“Re-Set”: News Publishers Prepare for 2010 and Beyond
Important Details: Jim Tyree thinks his group can swing a good deal to buy the (Chicago) Sun-Times Media Group out of bankruptcy. Tyree, CEO of Chicago-based Mesirow Financial, believes that the Sun-Times, Chicago’s tab daily and second paper, and its sister papers — 58 in total, largely suburban-based — can be operated profitably. He is leading a group to buy the company out of bankruptcy, offering $25 million, $5 million in cash, with $20 million in liabilities to be assumed.
He understands that Sun-Times business was built to fit a much larger revenue base and has said that is “has to be reset to reflect the size business it will be.”
Re-set is a good description for news companies emerging from bankruptcy (seven in the U.S.), and one that applies as well for those who have managed through the deep recession without falling into court-managed debt reduction.
We can see the re-set notion, of course, most easily in those bankruptcy actions. They deeply exposed all the financials of these beleagured news companies. From the Star-Tribune bankruptcy to the Freedom Communications bankruptcy to the Journal-Register bankruptcy, new organizational structures start with one major premise: reduce debt, and debt service, dramatically. The companies that fell into bankruptcy have largely been those who took on outsized debt to finance acquisition. That combination of heavy debt service and dramatically reduced advertising revenues pushed them into bankruptcy. New owners, whether local groups as in Chicago, or groups of lenders taking over businesses, see that burdening these businesess with much debt going forward will make their very survivable untenable.
All news publishers, however, have faced the major downturn in advertising revenues. That’s why we’ve seen news companies across the western world downsize dramatically as well. They’ve re-set their businesses, at cost structures 20-35% below what they were just two years ago. That’s why we saw that second quarter 2009 financial reports generally showed public news companies just peeking their heads above water, after being underwater a quarter earlier. Revenues have been just as challenged, but costs have been trimmed dramatically.
Implications: The last generation of buyers — Sam Zell/Tribune, Brian Tierney/Philadelphia Media Holdings, Chris Harte/Minneapolis Star-Tribune (Avista) — al thought they were buying distressed properties at the bottom of newspaper market. Instead, their timing couldn’t have been worse, as the worst economic downturn in 70 years made their debt-burdened companies impossible to operate. They thought they could build anew, on top of great, if wounded, brands.
Now, everyone in the news industry is licking their revenue-shortage wounds and making the best of it. Outsell believes the “re-set” notion makes a lot of sense. Getting cost structures in line with much-reduced revenue expectations is clearly job one.
As important for growth is the revenue re-set, and that’s harder. 2010 looks like it might give news companies a bit of a breath, if not a breather. Though we’re seeing a continuing movement of advertising and marketing spending (see our Report, Annual Advertising and Marketing Study 2009: Market Report Headlines, April 1, 2009) from mass print to niche-oriented, measurable media, some recession-damaged ad revenues will return to newspaper companies, some back to print, some back to online.
Re-setting the business provides no breather, however. With costs dramatically scaled back, news companies must find sustainable growth strategies in two major areas: content creation and local sales.
On the ad side that means having ready-for-the-recovery ad sales forces, those able to speak SEM as well as they speak upsell. On the editorial side, that means getting beyond old cultural habits, using blog and multimedia forms to really engage — and hold — audiences. Both are works-in-progress at all news companies. The re-set just means starting anew, post-recession, with diminished, but perhaps more realistic goals.