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A Way Out?

January 03, 2006 | About:

In the spring of 1971 Fritz Beebe, a former partner in the New York law firm of Cravath, Swaine & Moore, and chairman of The Washington Post Company, approached the owner, Katharine Graham, with a dilemma. The company, Beebe said, was running out of money. Over the years the Post had been fairly generous in granting stock options to favored employees, and the cost of buying out those options had put the company in a bind.

But Beebe had a solution. Following the lead of bigger rivals, such as Knight Ridder and Times Mirror, he advised that the company go public. Selling stock in the Post would ease the companys cash crunch, Beebe explained, and otherwise, the Post would have to sell one of its television stations. Graham hesitated. I wish I had understood the whole thing better than I did, she wrote in her 1997 autobiography of the decision to go public. I . . . simply took Fritzs word for the problem and assumed we only had two choices: either go public or sell WJXT. The company went public, making its initial offering on June 15, 1971, the same week the Pentagon Papers controversy erupted. I wasnt sure what being a public company entailed, Graham wrote in her autobiography, but I knew there would be obligations and disciplines that were not imposed on private companies.

In the past year, many newspaper companies, including the Post, have been getting a refresher on just how onerous the obligations and disciplines of being publicly owned can be. Despite profit margins that generally hover around 20 percent extraordinary when compared to almost any other business sector newspaper stocks are getting pummeled. As of early December, the stock of Gannett, the countrys largest newspaper publisher, was down 28 percent for the year. Tribune Company was down 29 percent. The New York Times Company was down 35 percent. Even the Washington Post Company, whose diverse holdings have insulated it somewhat from the markets pessimism about newspapers, was down 25 percent.


Rating: 1.9/5 (11 votes)


Vooch - 11 years ago    Report SPAM
Newspapers may be around for a long time because old habits will be hard to change.

However, the Internet will dominate the news industry for these reasons:

- it's in real-time - Newspapers are screwed when they print a story and have to wait 24 hours to make a retraction (eg. recent miners that died and the newspaper said they survived, and when the newspaper said the hurricane missed New Orleans)

- it's interactive - people can respond to news stories online. TV is attempted to do this, but TV is still a boob tube.

- it's distribution costs are insignificant - newspapers spend a lot of money to print their news. The Internet has a significant cost advantage to newspapers.

Newspapers will continue to lose ad revenues as online advertising takes a larger portion of a company's advertising budget.

I would avoid buying newspapers because of the declining market, but if the valuation is really compelling, then perhaps, I would take a look at 'em.

Gurufocus premium member - 11 years ago
The industry will not disappear. At some point it will consolidate. Still newspapers are generating a lot of cash. They are deserved to be paid attentions.

Thank you for sharing.

Doofrat - 11 years ago    Report SPAM
I agree that it's probably good to stay away from newspapers. I had been following Buffet's purchase of Washington Post and decided against following him because I believe that this is one area that is in danger because of the influence of the Internet. I hate to say it, but Buffet's an older gentleman, and I don't know how internet savvy he is. I know that Buffet stays away from "high tech" companies because He does not understand them, but He needs to understand them when they are a potential competitor.

It seems to me that very few people my age (36) get the newspaper. For example, I'll see a major headline in the news when I get into work and launch Yahoo. You'll read about it during the day, and then the next morning you see that same headline on the front page when you stop at the gas station for a coffee. That news is almost 24 hrs out of date to me at that point. Plus, I don't have time to read a whole newspaper, and I'm not really interested in the local happenings here in San Diego.

I feel that there are several generations now that don't get their news from the paper anymore and that is why the growth is slowing.

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