On Sunday, April 8, 2018, what’s left of the editorial team at The Denver Post made waves in the blogosphere by accusing the historic newspaper’s’ owner hedge fund Alden Global Capital, of “vulture capitalism.”
Alden has been stripping “The Voice of the Rocky Mountain Empire” of resources to finance other investments; such as a scheme to create a new drug store chain from the remains of Rite Aid (NYSE: RAD) and Fred’s Inc. (NASDAQ: FRED), The Post’s editors alleged. In their plea, the editors made the interesting assertion that The Post was still generating enough cash to finance a hedge fund’s operations.
That raises the possibility that newspapers are a value investment as defined by the great Benjamin Graham. Newspapers meet some of Graham’s classic criteria in today’s world, they are not sexy, most observers write them off as doomed; even though a lot of people still read them, and newspaper stocks are cheap. Shares in The New York Times Company (NYSE: NYT) were trading at $22.70 on 13 April 2018.
The Value Case for Newspapers
There is a stronger value investment case for newspapers than you might think. Warren Buffett’s Berkshire Hathaway (NYSE: BERK.B) owns dozens of them.
There are also serious doubts about the conventional wisdom that digital advertising is the best means of reaching customers. Last year, Proctor & Gamble (NYSE: PG) cut its digital advertising spending by $200 million because that medium simply was not working, Ad Age reported. The money was reinvested in other areas such as television, e-commerce, and audio (radio).
P&G Chief Brand Officer Marc S. Pritchard claimed this action increased the company’s reach by 10% but provided no verification. Proctor & Gamble’s actions hint that a large infusion of new advertising revenue might be heading towards old media like newspapers.
The reach of such old media might be greater than you think around 11% of Americans; or 35.93 million people, do not use the internet, the Pew Research Center calculated in March 2018. Intriguingly, the number of internet shunners has not decreased in three years which indicates, there might be a segment of the population resistant to digital media.
The challenge for newspapers then might be convincing advertisers that they still work rather than reaching an audience. A greater dilemma will be proving the value of that audience. After all, advertisers are likely to say, “what is the point in marketing to some old guy in a small town that has nothing but Social Security to live on?”
Can Newspapers Still Make Money?
The challenge newspapers will face is proving that their reach extends beyond the old and low-income individuals. One way to check such assertions is to investigate newspapers finances?
If one looks at The New York Times, the answer is no. The grey lady which is one of the healthier papers reported a net income loss of -$56.81 million, but an operating income of $22.68 million in 4th Quarter 2017.
Intriguingly, The Times’ revenues did increase by 10.12% in 2017, rising from $439.6 million on Christmas Day 2016 to $484.12 million on New Year’s Eve 2017. The times also reported a gross profit of $321.16 million.
The Times is still losing a lot of money from its operations; it reported a “free cash flow” of -$98.10 million, a financing cash flow of -$6.28 million, and operating cash flow of $61.18 million for 4th Quarter 2017. Despite that, The Times hand nearly a half billion ($491.50 million to be exact) in cash and short-term investments on January 31, 2017.
These figures from Stockrow indicate that newspapers can still generate a lot of cash. Based on the data from The Times it might still be possible for a newspaper like The Denver Post to generate quite a bit of cash. The Post is a regional paper with a strong reputation that might be leveraged into some digital cash.
How Newspapers Might Make Money
There are two ways that newspapers like The Times and The Post might make a lot of money in today’s world.
The first is from traditional sources like advertising and subscriptions which can generate some cash. Some advertising; like classifieds, is basically dead, so it should be abandoned. Yet other advertising including display ads and inserts is still very viable.
A smart strategy for The Denver Post would be to make a strong push on display and insert advertising. Potential advertisers to target include car dealers, politicians (the 11% not online still vote as Donald J. Trump proved in 2016), retailers, and companies that market products to senior citizens. The healthcare industry would be a great business to target here, and so would banks.
Subscriptions are more problematic because they are based on questionable circulation figures. An interesting idea for The Denver Post would be to launch a free paper edition. The free edition would serve as a delivery mechanism for advertisements.
Can The Oil of the 21st Century save Newspapers?
The second stream of revenue is digital from visitors to the paper’s website and data about those visitors. A fascinating idea might be to give readers free access to news or other content in exchange for selling the rights to market some of their personal data.
“You might have heard of the term that personal data is the oil of 21st Century,” Dr. Christian Lange said at the Gibraltar International FinTech Forum 2018 in February. “The reason for this is companies all around the world need that personal data. They really need it and today data brokers are making big money with our personal data.”
Lange is the co-CEO and co-founder of Opiria, a blockchain-based company that harvests personal data from users using apps. Opiria plans to pay for personal data using its PDATA ERC20 Token cryptocurrency, and market it to large companies like Mercedes Benz (Daimler A.G.), P&G, General Motors, and Volkswagen. An intriguing possibility would be to use something like PDATA to monetize newspaper readers’ data.
Why Newspapers Might still have value
Personal data might not be that valuable to individuals, but what about the data of tens of thousands or hundreds of thousands of readers of a newspaper like The Denver Post?
The personal data of readers of a newspaper with a global footprint like The New York Times, The Guardian, or The Washington Post might be extremely valuable. Those readers are likely to be affluent, articulate, highly-educated, professionals, and possibly influencers or opinion leaders, exactly the sort of customers advertisers want.
This might be the real reason Amazon (NASDAQ: AMZN) CEO Jeff Bezos bought The Washington Post and owns part of The Business Insider. It might also be why Mexican billionaire Carlos Slim owns a piece of The New York Times. They want the personal data.
Whether a regional newspaper; especially one that’s been mismanaged and looted by vulture capitalists for decades like The Denver Post has, can yield the kind of high-quality personal data that might generate cash is anybody’s guess. Something like PDATA would be a good mechanism for ascertaining the Post readers’ data’s value.
It might be too late in Denver, but such data mining would be worth a shot. After all The Post has nothing left to lose, everything else was looted long ago.
The only thing that will save newspapers is new and growing streams of revenues. Unless management stops cannibalizing papers and starts actively seeking those streams of revenues many newspapers will share the fate of The Denver Post.