A cultural Artifact, on the Block
By David Carr/NYT
This Wednesday at close of business, the first nonbinding letters of interest are due for Newsweek.
How can it be that Associated Content, a content farm that has zero brand recognition, went for a reported $100 million this month to Yahoo, yet Newsweek, a huge part of the national conversation since its founding in 1933, might be valued at less than zero?
It's a cold fact of economic life that the value of a business is an expectation of future growth. If Associated Content will deliver 15 percent annual growth in earnings and Newsweek offers only compounding losses, the smart money will forgo the admired publishing enterprise led by a Pulitzer Prize winner, and instead opt for a business of link-bait stories churned out by people you've never heard of.
That doesn't mean Newsweek is worthless. It is a shiny wonderful name, one that brings to mind Jonathan Alter, Evan Thomas, Fareed Zakaria and its editor, Jon Meacham, all of whom are prominent in important conversations and can be seen all over television sharing their opinions.
But in the current digital news ecosystem, having "week" in your title is anachronistic in the extreme, what an investor would call negative equity.
And in a publishing landscape filled with the lame and infirm, weeklies are the most profoundly challenged. A weekly schedule, with its tight turnarounds and frenzied production, is costly as a matter of course. Monthlies can still do step-backs for readers who don't expect to see what happened five minutes ago, and daily newspapers have co-opted the newsweekly formula to build in real-time analysis. And according to the Publishers Information Bureau, advertising revenue at Newsweek was down a whopping 30.4 percent in 2009.
That math, combined with plummeting subscriptions — an important source of revenue for weeklies — make them a kind of a stepchild. TV Guide, once a huge, robust weekly, sold for $1 back in 2008. (And the seller quietly lent the buyer $10 million to help service some of the obligations that went with buying the magazine.) Business Week went for all of $5 million, and that was to a strategic buyer in Bloomberg.
And who might be the strategic buyer for a weekly with a large footprint in national and international news and commentary? Thomson Reuters is not interested, the big national newspapers would seem to have their hands full and the nascent Web news sites like The Huffington Post and The Daily Beast have no interest in expensive print publications.
But we still care, partly because the prospect of something simply vanishing that we watched our parents read — my dad still loves the magazine — and may have adopted ourselves, seems unthinkable.
Newsweek posted an operating loss of more than $41 million in the last two years. On the plus side, operating losses have been reduced drastically: Losses were $2.3 million for the first three months of this year, down sharply from $17.4 million during the same period in 2009, according to PaidContent. But those savings were achieved in large part by trimming the rate base, the number of copies printed and promised to advertisers, to 1.5 million from 2.6 million. And that's a magic trick that can happen only once. So unless someone is looking for a machine that makes money disappear very quickly, why would they buy Newsweek?
There could be three classes of buyers, all long shots.
THE RICH GUY Pro sports franchises give magazines a run for their money in terms of losing dough, but people still line up to buy. And rooters for Team Israel or autodidacts about immigration reform dream just as vividly about getting their hands on a big megaphone.
ANOTHER WEEKLY If you are a stand-alone property like TV Guide, which is owned by OpenGate Capital, being able to spread back-office and production costs over another weekly would have significant upsides.
THE DIGITAL BUYER Some in the digital peanut gallery have suggested that a buyer could get out of the printing and shipping business, turning Newsweek into a pure digital play. But with a subscription liability — money already paid for magazines not yet received — of more than $40 million, according to two people briefed on the property who would not speak on the record about a sale process that is just getting under way — Newsweek would still have to come out and be delivered for 18 months or more.
Newsweek has already been reinvented, downsized and digitized in almost every way imaginable. If there is a move left on the board to avoid a checkmate, it's hiding in plain sight.