October 31, 2018

The GateHouse chain celebrated several markers today in its strategy of buying up small and mid-size market papers:

  • It now owns 145 dailies, more than 10 percent of the total, estimated at 1,350 to 1,400.  (Because many of the markets are very small, that amounts to less than 10 percent of total U.S. newspaper  circulation).
  • It has now spent more than $1 billion over five years on acquisitions.

This year's crop — totaling $156 million — includes The Eugene Register-Guard in Oregon, the Austin American-Statesman and Palm Beach (Florida) Post (both formerly owned by Cox, which kept the Atlanta Journal Constitution), The Pueblo (Colorado) Chieftan, the Akron (Ohio) Beacon Journal, and, most recently, The Oklahoman in Oklahoma City. It also acquired a majority interest in an events business that produces 90 endurance races a year.

Mike Reed, the CEO of GateHouse parent New Media Investment Group, offered the recapitulation in a conference call with analysts discussing the company's third quarter earnings. More newspaper and other purchases are in the pipeline, he said, though he did not give a target spending number for 2019.

Other acquisitions have included the Columbus (Ohio) Dispatch and Providence (Rhode Island) Journal. Middle-sized metro markets are especially attractive, Reed said, because they tend to offer both the best opportunities for cost cutting and for events revenues and sale of digital services to local businesses.

For instance, the company expects to earn between $5 and $6 million in EBITDA (earnings before interest, taxes, depreciation and amortization) in 2019 on the Oklahoma paper, whose circulation is just over 100,000.  "That's a pretty good return," Reed commented, given the purchase price of $12 million.

While New Media is related to the huge Fortress Investment Group, which technically has a management contract to oversee GateHouse, money for the acquisition does not come from an infusion of Fortress cash. Instead, Reed told me in a short email exchange earlier this week, financing comes from cash earnings, loans and occasional new offerings of stock.

So as long as GateHouse improves the results at the newspapers it buys and has available capital and borrowing capacity, it can keep buying more.

Financial results, the first among public newspaper companies reported for the quarter, pretty much followed the industry pattern established earlier this year. New Media Investment operated at roughly break-even, with print revenues down 13.8 percent and total revenues down 4.8 percent at those properties it had owned in 2017 as well as this year. (Growth in new ventures made up the difference.)

The company suffered small revenue losses of about $1 million as hurricanes hit both its paper in Panama City, Florida, and Wilmington, North Carolina. Reed said that journalists in both markets did an outstanding job covering the weather disasters, even as they were in some cases unable to come to the office and had lost their homes.

Reed also commented, in passing, that GateHouse is sitting out the very aggressive subscription price increases at other chains, that I wrote about recently. Taking the price up too quickly, he said, leads to "excessive volume declines" in paid subscribers.

New Media shares traded down by a little more than 10 percent for the day, perhaps reflecting disappointment that the company raised its divided by only a small amount.

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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
Rick Edmonds

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