Mortgages and Newspapers - Real Estate Assets up for sale

There have been numerous recent announcements of newspapers preparing to sell off their real estate. The most famous was the Tribune's announcement they intended to sell the Tribune Tower and Times Mirror Square, home of the Chicago Tribune and the LA Times respectively. Not so long ago, the Deseret News in Utah sold of property to fund employee layoffs. As Bear Stearns recently found out, there are times that the real estate a company holds may actually be the greatest asset of the company.

Historically speaking, most major newspapers were centrally located in a downtown business district. This made perfect sense, as most of the "action" happened nearby and the greatest concentration of subscribers was close. As people began to sprawl and move to the suburbs, quite often plant operations were moved near the new population centers, but the newsgathering remained downtown. As profits were huge during this period, and nearby property declined in value; newspaper companies would purchase nearby assets for parking or other purposes. They could afford to buy up the parcels as they built the empire they were sure would last.

Two factors have dramatically changed, downtown properties are "hot" again while newspaper valuations and profits have plummeted. The Tribune moves are the most notable in the newspaper industry, but I would expect to see plenty more in the coming months. It's one way to "unlock" value, even if not something sustainable.

No longer an insider

After writing this blog for nearly a year and logging fifty posts, I must now pass along that I am no longer an insider to the newspaper industry. The mere fact that I felt the need to post these ideas anonymously was a pretty strong indication of how poorly received ideas have become in newspaper companies. Despite achieving a great deal of success within the industry and outside of it, my company had no desire to listen to any idea generated by someone other than the inner circle of the CEO.

I wish them well, but the time has come for me to move on. I'll continue to post as a very interested outside observer, and welcome any information my readers wish to pass along to shortbusinc@gmail.com. I'll keep your information about layoffs or other issues anonymous if you so desire.

The mission of journalists is still one that I want to see survive. I have seen the power it can have to keep people safe, expose corruption and keep people informed. My interest in the newspaper industry assumed the issue would be in creating demand for information the populace no longer desired, a cause I dearly believe in. However that isn't the issue. Demand for news is higher than ever, as is the ability to access that information. The issue lies in an outmoded business model that sells space rather than results. It lies in a patriarchal and political culture that remained a local monopoly too long to see the competition. The goal of this blog hasn't changed. I still want to see the industry make the transition. I just can't be part of the industry any longer and retain my sanity.

I'm sad to leave, but feel liberated at the same time. To those that remain, keep fighting the good fight. Despite all of the colleagues you have seen laid off over the last few years, your job still matters. In fact, it may matter more than ever. That goes for business types as well as journalists.

Newspapers Rally Bigtime, no one seems to notice

To accompany the broad stock market rally of Thursday and Friday, newspaper stocks had a fairly remarkable rally of their own. During the last two days GateHouse (GHS) finished up around 33%, McClatchy (MNI) up around 30%, and AH Belo (AHC) was up around 15%. Even some of the of the exchange, near bankruptcy stocks mounted some fairly significant gains on Friday, with Journal Register (JRCO) up some 25% on Friday.

The biggest mover of them all, and the apparent starter of the broader rally was Media General (MEG). Media General surged nearly 120% on Thursday before settling back some 27% on Friday. On Thursday they reported their August revenues, which beat expectations, but still read like a horror story. Reuters and others pinned the rally to this report, but an 120% rally for one month of not completely horrible revenues isn't usually enough to spark that level of movement.

Here are a few theories on why the reasons behind this rally: (I have no information on if any of these could be true)

1. A credible rumor has been spread on one of these companies going private or getting bought out. Alan Mutter recently thought McClatchy might have made some of the moves toward going private, but any of these companies likely want out of the public market spotlight. This is likely, but volume would usually spike more than the approximately double normal these companies experienced
   
2. The broad rally sparked short covering and other systemic purchases. It's not uncommon for stocks to have a faux rally triggered by people unwinding short positions. Since these stocks were particularly strongly shorted, a recent ban on naked shorts may also have contributed.
3. The forsaken nature of these stocks makes them particularly prone to swings from market wide buying. When only 100,000 shares trade on an average day for some of them, an extra 50,000 from an index buy can push them up.
4. There may be a sentiment that newspapers could be the next bailout. Relief from the oppressive debt would help these firms remain solvent a bit longer. It however wouldn't explain AHC's rise given their lack of debt.
5. Valuations have finally been smashed to the level that the stocks look attractive. Most analysts would look crazy for making recommendations, but at some point every stock looks cheap.
   

The crazy thing is actually how little chatter there is and was about these rather dramatic price swings. Certainly the broad market rally is big news, as is the rather dramatic financial bailout, but at some point some specialists should be asking about this rally.

McClatchy finally reduces dividend - and reduces staff yet again

McClatchy (MNI) company announced today they would reduce their dividend by half to nine cents per share. They did this along with a note they would be cutting an additional 1150 jobs, the second such announcement in as many quarters.

The stock was down 8 percent in afterhours trading, but the true tale will be told in the morning.

To my eye, nothing in the announcement was good news. The stated reason for the reduction in the dividend was to pay down debt. Continued job cuts are also bad news. Revenue continues to fall off a cliff, and internet growth has stalled.

It's clear that the structural changes here are far in excess of newspaper's ability to see the strategic future. I'm no fan of layoffs in general, but if you have to do them it's best to do them all at once. The announcement just hangs over employee's heads and creates a huge distraction. Afterward there is always a period of adjustment while jobs get redistributed.

Sigh - There doesn't appear to be any growth strategy here at all. You can't cut your way to growth, and McClatchy seems to see that as the only option.

The debt they need to service is harsh and unforgiving. So is the economic situation they face. Rock, meet hard place. Hard place, meet Rock.

One old newpaper story - $1.3B in value nearly destroyed

The Tribune Company accidentally re-published an article from 2002 on the Florida Sun Sentinel today about United Airlines' prior bankruptcy filing, making it appear as if the airline was ready to fail again. The story was posted on the papers homepage, and the date appeared to be today. The stock quickly went into a tail spin, becoming nearly worthless in moments. The stock fell as low as a penny by some accounts before the stock was halted on pending news.

The news was cleared up and the false rumor was denied by United, but created one of the more interesting stock charts anyone has recently seen. Over 50M shares have changed hands as of 3:30 PM today, nearly half the number outstanding.


I'm absolutely certain some people made a boat load today while others were destroyed. Let's just assume that 10M shares changed hands during the downward spike, at an average of 50% below the current value of about 11 per share. That would mean that over $100M of wealth was transferred around in just a few moments, leaving from those who panicked or believed the story to those who were buying at the discounted value. Even today, this should illustrate the awesome power that a single newspaper article can have upon our society. It should also illustrate the responsibility that such an institution such as a newspaper needs to understand, even in a time when its apparent power is being diminished.

Questions remain to my eyes. What will happen to those who erred in this situation? Will there be legal fallout to the Tribune company or the analysts that picked up this story? Will this further erode newspaper credibility, or does it indicate how strong that credibility can be? Does this change how people look at the newspaper "corrections" policy or newspaper archives?

UPDATE:

Forbes published a great play by play of the action. It raises, but does not answer, the questions about who is going to get sued over this error.

Why are newspapers stocks still issuing dividends?

No one who follows the newspaper industry is unaware of the historic meltdown in share prices and market cap. McClatchy, AH Belo and Lee have all declined well below market caps of 1/2 a billion. Despite this crushing value loss, all of the companies have retained their dividend at the same rate as it was in better times. Lee even recently confirmed its intent to pay the next quarter's dividend.

This has pushed up dividend yields for some of the companies in excess of 20%. The only recent company to announce a dividend cut was GateHouse, which is close to bankruptcy and nearly delisted from the stock exchange.

The important question is: Why are these companies so hell bent on maintaining an unsustainable dividend? All things being equal, and assuming zero growth in share value, a 20% dividend would cash out all of the share value in 5 years.

The greatest concern here is what a dividend indicates. It more or less says, management doesn't have an core growth options in which to invest capital. Investors should take their cash and use it elsewhere.

To be fair, cutting a dividend is a tricky matter at it usually will push share values even lower. However, if these companies will ever grow, they need to start investing the cash they use for the dividend rather than returning it to shareholders. They should find more to spend on than severance packages, and need to find core revenue growth.

Briefing - The Future of Newspapers?

The Dallas Morning News has recently launched a new free paper called Briefing. The paper is a single section in traditional broadsheet format. It is distributed free to high income households who do not subscribe to the "full" newspaper. In some ways it is similar to The Examiner paper distributed in Baltimore and other communities. My feeling is this new product could be the future of newspapers.

However, that should not be taken as a compliment. This might be a very bad future indeed.

Why I say that:

1. A single section could be the sustainable size of even a major metro paper before long. Advertisers already dramatically prefer section A over other sections, with the metro or local sections following behind. Sports and ancillary sections are nearly devoid of advertising. Since content follows advertising it isn't much of a stretch to imagine that a paper could atrophy to that level. Most of the smaller community newspapers already are single sections.
2. Subscription revenue is trivial compared to advertising, so free distribution makes some sense. In most cases the subscription revenue more or less offsets printing and distribution. By maximizing the use of distribution resources, it might be more economical to just push the thing to nearly everyone instead of choosing the houses to which the product is delivered. Driving and time likely dominate the distribution expense and "bombing" an entire neighborhood doesn't increase this cost. It will either end up this way, or as a fairly high subscription value. Further raising subscription fees seems a fools errand given the number of people that already don't find enough value in the product.
3. Newspapers still don't understand consumer needs or advertiser measurement. To them, extending the reach of the paper is the right decision, even if no one reads it. Its pretty likely to lower the already tenuous value proposition, but from a pure reach standpoint it seems right.
4. Classified revenue is tanking quickly, and it might not be worth printing anymore. The Tribune has already dramatically cut some editions in major metros. It's just far less efficient to look through liners even when compared to the ultra basic Craigslist.

I honestly don't think that Briefing will be a disaster. I just think it portends a very dangerous, and much "smaller" future for newspapers. It just might be the one that every major metro needs to retool to be, not just produce.