Fabrice Taylor is a chartered financial analyst.
ftaylor@globeandmail.com
The newspaper booth at the job recruitment fair is easy to find. It’s staffed by a sullen and sclerotic middle-ager and there’s no one around. Occasional passers-by snicker as they head toward the Google and Facebook booths.
These are tough times for newspapers to be sure, but they’re not necessarily dead.
Soon CanWest’s newspapers will change hands, and investors might get to play. I think there’s money to be made under the right circumstances.
The first is that the buyers need to have substantial skin in the game. If they don’t, run. More important: they must bring ideas and brooms. The papers need to be shaken up.
The papers have trusted brands and cash flow. New owners must use that cash to reinvent the business.
It used to be that you could make 30 cents of earnings before interest, taxes and depreciation by publishing a newspaper (these are U.S. numbers, but they were roughly true in Canada). Now, that number looks more like 15 cents. That makes it harder to service debt, let alone pay it down and it’s hobbled the current owners. A sound balance sheet is needed to make real changes.
Operationally, how many things can change? By way of example: A few years ago I sat down with the associate publisher of a CanWest paper. I mentioned Adwords and he drew a blank. Adwords is how Google makes billions of dollars and kills newspapers. He’d never heard of it. This is two years ago, not 10.
CanWest was an unwillingly destructive owner. Having paid too much for Southam, it had no choice. Instead of innovating, it had to slash. Instead of evolving, it had to do more of the same with less. Result: the product got more predictable and boring, morale plummeted, good people left, readers fled and advertisers followed. The response to declining revenues, when you’ve got a debt sword over your head, is not to change, it’s to shrink costs, which accelerated the rate of reader declines. You need to invest by attracting new people and ideas.
To further the point: The classified sections of newspapers are thinning out before your eyes. Ten years ago they were chock-a-block and churned out profits.
Now all those ads are on Craigslist and Kijiji. They’re stimulating demand by charging nothing for the ads unless you upgrade to a premium listing. But they also sell display ads because they have the eyeballs. They might not be able to charge top dollar but they’re not burdened with expensive unionized work forces.
Why didn’t newspapers create sites like these? Some dabbled but by and large they didn’t try. It reminds me of Sony’s blunder: it invented the Walkman for cassettes then the Discman for CDs. But it didn’t invent the iPod (it did but it didn’t market it). Why? It worried that music piracy would eat into its music publishing revenues.
I don’t think it’s too late for newspapers to carve out sensible pieces of the Web, especially if they can attract people with the right ideas.
To be fair CanWest isn’t alone. The revolving door at Torstar and its flagship Toronto Star paints the picture of a desperate board that doesn’t know what it’s doing.
I could go on but you get the idea. There are problems in the industry and particularly at the CanWest papers. But there’s also opportunity. It is possible to make money and grow in this business. The Economist does, and in fact does so not by being home to myriad individual voices like the blogosphere but by having one intelligent and reliable voice.
Most newspapers still have good brand names and cash flow, especially once freed of the debt yoke. Those are valuable assets that, in the right hands (someone from Google perhaps?) can be turned into value.
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