Properties that were once valued at $1 billion or more are now going for relative chump change. John Henry is paying $70 million for the Boston Globe (the NYT Co. shelled out $1.1 billion for the paper in 1993), and Amazon CEO Jeff Bezos is paying $250 million for the Washington Post - a bargain compared with what the paper was worth before the industry meltdown, but perhaps overly-generous given the Post's current financial struggles. None of this bodes well for the owners of Tribune Co., who are considering a sale of the LAT and other Tribune papers. You might recall that David Geffen's $2 billion offer for the Times was turned down by Tribune back in 2006 because the then-publicly held company didn't want to sell its assets piecemeal. Could the Times now fetch more than $100 million? Or $200 million? Low valuation might explain why Tribune is choosing to hold onto its newspaper properties for the time being. That's bad news for the Times, which is badly in need of re-engineering. From the NYT's Andrew Ross Sorkin:
Some billionaires like cars, yachts and private jets. Others like newspapers. "Newspapers have gone from the public markets to the hands of a relatively few billionaires who have an appetite for social, civic and financial roles," [newspaper analyst Ken] Doctor said. Based on the math, it is hard to justify a $250 million valuation for The Washington Post. The company reported it lost nearly $50 million for the first half of the year on its newspaper operation that generated $138.4 million in revenue. Of the $50 million loss, nearly $40 million was a noncash pension expense. So you could argue that the company lost only $10 million on operations. But it lost $33 million in the first half of 2012, too, also including pension costs. Circulation fell about 7 percent in the first half of 2013.
One billionaire who has been bullish on newspapers, not just as a benefactor, but as a business, is Warren Buffett. His company, Berkshire Hathaway, has acquired a series of newspapers, including The Omaha World-Herald, where he lives and grew up, and more from Media General. In my conversations with him over the last year, he has stressed that he likes small, community newspapers because there is a built-in audience that can't get the news elsewhere. But he has expressed doubts about regional newspapers, like The Los Angeles Times. Berkshire is a major shareholder of the Washington Post Company and Mr. Buffett was on the board for many years, until 2011.
Back to Bezos, who many folks are just getting to know. Businessweek writer Brad Stone, who has a book coming out on Amazon in October, had some thoughts on the deal (via TNR)
It was quite a surprise. But it's slightly consistent with the fact that Bezos believes that a big reset button is being hit on the media ecosystem. And the old models don't work. So there's plenty of room and opportunity for new models to be created. We're so dominated in our world by our media organizations getting smaller and losing money, and yet to him it's always been clear that this is an opportunity for more experimentation. So this does fit within that framework. Also, he has always invested in not just new technologies and business models but in teams and people that he likes. He was one of the first investors in Google; he invested $250,000 because he thought Larry and Sergey had this healthy stubbornness around not wanting to put ads on the search engine homepage.
You kind of have to expect anything. Over the summer he was lifting rockets off the seabed floor. He is building a space company on his own private land in Texas. This is not someone who has ever conformed to our expectations about what wealthy people are supposed to do. It's $250 million for a man whose wealth is staggering. He clearly believes that his management philosophy is portable. So he's willing to take bets, whether it's on the Kindle or on Amazon's cloud business or expanding beyond books. So nothing he does is ultimately very surprising. Except when, of course, it suddenly is.