Bezos and Henry May Have Overpaid for the Post and the Globe

Aug. 7, 2013
by Bob Adelmann

With the announcements of the sale of the Boston Globe to Boston billionaire John Henry for a paltry $70 million and the sale of the Washington Post to Amazon’s Jeff Bezos for $250 million, some are asking if they might have overpaid.

The Globe sale was called, appropriately, a “virtual steal” (referring no doubt to Henry’s ownership of the Boston Red Sox), since the New York Times paid almost $2 billion for the paper 20 years ago. Despite its best efforts: subscription deals, discounts, bundling of services and setting up pay walls, the Times could never slow the drop in classified revenues that the Globe has been suffering. Lou Ureneck, a journalism professor at Boston University, put it well: “Classified advertising is a distant memory, ancient history. Maintaining newspapers … is going to be a long and difficult slog….”

The Post sale to Bezos also came with warnings. First, Amazon is not involved, so any losses Bezos suffers will be his own. Secondly, the Washington Post itself said that the $250 million that he paid “is richer than many of those received by other legacy print media properties in recent years.” They are referring, no doubt, to the sale by Time Warner in February of many of its magazines, the sale of Philadelphia’s two largest papers in 2012, and the sale of the Los Angeles Times, the Baltimore Sun and the Chicago Tribune at fire sale prices.

In announcing the sale of the Post to his employees, CEO Donald Graham was in dreamland:

The Post could have survived under the company’s ownership and been profitable for the foreseeable future. But we wanted to do more than survive. I’m not saying this [sale] guarantees success, but it gives us a much greater chance of success.

This is how a CEO of a failing enterprise explains a failure: we’re profitable, so we’re selling. Uh huh.

This shift to meet customers’ demands has been going on for years. An article posted back in October, 2011 entitled “The Internet: the Gutenberg Press of the 21st Century” reviewed the enormous impact the internet was having (and continues to have) on our society, including the demise of Dan Rather, the exposure of Clinton’s philandering, Wikileaks, YouTube, and so on.

Both of those new proud owners, with substantially weaker personal balance sheets, have a big hill to climb. According to the Newspaper Association of America, total annual print newspaper advertising revenue has fallen off a cliff. Adjusted for inflation, revenues were $20 billion in 1950. They grew slowly over the years and peaked out at $65 billion in 2000. Since then the decline in revenues has been nothing short of breathtaking: in the following twelve years, revenues have declined all the way back to where they were in 1950. In the past four years alone, revenues have dropped by almost 50 percent. Charting the excel spread sheet numbers on his website, economist Mark Perry shows the decline visually: it’s not a pretty picture. Even after factoring in the slight increase in revenues from efforts to monetize the internet, in another few years revenues could decline another 50 percent. As Perry noted:

The dramatic decline in newspaper ad revenues has to be one of the most significant Shumpeterian gales of creative destruction…. And it’s not even close to being over….

If the precipitous decline in newspaper advertising revenues continues, it’s possible that both John Henry and Jeff Bezos may have actually overpaid for their recent newspaper acquisitions.

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Sources:

Creative destruction: Newspaper ad revenue has gone into a precipitous ‘free fall,’ and it’s probably not over yet

Red Sox Owner John Henry Buys Boston Globe in Risky Fire Sale

Washington Post to be sold to Jeff Bezos, the founder of Amazon

Time Warner Continues to Shrink, Selling Off Most of its Magazines

The Internet: Gutenberg Press of the 21st Century

Schumpeter’s creative destruction

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