Are you considering an exit strategy for yourself as the newspaper's publisher?
Have the 90-hour weeks started to get to you? Not enough time to play golf or take that trip to Bora Bora you've been dreaming about the last 20 years?
Maybe it is time to cash out.
I'll admit I've been giving that a lot of thought lately. My business coach suggested I write a description of the ideal buyer for our family-owned newspaper.
Would you believe the description sounded exactly like Mr. Chain Owner?
No, I didn't believe it either. The description I wrote sounded exactly like my wife and myself 20 years ago: Young couple, in love with our small town and small town newspapering, willing to work hard, with enough capital to cover 20% of the purchase price, servant leadership mentality, know they don't know it all but willing to listen and learn.
I thought about that all the way to Denver to the National Newspaper Association convention where I met several publishers who had sold their newspapers to Mr. Chain Owner.
Were they happy about it? Lets say they enjoy golfing, or tennis, or fishing or hunting. They like taking their grandchildren on a cruise. They enjoyed two weeks in the south of France. But they hate coming home to see what Mr. Chain Owner has done to their newspaper.
In 20 years of publishing three community newspapers, we've had more than one caller who wanted to buy us out. A few have even wanted to sell to us.
One caller had bought our competition as part of a package. He wanted the other newspapers and had to take our competitor as part of the deal. Would we be interested in buying him out?
Of course we would. So we structured an offer based on his paid circulation, signed advertising contracts, estimated gross sales, the name of his newspaper and a covenant not to compete for five years. In other words, we offered to buy his assets, not his liabilities. He agreed.
What newspaper owners are paid these days is incredible. Much of that results from the Law of Supply and Demand. Newspaper broker Jeff Potts told me at the NNA convention in Denver that newspaper sales are slow right now. Owners are reluctant to sell. That drives up the price of the few available in the market.
One chain operation paid $28 million for a small suburban weekly newspaper group that generated only $14 million in annual revenue with a 15% ($2.1 million) margin. Even if the new owners kick that up to 30%, debt service will take 10 years to retire.
Is that a good deal? Apparently to the new owners, who won a bidding war with another newspaper group. But it was at least 25% more than the sellers dreamed it was worth.
What is at work here is a "clustering" strategy. Owning multiple newspapers within a tightly-defined geographic area is a great marketing strategy. This enables newspaper owners to offer targeted coverage to advertisers at attractive discounts and the cost-saving advantages of central printing, billing, delivery and other operations.
American Journalism Review reports that other independently-owned operations are being gobbled up by chains.
"They knew how giddy a cold-eyed business entrepreneur could get at the idea of clustering a group of newspapers, particularly when the right consolidations and economies of scale could spike up an already remarkable profit margin of 20% even higher," AJR's article states.
If you are planning to buy a newspaper, be aware that you'll need a lot of money.
If you're planning to sell, you just may be set for life.
Personally, I don't think the day of the independent newspaper owner is over.
In central South Carolina, all nine of the area's weeklies are independently owned.
Those of us who believe that local ownership of local newspapers is best for local communities will have our work cut out for us. Some of us may respond by starting or acquiring other newspapers to spread our risk. In that case, we must be careful that we don't becoming insensitive absentee owners in the communities whose newspapers we acquire.
Two friends in the Midwest recently sold their two small newspapers in adjoining counties to the big competing daily. They had started both weeklies from scratch.
They held out on selling until they saw something frightening. The big daily started an aggressive zoned edition against another weekly owner and crippled him at the cash register. Concerned that they might have to battle such tactics, our friends decided to sell.
What bothered me was the avarice exhibited by the local daily's owners. They already had the lion's share of the market. But they wanted it all. If our friends weren't prepared to sell to them, they would do their dead level best to run them out of business.
Other forces are at work. Newspaper families have been forced to sell to big corporations to pay off estate taxes. Relief may be on the way. Perhaps with the Congress and White House in conservative hands, we may finally see the end of the "death tax", a punitive way for our government to tax us on money we've already paid taxes on once.
Another reason independent owners sell is the problem of succession.
One local owner sold his newspapers to a chain after his son—the only member of the next generation with any interest in the family's business—left the paper after a dispute with his father. There was no one else to take over the helm when Dad wanted to retire.
Even if you sell or will your newspaper to your employees, that may not be enough over time to keep ownership local and independent. You may recall that the Kansas City Star's employee owners were unable to raise enough capital to carry out needed improvements and had to sell the paper to a big corporation.
Against these currents in the market—and with newspapers selling for such record sums—why would a few of us still want to hang on to our newspapers? Here are two reasons.
1. We value our mission to serve our communities not just take a profit. Absentee owners will not give the time and attention needed to understand local concerns and appreciate local values. A corporate owner in Alabama or California cannot enjoy that perspective.
2. We know our mission will not be continued by absentee owners.
I got into trouble with a couple of readers who own small newspaper groups a few years ago when I wrote that I can't recall a single local newspaper that was improved by a corporate takeover. The newspapers may have been redesigned and a few canned features added. But in almost every case, the staff was cut or allowed to shrink, the attention and space devoted to local news was diminished and ownership's involvement in community activities disappeared.
If any of them want to send me "before" and "after" versions of their newspapers, I'll be happy to read, analyze and report on the results in a future Publishers' Toolbox.
Thinking of selling to run off to Bora Bora?
©2005, The Bellune Company, Inc.
