest, taxes, depreciation and amortization). Likely pieces of the company to be in that excluded chunk are AdTaxi, DFV and the Detroit News, but I don’t know any of that for sure.
Granting all the variables, $400 million for the second-largest collection of newspapers in the United States is a clear measure of a media market that continues to decline in value. That sounds like a lot of money, but a decade ago, this collection of newspapers would have commanded a sale price 10 to 20 times as high.
You might think that a larger newspaper would have a higher value than a smaller paper. But the value is going to depend on other factors such as profitability, a buyer’s perception of opportunities to improve profitability and the value of other assets a buyer could sell (such as real estate, which you can sell to make money or which protects value when you resell the company or parts of it).
For the purpose of the comparisons below, I found a 2014 BurrellsLuce list of the top 100 newspapers by print circulation. Such lists used to be easy to find, but are hard to come by these days (a Google search turned up mostly lists about a decade old). I can’t link to the actual list, but link to where you can register to download it free.
I know that print circulation is a horribly outdated form of comparison (and one that newspapers manipulated aggressively, even when it was important). But as you’ll see from the different values of digital startups and of newspaper companies, the digital efforts of newspaper companies don’t come close to offsetting the falling value of print. So I think print circ is really appropriate to use for comparisons here, even if it’s not perfect. In the list below, when I mention a top-100 metro paper, the number in parentheses is the paper’s ranking. BurrellesLuce also has a list of the top 50 newspapers online. None of the DFM properties ranked notably on that list.
Let’s look at the reported value of DFM apples and some other recent media values (whatever metaphor we want to use for imprecise comparisons):
An investment last year by Andreessen Horowitz valued BuzzFeed at $850 million, more than twice the reported value of DFM.
Journalists love to scorn BuzzFeed, though a Stratechery post argues that it’s the “most important news organization in the world.” Whether that’s overstatement or not, investors think it has far more value than a nationwide chain of newspapers and websites.
Vox was valued last year at $380 million, meaning its collection of seven websites (Vox, The Verge and SB Nation among them) is worth nearly as much as a collection of more than 70 daily newspapers, led by the Denver Post (13) and San Jose Mercury News (6, apparently including the circulation of all DFM Bay Area newspapers now) .
Warren Buffett’s newspapers
Warren Buffett’s 2011 purchase of the Omaha World-Herald (56) for $200 million included six other much smaller daily newspapers and some weeklies.
Buffett later bought most of Media General for $142 million. The flagship of that purchase, the Richmond Times-Dispatch (69), is smaller than the World-Herald. So are the Tulsa World (75), Greensboro News & Record, Waco Tribune-Herald, Roanoke Times and Bryan/College Station Eagle, later Buffett purchases for which terms were not announced.
Buffett’s BH Media, built in the past four years (and separate from his long-held Buffalo News, 50), clearly was assembled for more than $400 million. It includes about 30 daily newspapers (less than half DFM’s 70-plus) and another 50 or so weeklies (DFM has more than 100).
Five DFM newspapers are bigger than any Buffett paper.
I don’t know how much the difference in what Buffett paid for a smaller group of smaller newspapers reflects real estate values, healthier media markets, more profitable properties or the different ways that DFM and BH Media were assembled. Probably all those factors and more play into the difference, but it also reflects a still-declining market for newspapers.
In terms of quantity of properties and size of the newspapers, Buffett paid far more over the past few years for much less than Apollo is buying.
In the last big newspaper company merger before advertising revenues and newspaper company values started plummeting, Knight-Ridder sold to McClatchy in 2006 for $4.5 billion. Adjusted for inflation, that was a $5.2 billion sale in 2015 dollars.
Both the Knight-Ridder sale and the DFM sale included the San Jose Mercury News and the St. Paul Pioneer Press (32). Knight-Ridder included 32 daily newspapers, again less than half of DFM’s total.
Unlike BH Media, Knight-Ridder had more metro newspapers than DFM and papers of comparable sizes: the Philadelphia Inquirer (17, but a top 10 newspaper under Knight-Ridder), Miami Herald (54, also a huge drop from its Knight-Ridder days), Kansas City Star (38), Fort Worth Star-Telegram (37) and Charlotte Observer (55), in addition to San Jose and St. Paul. The other DFM newspaper in the top 100 is the El Paso Times (94).
Anyway, DFM is certainly a comparable company to Knight-Ridder, probably bigger, in terms of its standing at the time among newspaper companies. But less than a decade later, DFM is selling for less than 10 percent as much.
New Media Investment Group (formerly Gatehouse Media) bought Halifax Media Group for $280 million in a deal announced late last year. That purchase included 23 daily newspapers. The biggest Halifax paper (the Telegram and Gazette in Worcester, Mass., 92) is about the same size as the El Paso Times, DFM’s sixth-largest.
Major metro newspaper sales
As I noted when John W. Henry, owner of the Boston Red Sox, bought the Boston Globe (22) in 2013, that company had lost 97 percent of its value since the New York Times bought it in 1993. Henry paid $70 million for the Globe. Of course, we don’t know how much of DFM’s total value is represented by its properties that are most comparable to the Globe, the Denver Post and San Jose Mercury News.
Another sports team owner, Glen Taylor, owner of the Minnesota Timberwolves, last year bought the Minneapolis Star Tribune (18) for $100 million. Star Tribune sales show the plunging values of newspapers. McClatchy bought the newspaper in 1998 for $1.4 billion ($2 billion in 2015 dollars), then Avista Capital Partners paid $530 million ($614 million adjusting for inflation) for the Star Tribune in 2006.
In 2012, local investors paid $55 million for the Philadelphia Inquirer and Daily News, properties which sold for $515 million in 2006 ($597 million in 2015 dollars).
I can’t find a post saying what Aaron Kushner paid for the Orange County Register (15) in 2012, but he paid $27 million in 2013 for the Press-Enterprise (60) in Riverside, Calif. If you know the OCR purchase price, please send me a link.
Tribune spun its newspapers off last year into a separate company from its broadcast properties. Tribune Publishing has a market capitalization of $466 million.
Tribune has only eight newspapers. The Los Angeles Times (4), which competes with DFM’s LA group (14, combining all the group’s circ under the LA Daily News banner), is bigger than any DFM paper. The Chicago Tribune’s (8) print circulation is less than the Merc’s (which, as noted above, combines all DFM’s Bay Area dailies). Four more Tribune metros, the Baltimore Sun (43), Orlando Sentinel (45), Sun-Sentinel (46) and Hartford Courant (59), rank below the five biggest DFM newspapers. The Allentown Morning Call (96) gives Tribune seven top-100 newspapers, compared to six for DFM.
Tribune has only one other newspaper, the Newport News Daily Press, and DFM has more than 65 other papers.
Jeff Bezos paid $250 million for the Washington Post (10) in 2013. I think Bezos probably overpaid, but the Post is a unique property, so I won’t bother trying to overthink any comparison here.
Other recent newspaper deals
The merger of E.W. Scripps and the Journal Communications, and the splitting into separate broadcast and newspaper operations, is simply not comparable to the DFM purchase, and because neither company bought the other, it didn’t include a purchase price.
Gannett’s spinning off its newspapers as a separate company is also not comparable to a purchase.
What does this all mean?
I don’t pretend to have enough knowledge or expertise to analyze how DFM’s hedge-fund owner, Alden Global Capital, made out in its investments in Journal Register and MediaNews Group.
An affiliate of Alden Global paid $122 million for the Journal Register assets in the second bankruptcy, but that’s a small part of the company.
Even if you had a dollar value for Alden Global’s investment in the company (and I don’t), you’d also need to know what it made in profits and real estate sales to figure out its return from the investment.
Royal Calkins, former editor of the Monterey Herald, is one of the few people to analyze the sale so far, in addition to the Ken Doctor piece I linked at the top of this post. I wouldn’t say that I agree with all of Royal’s analysis, but he’s very knowledgeable of the Monterey and Santa Cruz situations especially.
I hope the new owners of these various newspapers figure out how to build successful digital businesses on newspaper foundations. I’d like to write a post a few years from now, reviewing recent media sales and noting increasing values. But we’re not there yet.