Belo’s Restructuring Leaves Newspapers Debt-Free, But Untethered From Video
Important Details: Belo Corporation, a company with long newspaper roots and an owner of 20 mostly high-ranking TV stations across the U.S., is splitting the corporate baby in two. In a restructuring, Belo will become two companies. Belo Corporation will retain the broadcast properties, while the new A.H. Belo will be the home of the company’s four daily newspaper properties. Those include the flagship Dallas Morning News, the Providence Journal, the Riverside (CA) Press-Enterprise, and the Denton (TX) Daily-Chronicle. The restructuring should finalize early next year.
The split is intended to appeal to investors, who have believed that the struggling newspaper properties, all in the now-familiar position of losing readers and advertisers, have been obscuring broadcast property value. Immediate investor reaction has been positive, with shares up as much as 20% since the announcement.
The restructuring will create two companies of fairly even size, with both showing annual revenues of $750 million. The broadcast side, though, has been growing in lower single digits, while the newspaper side has been shrinking.
Significantly, all the company’s current debt of roughly $1.2 billion is being held in the new broadcast-only property, immediately causing a lower of Belo credit ratings by Fitch and Moody’s. That puts the newspaper side though in a do-over position: debt-free as it meets the substantial challenges of the digital age.
Implications: Recent investor pressures are causing massive ownership change in the newspaper industry. Just in the past two years, Knight Ridder, Tribune, and Dow Jones have or will soon change hands. Belo’s approach to pressure takes a new tack, separating out two businesses that are struggling. But the local broadcast is only a mature one, still showing some growth, while the newspaper revenue decline seems unlikely to reverse itself soon. To that point, this restructuring buys some time. It allows investors clearer plays and may also make it easier to sell off properties.
Belo CEO Robert Decherd, who will head the new newspaper-only company, says that the failure to change FCC cross-ownership rules helped push the company towards this restructuring. His comment serves to reinforce the notion that if cross-ownership rules are relaxed, that relaxation may come too late for newspaper companies, which have long touted the advertising sales and promotional value of having multiple, across-medium properties in the same market.
Outsell believes that the Belo move will increase similar pressures on Media General, Scripps, and Gannett, all companies with significant newspaper and broadcast properties. Such splits, while appealing to investors, may not serve print businesses well though. From a pure growth and revenue viewpoint, newspaper properties need to be held by companies that have non-newspaper properties that can fuel overall company growth, as the newspapers themselves take time to restructure, cut costs and try to find new ways to grow. Further, we’re fast moving into a mainstream multimedia age. The internet wonderfully brings together text, still photos, audio, and video, in one presentation, and soon, we believe, through single search boxes. Such restructurings as Belo’s will only make it harder for print-based companies to adapt to and prosper in this new age.
One element of the restructuring is quite appealing. Starting over, in a sense, without debt, gives Decherd more time to figure out his newspapers’ transitions. That time stands, for instance, in strong distinction from the restructuring Tribune company. The “new Tribune” would carry more than $10 billion in debt, perilous immediately in a time of lowering revenues and cash flow.