Like the sale of the Washington Post this time last year, the merger of E.W. Scripps and Journal Communications, announced last night, and their reorganization into separate print and broadcast companies came as a jaw-dropping surprise.
But the morning after, the complicated transaction makes perfect sense.
- Local broadcasting is seeing a wave of consolidations. The business is healthy, and getting bigger provides station groups more leverage negotiating retransmission fees with cable providers. That has become a significant new source of revenue growth as political and automotive advertising remain strong.
- Financially squeezed newspapers drag down the share price of companies with prospering TV, cable and digital divisions. The spinoff of Tribune Publishing scheduled next week and the division of News Corp a year ago give the remaining parent television and entertainment companies investment wind at their back.
- At the same time, newspaper groups theoretically do better with management whose exclusive focus is on the particular challenges of that industry. Otherwise, they can end up a neglected problem child, getting less capital allocation and management attention, in a company with several financially stronger divisions.
My colleague Al Tompkins has separately rounded up a list of broadcast mergers and print spinoffs, and he also documents the stock price kick broadcast/digital companies have experienced. (Scripps stock is up smartly today – more than 10 percent by early afternoon.).
For the newspaper industry, the de-consolidation trend has been building steam for seven years now, since the business took a deep dip during the recession of 2006-2009, Scripps did a version in 2007. leaving legacy broadcast and newspapers in one company while putting Food Network and other cable stations in another.
That same year Belo broke its newspaper and television businesses in two. The A.H. Belo newspaper group has since sold papers in Riverside and Providence leaving just the Dallas Morning News and nearby Denton. The Belo television stations have been bought by Gannett’s broadcast group.
Media General was flirting with insolvency in early 2012 when it sold its newspaper group to Warren Buffett’s BH Media (and the Tampa Tribune to another buyer). Media General has bought additional stations since.
While focus in the Post deal was in Jeff Bezos’s purchase of the venerable newspaper, it also left highly profitable local broadcast and cable divisions in the surviving Graham Holdings.
Finally, last year Rupert Murdoch split his international newspaper and entertainment/cable ventures into two companies. And Tribune, emerging from bankruptcy, decided to remake itself as a television and digital company with the Los Angeles Times, Chicago Tribune and six other dailies spun off into Tribune Publishing.
That leaves Gannett. And the Scripps-Journal transaction will heighten existing Wall Street pressure on the company to sell or spin off its 81 community newspapers and USA Today.
CEO Gracia Martore was asked about that possibility in a second quarter earnings conference call with analysts 10 days ago, though the questioner said “I know you won’t answer this.”
In fact, she did answer, albeit in ambiguous fashion. Both a USA Today reporter and I heard Martore say some newspaper organizations are for sale at the right price. But a Gannett spokesman walked that back the next day with a “clarification” that she was referring to newspapers owned by other companies.
Nonetheless, my fellow industry analyst, Ken Doctor has written that, in corporate-speak, Martore was opening the door to sale or spinoff at least a crack. And that was before the Scripps/Journal deal.
Journal Media Group will begin life, when the transaction is completed early next year, debt-free and with $10 million in cash. The company will be based in Milwaukee, though its CEO will be Tim Stautberg, who has headed Scripps newspaper division. The Journal Sentinel is at least twice as big in circulation as any of Scripps’s 12 papers and will be the flagship of the new company. The Journal Sentinel has strengths as a business too — typically among the top papers in household penetration.
All that augers well for editorial quality and financial prospects for the Journal Sentinel and its new mates. (Disclosure: I know and respect top business and news executives at both companies).
However, while Scripps is the acquiring company, Journal Publications will not give members of the Scripps family a special class of stock and voting control. So it will lack the buffer of family control and tradition that has kept McClatchy and the Sulzbergers’ New York Times Co. independent in these tough times. Journal Media Group could itself become a takeover candidate in the near future.
I am sure Journal Sentinel staff and perhaps readers too are wondering whether the paper will continue its investment in outstanding investigative projects, which have garnered three Pulitzers and many other award over the last six years, Scripps ownership certainly offers brighter prospect for that than a takeover by a turnaround hedge fund.
I sample, rather than read regularly, the work of metro newspaper organizations. But I would put the Journal Sentinel in the top rank, together with Poynter’s Tampa Bay Times, the Boston Globe, Seattle Times, Dallas Morning New and Star-Tribune of Minneapolis.
Curiously, all six of those are essentially single-paper operations — or at least they were until this morning. Joining a chain, and a publicly-traded one, is sure to up the pressure for financial performance on the Journal Sentinel, so I would not be astonished to see newsroom cuts down the road.