Investing in Newspapers in 2018That Feeds Democracy at the Grassroots
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Investing in Newspapers in 2018 Panelists: Mark Adams, CEO, Adams Publishing Group Mark Aldam, executive vice president and COO, Hearst Jeremy Halbreich, chairman and CEO, AIM Media Management Jim Moroney, chairman, president and CEO, A.H. Belo Corporation publisher and CEO, The Dallas Morning News Moderator: Penelope Muse Abernathy, Knight Chair, Digital Media Economics, UNC-Chapel Hill School of Media and Journalism Fewer Newspapers, Fewer Readers 1383 Fewer Newspapers in 2018 Circulation Decreases Since 2004 2004 2018 2004 2018 *may include some seven-day averages *2004 and 2018 exclude the circulation of three largest national newspapers Where the Top 25 Companies Own Papers Source: newspaperownership.com Jim Moroney, chairman, president and CEO, A.H. Belo Corporation publisher and CEO, The Dallas Morning News What are you investing in? Growing paid digital subscribers 5 What else are you investing in? Growing paid digital subscribers 6 Is there anything else you are investing in? Growing more paid digital subscribers 7 Why such a focus? Marginal cost = ZERO Fastest way for publishers to build profitable revenue: Recurring monthly revenue 8 9 You need at least three legs on your sources of revenue stool 1. Paid digital 2. Digital subscriptions advertising 3. For us: Digital marketing services What are your three? 10 Mark Aldam, executive vice president and COO, Hearst 2.27.18 Overview DAILIES WEBSITES 15 - 24 40 - 50 2015 2017 2015 2017 1100 JOURNALISTS COMMUNITIES MARKETING SERVICES 31 - 60 103 2015 2017 2017 800 SALESFORCE YP DIRECTORIES DIGITAL BUSINESSES 28 - 35 5 - 8 2015 2017 2015 2017 12 Growth Business HIGHLIGHTS • Digital + Consumer = 60% • 2017 Total Revenue Up 2.6% • Organic Growth Top Priority for Hearst • Execution Performance is Job One! • Favor Bolt-on Solutions that Scale • Growth through Acquisitions Secondary • Expansion if Part of Cluster Strategy 2012 2013 2014 2015 2016 2017 2018 13 Long-Term - Acquisition Strategy • Core EBITDA Over 22% • New Cluster Assets Add Synergy Benefits Immediately • Cost Savings Support Reinvestment in Local Journalism and Local Advertising Sales Resources • Accretive Tuck-ins Offer 2 to 3-Year Payback • Disciplined Valuations – Will New Asset Earnings Produce 3 to 5-Year Payback before Synergy Value? • Importing Hearst Go-to-Market Playbook Changes Revenue Curve 14 Houston Community Newspapers • Independent Business Struggling • 22 Weeklies and 2 Small Dailies • Revenue Declines – Steep Earnings Decline – No Digital Revenue • 17% Ad Revenue Growth • ROI Less than 1 Year NORTH GROUP NORTHEAST GROUP NORTHWEST GROUP SOUTHWEST GROUP SOUTH GROUP The Woodlands Villager Humble Observer Kingwood Observer Tomball Potpourri Examiner Pasadena Citizen Spring Observer Atascocita Observer Cleveland Advocate Magnolia Potpourri Memorial Examiner Dee Park Broadcaster The Courier Lake Houston Observer Eastex Advocate Cypress Creek Mirror (Cy-Fair) Katy Rancher Bay Area Citizen East Montgomery Dayton News Cypress Creek Mirror (Klein) Sugar Land Sun Pearland Journal County Observer Friendswood Journal 15 NEW HAVEN ZONE New Haven Register Group - CT • 3 Dailies and 7 Weeklies • Revenue Down Double Digits & Rapidly Declining MIDDLESEX ZONE Print Circulation • Invested in News Resources & Local Ad Sales • Earnings Growth of 70% in First 8 Months • Circulation Volume Up Q1 LITCHFIELD ZONE • Digital Revenue Growth Outpacing Print Declines Jeremy Halbreich, chairman and CEO AIM Media Management We InvestIn Newspapers Local & Regional MarketingServices Web Sites E-Commerce Media-RelatedTechnology Shoppers 1 8 Decision toInvest New Geography: Minimum $3M-$5MEBITDA Access by Single Non-Stop Flight from DFW Characteristics of Specific CommunitiesServed Can We MakeADifference? ExistingGeography: Any Size 1 9 Return on Investment 12%-15% Annual Pre-TaxCash Distribution on Invested Capital LLC “Pass-Through”Structure Low DebtLeverage PrincipalRepayments Begin Immediatelyin Month 1 Business Model ReflectsContinued Organic Decline in TraditionalPrint Business Growth Opportunities No CorporateHeadquarters & No CorporateStaff 2 0 Mark Adams, CEO Adams Publishing Group We love newspapers as an investment!! Mark Adams, CEO Adams Publishing Group Why? a. Strong brands b. Community service c. Availability of seasoned management d. Fragmented ownership – lots available for purchase e. Consolidation and integration opportunities f. Low purchase multiples = high ROI Mark Adams, CEO Adams Publishing Group So…..what’s our strategy? Mark Adams, CEO Adams Publishing Group The Purchase: a. Buy quality newspapers in solid, growing communities that are underserved by other local media. b. Buy newspapers from families, steering clear of private equity and/or public sellers that have stripped out the newsroom. c. Buy newspapers that have upside: Digital: many newspapers still haven’t exploited their digital opportunities. Retail: many newspapers have cut ‘boots in the street’. More ‘boots’ = more revenue. Circulation: Many newspapers don’t invest in marketing and promotion. Isn’t this the business we’re in?? Mark Adams, CEO Adams Publishing Group The Investment: a. Stay conservative and remember that revenue headwinds won’t subside in the near future. 4x – 5x trailing EBITDA. b. Evaluate the condition of the press assets. Commercial printing can be a strong revenue generator as many publishers are outsourcing printing. c. Upgrade systems and software so associates are as efficient as possible d. Invest in the pressroom? Not just ‘yes’, but ‘heck yes’!! Mark Adams, CEO Adams Publishing Group Operating for the long term: a. Leave the newsroom alone: They know how to do it better than most owners b. Hire and upgrade the sales teams. Pay them what their worth. c. Don’t live quarter to quarter. d. Manage to a reasonable operating margin: 15% e. Create efficiencies in the ‘back office’, without diminishing the local nature of the franchise. Mark Adams, CEO Continued Adams Publishing Group Operating for the long term: Continued f. Go after strategic ‘bolt-ons’. A bigger footprint is usually a better footprint. g. Keep corporate expenses to a minimum: 1% of revenue h. Cap-Ex: 1% of revenue i. Invest in digital agency products: This is a truly long-term item Mark Adams, CEO Adams Publishing Group What lies ahead? a. Continued choppy retail environment b. More migration of readers to digital. Let’s keep them in OUR digital world. c. Continued cycling out of over-levered companies, some with untenable pension obligations. Perhaps more bankruptcies. d. What’s going to happen with the remaining private-equity owned companies? Mark Adams, CEO Adams Publishing Group Investing in Newspapers in 2018 Panelists: Mark Adams, CEO, Adams Publishing Group Mark Aldam, executive vice president and COO, Hearst Jeremy Halbreich, chairman and CEO, AIM Media Management Jim Moroney, chairman, president and CEO, A.H. Belo Corporation publisher and CEO, The Dallas Morning News Moderator: Penelope Muse Abernathy, Knight Chair, Digital Media Economics, UNC-Chapel Hill School of Media and Journalism .