By Robert Perrego, at 8:32 am on December 19th, 2008
Sam Zell, real estate tycoon and now owner of the Chicago Tribune seems to have finally learned a few things about the New newspaper business. The Old newspaper business model is dead, killed by the Internet. For evidence of this one has only to look at the stock charts of every major newspaper stock out there; the New York Times Company (NYSE: NYT) down 61% in 2008, Gannett Inc. (NYSE: GCI) down 79%, and Washington Post Company (NYSE: WPO) down 51%, all have charts that look like the blood pressure of a dying man – straight down with short jerks up that says the patient is still alive, but barely.
The traditional newspaper business made a lot of money in three areas; movie listings, automobile advertisements and the employment classifieds. The Internet, with sites such as Fandango.com and other quick and easy sites to check what movies are playing when and where, what they are about and to post lots of cool graphics and trailers has drastically reduced the needs to take out full page ads pumping the latest blockbuster. Monster.com (NSDQ: MNST), CareerBuilders.com and Yahoo! Hot Jobs have all but eliminated the need to buy a classified ad if you needed to hire someone and I think it goes without saying that Detroit is not paying a whole lot of money to push their autos these days.
Publishing a newspaper is a massive and expensive undertaking with running the large power sucking printing presses and putting ink to millions of tons of paper and then physically moving all that paper to the subscriber base. The first papers to get hit the hardest are any paper that had previously staked out a national audience. First of all, a large amount of the world news is generated by sources such as the Associated Press (AP) or Reuters. These services allowed the newspapers to have reach around the world to big stories without having to have a reporter based in every world capitol or financial center. AP and Reuters would wire the story to the newspapers, the newspapers would print them and the news was carried the last mile to readers by the paperboy.
Now the first mile, last mile and the thousands of miles between the news story and the reader is traversed, at the speed of light, via the Internet.
Sam sold his real estate trusts near the top of the real estate market for $39 billion to the Blackstone Group. This move seemed clairvoyant and brilliant at the time and had Sam at the peak of his wealth. Well, a funny thing happened on the way to the bank…
For some reason Sam decided he wanted to buy a newspaper. Rupert Murdoch was paying a large premium to get his hands on the Dow Jones Company (now owned by News Corp.) and its flagship media property The Wall Street Journal, and so maybe Sam thought all billionaires looked much cooler owning a newspaper. Making the same rookie mistake as millions of investors have made, Sam decided that as the price of the stock of the Tribune had dropped so much, it must be a bargain.
The one investing rule Sam ignored is always phrased in the form of an age old question; ‘How low can that stock go?’ The answer is zero.
On December 8, 2008 the Chicago Tribune filed for bankruptcy. Ouch! Zell engineered the taking private of the company at $34 a share and now it is technically at $0.
So the big question is; ‘What has Sam learned?’
It seems Sam has learned a few newspaper tricks from the new media model being followed by the Internet. The parts of this model that transfer easily to newspapers are; 1) No subscription charges, make it free – you make your money from the advertisers, 2) find a way to widely distribute the news cheaply, and 3) focus this news locally.
Any subway rider in New York City knows that about a year ago a free newspaper suddenly appeared at the entrance to many subway stations. There was one and then all of sudden there were two; AM New York and Metro. Sam Zell and the Chicago Tribune publish AM New York and they are giving it away every business day.
Over 5 million people ride New York City’s subways everyday and they are strap-hangers with nothing to do while getting whisked away towards the daily grind. Hey – might as well have them looking at your advertisers right? Just throw some news stories down and decorate them with ads and the people that write you checks and send you money will more than make up for what a thin newspaper costs that is cheaply distributed. On the Internet this is called ‘content’ and ‘inventory’. You generate content and surround it with space to sell to advertisers (your inventory) and sell, Zell, Zell! It is free to hit most websites and it is free to pick up Sam’s AM New York.
AM New York and Metro keep the news focused locally. Why? Well, if I want to know about what crazy Hugo is doing down in Venezuela the Associated Press and Reuters are a click away. But, for the 20 minutes I am a strap-hanger that free newspaper can tell me what happened at City Hall, if the Giants won, how many pitchers the Yankees bought this week or about the new indie being shown at the Angelika in under 10 minutes. The Internet has one click worldwide reach – don’t try to compete with it. Zell from Chicago now sells local news to New Yorkers. Brilliant! This is going to be the only future business any non-niche newspaper has anyway.
The Chicago Tribune (which also owns The LA Times) has filed for bankruptcy. The New York Times is dying a slow death it seems, mortgaging their headquarters and deciding upon which non-core assets it needs to sell to stay alive. It will not be long before you start to see a lot of other newspapers on the ropes.
Remember – that stock can go to $0, which is also the cost of AM New York.
Its the Internet way.
