Dollars and Jens
Friday, July 27, 2007
sum of the parts
An article on the Washington Post in particular and the newspaper business in particular.
The company bought cable systems in the mid-1990s, when prices were low. But Graham's best move has been to invest in the sprawling array of education businesses - a test-prep firm, colleges, an online university and professional training businesses - that make up the Kaplan unit. It contributed 43 percent of the Post Co.'s $3.9 billion in revenues in 2006.

While the Post Co. diversified, the New York Times Co., the Tribune Co., Knight Ridder, Gannett and McClatchy invested heavily in print during the 1990s. They have paid dearly for it. One example will suffice: In 1998, McClatchy bought the Minneapolis Star-Tribune for about $1.2 billion. The Post Co. then owned about 28 percent of the Minneapolis paper, and it chose to sell. Smart move. McClatchy sold it last year for $530 million.

This dependence on print is the big reason why, over the past five years, newspaper stocks as a group are down by nearly 30 percent. The Times Co. is off by 45 percent. During that same period, Post Co. shares are up by more than 40 percent.
What's not clear here is whether this is, say, a $1 billion business bolted onto a $3 billion business to make a $4 billion business, a $5 billion business, or a $3.5 billion business.

When the newspaper business is bad, the CEO of a newspaper company is lionized for taking his company out of the newspaper business, as though there's some value to having the institutional continuity. From a macroeconomic standpoint, if there's no particular fit between the existing business and whatever it's expanding into, there's no reason to think it's good for that company to be doing this new thing rather than some new company doing it while the newspaper business maximizes its value, however much that might be, as a newspaper business; from a shareholder perspective, it's not clear why the shareholder can't choose to buy stock in the hypothetical new business if that's what he wants. Financial journalism doesn't celebrate the competent management of a company's senescence; the manager of a business that isn't growing is expected to become an investment manager for his shareholders instead, deploying cash toward building a portfolio that the shareholders are perhaps too dumb to do themselves.

There is an obvious fit between the print newspaper business and the web media that he's been quick to get into as well; that seems like something that is likely to make good use of the intangible value the company started with. It's not obvious to me that the company wouldn't be better off as two different companies, though; if it were, and Graham were to stay with the newspaper company, he would probably get fewer encomia in Fortune magazine.

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