What Projo Desperately Needs in Sale: Local Buyer, Low Price

What Projo Desperately Needs in Sale: Local Buyer, Low Price

I was talking to a newspaper executive the other day about the mergers-and acquisition-scene in his business, and as the conversation unfolded, it became evident that the Providence Journal, even in its diminished state, should find a credible buyer.

Here is a paper that is still generating $90 million or so annually in revenue. It has been cut to the bone, so expenses are in line. It still is the largest news organization in the market, despite everything. And one analyst estimates that it is at least “modestly profitable.”

The fact is, modestly profitable, while nothing like the glory days of newspapers, is pretty good. Here is an eye-opening graphic from Pew Research:

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Not bad

Sure, it’s not 25 percent or 30 percent, which these days is Google territory, but mid-teens beats a sharp stick in the eye. Compare that to your passbook savings account, Bunky.

To do some back-of-the-envelope math, if the Projo is making 15 percent on its $90 million in revenue (and it’s probably not), that’s $13 million. Let’s say it’s half that, which is more in line with the rest of Belo. Warren Buffett paid four times operating profit (technically, EBITDA ) for his fairly recent string of newspaper acquisitions, so we’re looking at a price of $25 million to $50 million.

Let’s all hope it’s on the low end. Why?

First of all, proceeds of the sale go A.H. Belo, the Projo’s Dallas-based parent, its shareholders, and management, and really, who cares about them?

Management is already loaded, having sprinkled its executives with unhealthy bonuses, while presiding over a decline that is truly shocking, even by today’s mind-blowing standards.

Only one thing matters

And all Rhode Islanders should care about is a healthy news ecosystem, period.

Indeed, it is difficult to find a franchise that was once so dominant—one of the highest market penetrations in the country, in fact – and that has underperformed the national averages by such a wide margin. Here’s that circulation graphic again, updated. And look what’s happened the last couple of years.

That is correct. Newspapers have stabilized, and the Projo continues to decline in the high single digits! Pardon the exclamation point, but, come on!

And the bad news just keeps on coming. Just this last quarter, we learn that circulation of the Sunday paper– also known as a main cash generator – is now under 100,000.

Look, I understand the Rhode Island economy is tough. Its unemployment rate is, yes, the worst in the nation.
So, okay, that accounts for some of the underperformance. But, still the unemployment rate has been improving (for the most part) in the last three years, and still there’s been no moderation in the Projo’s decline.

Misguided priorities

And there is a reason for this beyond the economy, and here it is:

That’s a decline of 57 percent of unionizied employees in the decade, from 600 to just 258. And when we talk about cutting unionized employees, the point is not that they’re unionized. Those are the headcounts disclosed in the company’s financial statements, but they also happen to represent the editorial and advertising departments of the newspaper, that is to say, the department that produces the product, and the one that sells it – in other words, the heart and soul of the business. And, as you can see in the graph, yes, Belo cut the Projo at a much faster rate than the national average.

No one will seriously argue that Belo, in response to difficult times that were in part only temporary, cut beyond fat into the muscle of the enterprise, seriously undermining the quality of product and materially impairing its value.

The brain drain continued this week with the departure of longtime healthcare reporter, Felice Freyer, who decamped for the Globe, where an air of experimentation and investment is making life interesting.

Squeezing subscribers

And of course, in keeping with an unimaginative strategy, while it was cutting the content, the Projo, all together now, raised prices for the subscribers that chose to remain, the one group you really don’t want to antagonize.

But that’s all bay water over the hurricane barrier.

Belo now has a fiduciary duty to its shareholders get the highest price possible. It has engaged a Little Rock, AR, investment bank, Stephens Inc., to make sure that happens.

Stephens isn’t talking but the process is dragging out. Belo in February said it hoped to have the deal done by April or May. Late last month, Belo said it was “midway” through the process, whatever that means.

But really, at this point, we should be giving Belo a medal for doing everything possible to drive the price down, and it should be low. This will not be a turnkey operation.

Opportunity for someone

The Projo is a fixer-upper. Rebuilding it will require serious capital. For one thing, the size of the newsroom is now too small to support the kind of operation on which a profitable operation can be built for the digital age, when content isn’t the main thing, it’s the only thing. For another, the paper’s digital game needs to be stepped up, big time. In the latest quarter, the paper’s digital revenue ticked up less then 1 percent compared to a year earlier to a still-small $1.27 million. Digital growth is slowing everywhere, but again this is an area of underperformance – and, mostly, opportunity.

And that bring us to a buyer. Right now the Projo needs only a few things:

–Someone local, maybe even an East Sider and a Brown grad.
–Someone extremely rich, preferably a billionaire.
–Someone who is public spirited.
–And finally, someone who is an expert in media, with a proven track record in investing in media properties both digital and otherwise, in the United States and all over the world.

A tall order. There’s no such person, you say?

Oh, but there is:

Jonathan Nelson, #342 on the Forbes 400, with a personal net worth of $1.8 billion, runs Providence Equity Partners, which began in 1989 investing in media and now manages a portfolio of media and other properties worth $40 billion. He works right downtown, in Kennedy Plaza.

I asked his representatives if he’s interested, and will let you know if I hear back.

But why not him?