Friday, August 11, 2017

What Happened To My Newspaper?

Readers of Morris Publishing Group newspapers recently found out their newspaper is being sold to an investor group. This is a big deal, announced Aug. 9, 2017. The loyal customer paying for a print newspaper is a rare thing anymore, as circulation of many newspapers has fallen to a third or a fourth of their glory days before the Internet. Readers surely wonder what does this sale mean for my newspaper?

This article will describe how this deal will affect your Morris newspaper, and explain how we got here.

New Media Investment Group expects to create $10 million to $15 million in “synergies” that will add to cashflow through the acquisition of the Morris newspapers.  The company will likely cut jobs by moving design and copy editing jobs to a centralized location that handles this function for other newspapers in the chain. Over time it is possible to see different slants in the editorials after the change in ownership, scheduled to be completed sometime in the fourth quarter of this year, but I don't think we will see any editorial change in the short term, but over time it's possible content could decline.

The family of William “Billy” Morris III of Augusta, Georgia decided to sell 79 newspapers, including The Topeka Capital-Journal, to New Media Investment Group.

New Media Investment (NEWM), a conglomerate of community newspapers and related online content, is buying the assets from Morris Publishing Group for $120.0 million. 

The 79 Morris publications are in Georgia, Florida, Texas, Kansas, Arkansas, and Alaska, the largest of which is The Florida Times-Union, with a 44,750 daily circulation.

When I started working for The Topeka Capital-Journal in 1999, the newspaper had a circulation of around 60,000, with a Sunday a circulation of 70,000. Circulation has fallen 71%.

In 2015, The Topeka Capital-Journal’s circulation was 21,689 Monday-Friday, and 27,882 Sunday. By 2017 circulation was about 17,000 at The Topeka Capital-Journal, according to a friend of mine who works at the newspaper. My friend remembers 90,000 circulation at one time.

You can say New Media bought the Morris newspapers fairly cheap at about 3.5x to 4.5x the seller's last 12 months of adjusted EBITDA. The $120 million purchase price is a fraction of their worth of $500-$600 million 15-20 years ago. But the reason the deal was so cheap is the outlook for growing revenues is not there, indeed the trend we are seeing  is continuous decline of print advertising and circulation.

Look at New Media Investment Group’s own financials and you will see this company is struggling against a dreadful trend. In 2Q 2017, New Media reported Traditional Print Advertising decreased 12.3% on an organic same-store basis, “an improvement from the first quarter trend, but still reflecting the challenged environment for print advertising.”

Back in the glory days of newspapers, before the dawn of the Internet, newspapers could count on additional advertising revenue when the economy was growing, especially if the real estate market was thriving and the job market was hot causing classified job advertising to grow. But today, young people don’t go the newspaper for a job or a house, they instead go to for jobs and Zillow for real estate.

GDP, or Gross Domestic Product, has been averaging about 2% annual gain since the Great Recession of 2008-09, yet newspapers are still losing print advertising revenues. That’s because advertising revenue is going to Google, Facebook, Zillow and a 1000 other web sites. At New Media Investment Group, digital revenue in 2Q was $34.8 million, an increase of 9.0% to prior year. UpCurve generated $17.3 million in revenue, an increase of 44.4% to the prior year and now comprises 52.2% of total digital revenue. But New Media, owner of 125 daily newspapers among its 630 community publications, and 550 Web sites, posted $322.9 million in revenues in Q2 -- a tiny number compared to the giants of Google and Facebook.

Google’s parent company Alphabet makes more money from digital ads than any other company — it’s expected to make $73.8 billion dollars in net digital ad sales in 2017 after subtracting for traffic acquisition costs, according to internet research firm eMarketer. Google represents 33 percent of the world’s $223.7 billion in digital ad revenue this year. Facebook is a distant second at $36 billion this year.

I remember having a conversation about these trends 20 years ago with John Goossen, former publisher of The Grand Island Independent. He was concerned with the idea we were publishing our articles on The Internet for free. If all newspapers do this, he predicted, they will hurt themselves. Well, that’s what happened. We made people pay for their print edition, but they could read it for free on The Internet. This hurt circulation. Newspapers tried to stop this trend by charging for content online, but it was too late. Newspapers are charging for online content, but no one wants to pay for it. Readers are accustomed to free. Google built a new business model allowing users to access their content for free while providing advertisers a way to market their products and services through its powerful “Search" technology.

New Media is acquiring all eleven dailies in the Morris chain, the largest of which are The Florida Times-Union (44,750 daily circulation and 68,591 Sunday circulation), The Augusta Chronicle (26,862 daily circulation and 31,682 Sunday circulation), and the Savannah Morning News (21,588 daily circulation and 26,048 Sunday circulation).

New Media said the purchase price is within 3.5x to 4.5x the seller's last 12 months of adjusted EBITDA, and the deal will be funded with cash on the balance sheet. The purchase is expected to be accretive to free cash flow with net synergies of $10 million to $15 million.

I expect changes at the Morris papers to happen pretty quickly after the deal is done in the fourth quarter. Management at New Media Investment Group has promised net synergies of $10 million to $15 million.”

Google, Twitter, Facebook may have tons of content but it’s not always trust worthy, much of it is fake news or propaganda, it’s like a big soup of “everything.” Fake news about Hillary Clinton played a role in her loss to Donald Trump in the presidential election. I believe the Russians probably interfered with the election process, and people voted without knowing all the facts, but instead relying on myths, perceptions and hate in the form of click bait headlines.

Trump plays into this click bait using his Twitter account.

Somehow we must teach children and the voting republic to learn the difference between fact and fiction. Journalists -- fact checkers -- people who really know how to discern the difference -- are vital to our democracy, if we are to let fact rule over fiction in elections and public discourse. I attribute our low voter turnouts in local elections to the loss of readership of our newspaper. All the young people I know do not subscribe to their local newspaper. Young people grew up reading online, but what are they reading? Now the hottest trend in advertising is mobile sales. People are addicted to their smart phones. Ad revenue is exploding there, and it's not surprising that Google is also a leader in the mobile space too. Smart phones are insanely addictive, with all their apps -- a trend in technology that is likely going to be with us a very long time.

Michael Hooper worked 20 years as a reporter and editor in newspapers in Kansas and Nebraska, including 10 years at The Topeka Capital-Journal.