Two starkly contrasting models for the newspaper industry are on display this week. One is vigorous cost cutting to keep up margins as cash flows dwindle. This is how some critics view the modus operandi of Alden Global. The US hedge fund has agreed to buy the venerable Tribune Publishing for $630m.
The second model, more hopefully for quality journalism, involves another business typically unpopular in newsrooms: Google. News Corp, itself a company that polarises opinion, has announced a deal to provide Google with news. The digital ad titan will make “significant payments” for content from the Wall Street Journal and other News properties.
Alden has come to embody the extreme austerity that has gripped traditional newspaper brands. It already owned a third of Tribune Publishing, whose titles include the Chicago Tribune and the New York Daily News. Unease over a full buyout had been building among journalists for more than a year.
Just how much fat is there left to cut at Tribune? The company in its most recent quarter reported that revenue fell a fifth, with a drop in advertising twice that rate. Because of sharp cost reductions including redundancies, Tribune’s operating profit, remarkably, was slightly higher.
The price Alden is paying appears steep, a 45 per cent premium to the company’s stock price before deal talks began. Still, the implied valuation multiple is only around five times forward ebitda.
The weakness of traditional media created an opportunity for Alden. Ironically, it may now benefit from a change in the terms of trade with tech giants via the titles it has acquired. Newspaper businesses outside the Murdoch empire, including the Financial Times, can be expected to seek deals of their own.
Google evidently saw a push by Australia, the country that spawned News Corp, to make tech giants pay up for journalism as a threat to forestall. The transition from tech disrupter to regulated online utility is under way.
Details were not disclosed and may yet disappoint, as with previous such deals. But there can now only be one direction of travel in the relationship between traditional private sector news media and Silicon Valley. Cheques from the West Coast of the US will increasingly supplement online subscriptions — still a work in progress for many media groups — and grim rounds of cost cutting.
The Lex team is interested in hearing more from readers. Please tell us what you think of the News Corp/Google deal in the comments section below.