Flipping newspaper ownership
Between March 2010 and late last year, a group of investors called the Halifax Media Group spent more than $160 million amassing a portfolio of 36 newspapers, including 19 in Florida.
The Florida-based company augmented its first purchase, the Daytona Beach News-Journal, which it bought for $20 million, with two bigger acquisitions in 2012: The $143-million purchase of the New York Times Regional Newspaper Group’s 16 papers, including five in Florida; and 19 papers Halifax bought for an undisclosed amount from the Freedom Communications chain, including 10 in northwest Florida.
After the purchase of both the New York Times group of papers and Freedom newspapers, Halifax CEO Michael Redding issued statements that Halifax believed “in the future of newspapers.”
Apparently, another company believes in that future even more. In November, a publicly traded company called New Media Investment Group announced a deal to swallow Halifax, using $280 million in cash and borrowed money. Once closed, the deal will make New Media, headquartered in New York, the owner of more daily newspapers in Florida than any other company.
New Media, whose largest shareholders include Franklin Resources, Vanguard, T. Rowe Price and BlackRock, is managed by Fortress Investment Group, the $66-billion investment firm that owns the four companies that make up Florida East Coast Industries, including a real estate development subsidiary and All Aboard Florida, the privately financed rail line planned to run between Miami and Orlando. Fortress gets an annual 1.5% management fee based on New Media’s total equity and also gets stock options and financial incentives based on New Media’s performance.
Fortress got into the newspaper business in 2005, under the flag of a company called GateHouse Media. Believing that many small dailies and weeklies were undervalued, GateHouse attempted a “roll-up” strategy, purchasing and combining existing chains of small and medium-sized newspapers. The company ended up with a raft of papers — more than 100 in Massachusetts alone — but $1.3 billion in debt.
In 2013, Fortress engineered a prepackaged Chapter 11 bankruptcy reorganization filing that effectively wiped out the GateHouse debt and combined its assets with those of another Fortress investment vehicle to create New Media.
New Media promptly resumed the roll-up strategy, making 29 deals in the first half of 2014 alone. When the Halifax transaction closes, New Media will own nearly 500 community publications and more than 370 related websites in 27 states, along with six yellow page directories and a digital marketing service called Propel. Last year, including the Halifax purchase, New Media spent $430 million buying “local media assets,” according to a company statement.
The company now identifies itself as “the largest publisher of locally based print and online media in the U. S.” And with newspapers cheaper now then when GateHouse began its first move, New Media looks to grow even larger: It raised $116.7 million with a stock offering in the third quarter of last year and $152 million with another stock offering this January that it intends to use for working capital, including additional acquisitions.
What’s the company’s bet? All newspapers have seen big chunks of their traditional print ad bases, particularly classified and national advertising, erode to competition from internet ads. Another factor: Moves by some large companies to centralize their marketing, which has taken ad purchasing decisions away from local executives. Meanwhile, daily newspaper circulation shrank 20% between 2000 and 2011, and the number of daily papers decreased by 98.
Newspapers, of course, sell digital ads, but web ad rates are paltry compared to what a paper gets for a print ad. Papers have responded by trying to develop additional revenue streams — selling marketing services along with ads; selling more “preprinted” ads and using their printing plants to do contract printing jobs for other customers, for example.
Analysts say New Media believes that some smaller papers have inherent strengths, starting with closer ties to their communities and readers, which will make those newrevenue strategies more effective than at bigger newspapers.
“New Media isn’t interested in suburban papers around Chicago and New York,” says James Goss, an analyst with Barrington Research Associates, an investment banking firm in Chicago. “They’re interested in ones in smaller markets where the paper is the paper of record,” offering hyper-local news unavailable elsewhere. “In a lot of those places, the print product is the preferred version to the internet version.”
Some existing ad categories in smaller markets are more resistant to competition from internet-based businesses, Goss says. He explains that a centerpiece of New Media’s strategy is using the local papers as platforms to market Propel, its digital services firm that sells website design and marketing services to small businesses, and BestRide, an internet based car-buying platform.
A combination of revenue from printing, Propel and traditional newspaper ads could be a “pretty good formula” in the smaller markets, Goss says. The company is also trying to make its stock attractive, he points out, by paying a dividend of around 5%. Over the past year, the company’s share price has risen from around $10 to the low $20-range.
In a report on its results through the third quarter of 2014, New Media says that revenue from “stable or growing categories” — it counts preprints, digital, circulation and commercial printing — grew 3% compared to 2013 and now constitutes more than 60% of total revenue vs. 48% from those categories in 2008.
New Media’s acquisitions have been accompanied by layoffs in some locations — 22 at the Providence Journal last September — but the company doesn’t appear to be trying to slash and burn its way to profitability.
In contrast to Halifax’s leadership, New Media’s top executives, both holdovers from GateHouse, have extensive publishing experience. CEO Michael Reed is on the board of the Minneapolis Star- Tribune and was a director of the Associated Press. COO Kirk Davis, who independently owns a small newspaper group in central Massachusetts, has headed several newspaper and publishing groups.
After the Halifax purchase, Davis appeared in the newsroom of the Daytona Beach News-Journal, promising “a lot of local autonomy to publishers and editors,” according to a story in the paper, which reported that New Media offered continuing employment to all the paper’s employees.
New Media’s fortunes will depend in large part on whether it can stabilize some of the traditional sources of print ad revenue and, via Propel, successfully integrate the digital and print worlds in the markets served by the papers. The company will have to maintain its dividend, continuing to grow via acquisitions while not becoming overleveraged, according to a Barrington Research report.
Meanwhile, local readers will be watching to see whether the papers deliver the kind of effective small-town journalism that’s kept them viable.
“I understand the concern that they’re financial guys,” says Goss, “but the good part may be that they’re financial guys with an operational focus.”
New Media’s Florida Newspapers
> Crestview News Bulletin
> Daily Commercial, Leesburg
> Daytona Beach News Journal
> Destin Log
> Gadsden Times
> Gainesville Sun
> Holmes County Times Advertiser
> Ledger, Lakeland
> News Chief, Winter Haven
> Northwest Florida Daily News, Fort Walton Beach
> Ocala Star-Banner
> Panama City News Herald
> Santa Rosa’s Press Gazette, Milton
> Sarasota Herald Tribune
> South Lake Press, Clermont
> Star, Port St. Joe
> Times, Apalachicola
> Walton Sun, Santa Rosa Beach
> Washington County News, Chipley
Other New Mediaowned papers:
> Daily Press, Hampton Roads, Va.
> Daily Press, Victorville, Calif.
> Gaston Gazette, Gastonia, N.C.
> Patriot Ledger, Quincy, Mass.
> Progress-Index, Petersburg, Va.
> Providence Journal, Providence, R.I.
New Media Investment Group
87 daily newspapers, 243 weekly, more than 100 shoppers, 356 local websites. More than 80% of the dailies have operated for more than a century; all dailies have been published for more than 50 years.
6 yellow page phone directories
Propel digital marketing services company
Niche publications dealing with local recreation, sports, health care and real estate.
Source: Bloomberg Business Week, Yahoo Finance
Analysts say New Media believes that some smaller papers have inherent strengths, starting with closer ties to their communities and readers.
New Media: Key Players
Wesley Edens, 52
Chairman of the board of New Media, principal and co chairman of Fortress Investment Group. Former partner and managing director at Lehman Bros. And BlackRock Asset Advisors. Co-owner, Milwaukee Bucks.
Michael Reed, 49
CEO of New Media. Former CEO, GateHouse; former president and CEO, Community Newspaper Holdings; former board member of the Newspaper Association of America; former director of the Associated Press. Annual compensation: $700,000
Kirk Davis, 53
COO of New Media. CEO, GateHouse; former CEO, Enterprise News Media; owner, Cracked Rock Media (no ongoing involvement). Annual compensation: $604,000
“New Media isn’t interested in suburban papers around Chicago and New York. They’re interested in ones in smaller markets where the paper is the paper of record.” — James Goss, analyst, Barrington Research Associates
> Overall newspaper revenue declined 2.6% between 2012 and 2013.
> Print advertising in traditional daily and Sunday newspapers decreased by 8.6% in 2013, with declines in retail advertising, classified advertising and national advertising. Classified ads in some markets appear to have stabilized.
> Digital advertising now accounts for 19% of all ad revenue; nearly a quarter of all digital advertising appears only online.
> In addition to growing digital ad revenue, newspapers are getting more revenue from non-traditional sources: Marketing services, commercial printing, event marketing, e-commerce and royalty income, for example. But those sources account for just 8% of total newspaper media revenue.
> 7 in 10 Americans still read newspaper content in print or online each week. Six in 10 young adults read newspaper content in print or online each week.
Source: Newspaper Association of America