Executive Roundtable: Building value in changing times
The newspaper industry used to be a pretty simple business. The biggest headache often involved negotiations with a headstrong local car dealer. These days, however, newspaper publishing is a multi-front war. We asked five leading industry executives where they are fighting the war, where they are seeing success and what new weapons they are putting their arsenal.
Michael Bush, CEO/President
35 dailies, 63 weeklies
Gene Hall, President
Hallmark Integrated Media
1daily, 1 weekly
Bruce Buchanan, President
5 dailies, 1 thrice weekly
Jeff Brown, President & CEO
Home News Enterprises
4 dailies, 4 weeklies
Pat Talamantes, CEO
DV&M: What do you see as the best way to build value for your shareholders in the newspaper industry?
Make sure we don’t lose our focus on journalism. It’s what keeps us relevant in the modern media mix. Work to build nontraditional advertising revenues. Add to that greater revenue streams from circulation, particularly from digital. That formula combined with a focus on building deeper relationships with small- and medium-sized advertisers that have not traditionally advertised in the paper can, over time, stabilize revenues and profitability. We manage costs all the time, not just when we’re forced to. Technology should constantly be creating new opportunities to do things more efficiently. We have to be smart about allocating capital to projects and focus on generating free cash flow from the business to pay down debt and, longer term, to make distributions to shareholders over time. A focus on our journalistic quality, stability in profitability and smart investment capital allocation decisions over time is best for sustaining the business over the long term.
We need to get more people on the street writing interesting stuff about our communities and helping our customers market and sell their products. I believe there is still a lot of value left in niche print products of all sorts, augmented by digital, as this was our biggest newspaper revenue driver in 2012. We have also done some consolidating of our page production across our four dailies. Any money we save through this we are trying to put back into our products.
At this point, it is more about preserving the value we already have. We manage quite conservatively. While we haven’t made any major acquisitions in many years, we entered the downturn with no debt and a handsome cash cushion. We have built that cushion, even in the worst years. It won’t get us on the cover of any magazines, but it works well for us.
In the short term, we give the highest shareholder return by maximizing the print side of the equation. The power and profit is still in print for community size properties. In the medium term, growing shareholder value will require us to be in tune with what our markets require of us in the expanding digital world. I don’t believe it necessary for us to be a “test shop” for every digital gimmick that comes along, but we must be able to react quickly when new ideas and techniques show real staying power.
Let’s not forget that shareholder value is enhanced only when the product is indispensable to readers, advertisers and business clients. It takes real discipline to not over react to short term anomalies. The newspaper must have an adequate number of well-trained employees to serve the market. All business segments should be properly maintained and up to date. Without that shareholder value can do nothing but decline.
Shareholders should require management to have imagination and the ability to detect when a blip is not a trend.
The time for Faustian bargains in our industry needs to end. Our businesses need to find owners who are willing to help us fix our balance sheets so that we can not only survive but also succeed in the coming years. Civitas Media has been fortunate in finding good owners. In return, management must be prepared to revamp our business model shedding unnecessary and irrational expense structures. We must be nimble and agile, creatively inventive and adopt new methods to remain relevant and necessary. The management of Civitas Media is committed to doing so.
DV&M: Are you exploring new lines of business? If so, where do you see the most potential?
We’ll stick to our print and digital businesses, where we expect that the best opportunity for revenue growth in 2013 will come from our digital subscription initiative. We expect the revenue from an increase in subscription revenues, that is coming alongside our conversion to metered paywalls at all of our papers, to be $20 million. The reason we’re even able to execute on such strategies is that our readers need the journalism that is created by our newsrooms. Our reporters and editors embrace the concept that we publish news and information on all platforms and so it’s perfectly logical that our subscription arrangements reflect that concept as well.
We also see good opportunities in our “ImpressLocal” digital marketing services product aimed at small and medium-sized businesses, which traditionally have been underserved by daily newspapers. We launched that product initially in two markets and we expect to expand it to more markets in 2013.
Our two main lines of business are community publishing, which includes print and digital products, and commercial printing, which includes web, sheetfed, bindery and mail services. We have looked at other businesses but for now want to stay close to what we know. Anything else we do will be an extension of what we are already doing.
We are taking on more projects that we used to shy away from. For example, we now do design and print work for a number of glossy magazines, catalogues, posters and direct mail pieces.
We’re not just a newspaper anymore. We like to think of ourselves as a design house. We help to facilitate whatever marketing project a customer has in mind. That mentality allows us to make fuller use of our expertise, software and equipment.
In the short term, I see the most potential for growth in web printing. There are fewer competitors that can provide adequate process color on shorter runs. Taking a longer view, we are exploring ways to make digital a bigger part of our revenue stream. Though we are a small market, at some point, video, web based contests, mobile and e-mail blasts will become more important to our customers and readers. Digital is not much of a profit center yet, but we intend to be ready for that eventuality. We can’t stick our heads in the sand and ignore the coming digital behemoth.
We are planning the development of a new cadre of web products. Those announcing the death of the web are as premature as those who have already killed and buried print products. Cross-platform delivery of a growing variety of local news and information products are key to both our continued relevance and profitability.
DV&M: If you made an acquisition in 2012, why do you view this as a good time to expand?
We have not made any acquisitions in 2012, but feel that the increased interest in M&A is good for the industry. As new owners come into our business, they bring new ideas, some of which we may want to incorporate into our newspapers. So we’re encouraged by the interest being shown in the industry and expect that it will continue as the digital upside of newspapers becomes more and more apparent.
We acquired a daily newspaper in February and we have been very happy with the purchase. It was the right price in the right community, and it is performing beyond our original projections. With current newspaper pricing and the fact we have consolidated a lot of our back office production processes, we will continue to look for opportunities in our region.
We are currently searching for suitable acquisitions and though we attempted to make several acquisitions in 2012, we didn’t get the deals closed. However, we did complete an acquisition in the fourth quarter of 2011.
Timing is good for acquisitions of newspapers in good markets. Financially, the business model is still strong and likely to stay that way for the foreseeable future with the right management and plan. Newspaper business blends financial return with an ability to effect meaningful change in the communities they serve. What could be better?
As one of the few surviving optimists in our industry, I am a keen believer in acquisition. The pessimism of others leads to understated valuations, which will improve over time as we prove the sustainability of current levels of profitability and the slowing of revenue declines. The reorganization of companies along more regional basis provides additional opportunities for the future.
DV&M: In what areas did you have the most success driving revenue in 2012?
We have fared well with digital advertising in 2012, up 3.4% through September, primarily as the result of growth in banners, including both retail and auto, and from our dealsaverTM, local daily deals initiative. We’ve also seen growth from direct marketing, including our “Sunday Select” product, which is up 36.1% through September.
Our advertising people do a great job getting in front of clients with new products and it’s helping to partially offset the losses in the more traditional aspects of our advertising business.
Our magazines and special regional print products made up for continued declines in daily print retail advertising. I’m not sure what happened in our digital category as growth is slowing. We will need to get more creative next year. Overall our biggest revenue increases have come from adding additional commercial printing clients. We also did a strategic newspaper acquisition early in the year which we have been very pleased with.
Our revenue growth came almost exclusively from additional outside printing, mostly of other newspapers. We had a little growth in miscellaneous income, basically charging for things we used to consider as news. Our emphasis in 2013 will be advertising revenue. We embarked on an aggressive training program for all advertising folks, and we think we are already beginning to see a difference.
I know it may sound stranger than fiction, but we actually grew revenue in all print sectors: ROP, preprints, subscriptions and printing. Web printing showed the most dramatic increase for three reasons. 1) The community papers and shoppers that we print had generally good years; 2) Our advertisers and print customers requested more process color pages; and 3) Many other companies are shutting down their web presses so there was more opportunity for print work.
We had yet another year showing double-digit growth with New Media. Particularly successful were our online magazine products, sports and industry bundles, contest sponsorships and SEO products. We also had good experiences with our continued growth in our Community Directory products. Tactically, our emphasis on increasing rate as opposed to volume in both circulation and advertising proved successful.