A Newspaper Life Continued.

We did not retire some eight years ago to do newspaper consulting, but frankly we have found continuing our association with the newspaper business personally rewarding.  So as we sat in the chair in the prospective new building we had a chance to consider how much, or maybe not how much, the newspaper business has changed over these past several decades. Indeed now into our 41st year of working with the community newspaper publishing business, as a employee and dept. head and now as a consultant, we find not as much as changed as others would have you think.  

The reason we were in the vacant building was this was a prospective site for the moving of the newspaper operation for which we are currently doing some consultation work.   The new location was being considered since the printing of the newspaper is now off site and the shrinking of the staff means the publication is using less than half of the current building.  Smart business says move and lower the monthly costs of running a 30000 square foot building and help the bottom line.  We agree, but in truth this is not a sign that the newspaper business is dying, but in our opinion actually cleaning up some efficiency issues and becoming a more profitable business for their owners. 

For years we have told those who would listen that newspapers having once been a monopoly operation made bad management decisions and inexcusable business choices that were being protected by just that monopoly status of consumers having few other choices to get news but by newspapers.  Organizations that value consensus promote average people and during that time newspapers got lots of average owners and publishers who made non forward thinking decisions since the idea was to not rock the boat.  During the 1990's and into the early 2000's big chains kept on buying newspapers at prices that were absurd since the idea of continuing to have 30% plus margins would pay for those foolishly high prices.  When consumers finally got another choice, the web, early in this century all those bad decisions on debt finally took hold in those chains that had leveraged up too high, such as Lee, Freedom, and McClatchy, who could not meet their high indebtedness with shrinking revenue bases.  Today I still wonder if some of these operations will survive the next decade.  Freedom is already gone. On the contrary smart operators like Jim Boone and Warren Buffet bought properties with cash or real estate backed loans that assured they could make payments and keep the operation running on cash flow.  

So yes newspapers have changed a good bit, but frankly not as much as one might think as we see well run local newspapers as a solid choice for a future and growing business.  In fact we have stated several times in meetings that if we were 30 years younger we would be buying newspapers ourselves and doing the due diligence of getting their business models intact and watching the cash flow grow.  The prices being paid for newspapers today is what it should have been all along and with the middle teens margins they are in line most other businesses too.  The idea of having printing done at a single plant where several newspapers do their printing should have been the model all along. The thinking of keeping expenses tight and pushing for extra revenue is frankly learning to operate in an competitive environment is just what any other business has done for thousands of years. We in the newspaper business are back to what is well normal for any other business. 

If you do not believe it consider that Warren Buffet, not exactly a fool, is buying local newspapers. Jim Boone who I highly admire is in his eight decade and has bought over a dozen newspapers in the last four years.  New Media Investment Group, run by a hedge fund billionaire, is buying newspapers as fast as he can find ones who want to sell.  Note ALL these buyers are looking at good sized community newspapers in the 8000 circulation to 30000 circulation range.  They, like us, see the metro newspaper model as dead.  In a metro market there are dozens of choices for news, in small to medium sized markets there is usually one, the local community daily or weekly. 

As we have suggested earlier if you are interested in buying into the newspaper business via owned stock there are two good choices now.  One is Gannett, symbol GCI, which owns a good number of medium sized daily newspapers across the country and has a low debt load and secure dividend around 2%. We believe GCI is priced at a fair price and not a buy currently.  The other choice is New Media Investments Group which has a large and growing medium to small newspaper group with a low debt load.  Symbol NEWM, currently has a right at 9% dividend. We believe that dividend is secure and likely to rise over time as NEWM buys properties. We personally like New Media since the recent sell off to around $15 per share for capital gains and of course the nice dividend.  We own a sizable number of shares now and will be adding to that share base after the recent sell off.  

The newspaper business is not dead if you know where to look and our involvement in the business continues so we believe via that inside involvement and knowledge of the financial structure of the two companies noted above they offer compelling stock purchase opportunities.