If print media is dying, why are moneybags investing in it?

With 45% of adults reading print newspapers, reports of their demise seem vastly exaggerated

Last week, Rupert Murdoch’s 21st Century Fox announced it was buying a 73% stake in National Geographic’s media properties, including its iconic magazine. The 127-year-old society had been in financial distress for a while and needed the lifeline which came with Murdoch’s $725 million.

This is the third mega print media deal in the last few months and comes after the acquisition of the Financial Times by the Nikkei group for $1.3 billion and The Economist by Exor, the holding company of the Agnelli family, which paid $446 million to increase its stake to 43.4%. Two years ago, Amazon founder Jeff Bezos paid $259 million for The Washington Post and other products in its stable. The previous year, The Washington Post had lost $54 million.

Ken Doctor, writing on the Nieman Labs site in May, pointed out that for the first quarter of this year, seven of the 10 largest newspaper publishing companies in the US had total net income of about $21 million! So why are men like Murdoch and Bezos investing in print media? With profits of all print products diving in recent years, it would seem to be a case of throwing good money after bad.

There could be several reasons.

Print is far from dead. According to readership data from Nielsen Scarborough’s 2014 Newspaper Penetration Report, 56% of those who consume a newspaper read it exclusively in print, while 11% also read it on desktop or laptop computers, 5% also read it on mobile and another 11% read it in print, on desktop and on mobile. Effectively, more than eight in 10 of those who read a newspaper do so in print, at least sometimes. In addition, print ad revenues continue to be a substantial chunk of the media ad pie.

It isn’t easy creating brands in the digital space. Many digitally inclined media entrants are finding that the cost and challenge of building a digital brand outweighs that of buying a well-established print media brand and then leveraging its digital dividend.

The emergence of Facebook as a major news source proves that it is easier for a well-established brand to find success in the digital news space than it has been for most original digital news players such as Vox, Mashable and BuzzFeed.

Indeed, the most successful digital media products are still print brands. Even as The New York Times announced last week that it had hit the million paid digital-only subscriber mark, the top newspapers by digital traffic continue to be old well-established print brands—USA Today, NYT, Daily Mail, The Washington Post and The Guardian.

Valuations are at historic lows. As print media companies find stanching the flow of red in their books impossible, they are willing to bail out to the most generous buyers.

The prices at which well-known newspaper brands have changed hands show a dramatic devaluation is happening in the business, prompting even that canny investor Warren Buffett to increase his portfolio of publishing company stock.

Buffett, who just this year has purchased The Martinsville Bulletin and The Franklin News-Post, two small-town papers

in rural Virginia, now owns 31 dailies and dozens of weeklies in 10 states in the US.

Newspaper acquisitions come with collateral gains. Most long-time print brands come with other assets. In a complex deal that turned Nat Geo into a for-profit company from a trust, Murdoch’s acquisition brought him the National Geographic magazine, National Geographic Studios, digital and social media platforms, books, maps, children’s media and other business, including e-commerce and licensing.

Clearly print has legs yet. Instead of the end of the road predicted for it, sharper and more long-term focused investors see this as an interregnum in the profit cycle, a time to reinvent the ad-based business model.

For the first time in almost half a century global newspaper circulation revenues at $89.9 billion exceeded the $77 billion of print advertising revenue. According to Pew Research Centre’s State of the News Media 2015 report, in 2014, newspaper ad revenue declined 4% year over year to $19.9 billion, while circulation revenue among publicly traded newspaper companies grew 1%.

A change in the way the business has been done shouldn’t be such a surprise. It is what most mature industries go through at regular intervals. Ten straight years of decline in soda sales in the US hasn’t meant the end of Pepsi and Coca Cola. They’ve moved into energy drinks, juices, foods. Earlier this year, Coke even launched premium milk brand Fairlife in the US.

Contrary to what it seems today, the advertising-supported revenue model that has seen print media (and TV) succeed isn’t particularly old. A report by the World Association of Newspapers notes that the newspaper industry only became addicted to advertising in the 1960s, with eventually disastrous consequences.

By the late 1970s, 80% of its revenue was coming from advertising, with circulation functioning merely as “a loss-leader to build audiences”. It wasn’t difficult to predict that when digital with its zero marginal operating cost model of news distribution came along, it would fatally disrupt that cozy arrangement.

In doing so, the digital onslaught may have also pointed the newspaper business to look for newer content and revenue models. In his 2013 letter to shareholders of Berkshire Hathaway Inc., Buffett wrote: “Charlie (Munger) and I believe that papers delivering comprehensive and reliable information to tightly-bound communities and having a sensible Internet strategy will remain viable for a long time”.

Whether the new owners succeed will, of course, depend on their ability to craft those innovative strategies. Both the outsiders who are entering this business for the first time as well as existing players buying legacy properties face several challenges with their new acquisitions.

Amazon has Kindle, a hardware product, pure digital plays such as Business Insider and a marquee legacy product like The Washington Post. Individually they mean little, but knit into a strategic game plan, they could well be future of media.

For those unlike Murdoch who don’t have media as their primary business, the challenge will be to reconcile their major business interests with their interests in media.

It is a struggle for India’s new media tycoons like Mukesh Ambani, whose Reliance Industries now owns Network 18 with its slew of television, digital and print products, as it is for Murdoch whose past pronouncements about climate change sit uneasily with National Geographic’s avowed, and increasingly strident, mission to save the planet.

With 45% of adults reading print newspapers, reports of its demise seem vastly exaggerated. The truth is many of the revered print media brands have been run like not-for-profit empires, fed on dollops of insane advertising money. It may be that the new buyers can bring in financial discipline and efficient management to turn around their fortunes.

Sundeep Khanna is executive editor, Livemint.com.

Source | Mint – TheWall Street Journal | 15 September 2015