There’s a publicly traded publisher in downtown Los Angeles that owns a couple of newspapers and sports a market capitalization of $270 million.
It’s the Daily Journal Corp., publisher of niche legal newspapers in Los Angeles and San Francisco that still doesn’t print in color. Yet its market cap is almost as great as the $286 million value of the Tribune Publishing Co., owner of the Los Angeles Times, the Chicago Tribune, the San Diego Union-Tribune and the Baltimore Sun.
The declining value of newspapers in general – and Tribune Publishing’s holdings in particular – has been put into sharp focus with last week’s firing of L.A. Times Publisher Austin Beutner and the news that Tribune Publishing’s chairman had solicited – and the rest of the directors subsequently rejected – an offer for the Times and Union-Tribune from billionaire Eli Broad.
Tribune Publishing’s value has sunk to where it is now on par not only with the Daily Journal but with that of West L.A. movie theater operator Reading International Inc. ($295 million market cap), and it is less than half that of Playa Vista ad tech company Rubicon Project Inc. ($628 million), which went public early last year.
Another comparison: BuzzFeed raised $200 million in a funding round last month from NBCUniversal Inc., a transaction that valued the online publisher at $1.5 billion – more than five times greater than Tribune Publishing.
That gulf between new and old media, coupled with the tribulations at the Times, have helped put the finances of the paper’s parent company under the microscope.
It isn’t a pretty picture.
Tribune Publishing was created last summer when Tribune Co. split in two. The profitable broadcasting properties and the newspapers’ real estate – including the Times’ headquarters at First and Spring streets in downtown Los Angeles – now belong to Tribune Media Co., which boasts a comparatively gaudy $3.7 billion market cap. (Market cap is the total value of all of a company’s stock outstanding and usually denotes the worth of that company.)
Tribune Publishing was left with 10 beleaguered daily newspapers in eight major U.S. markets. Its stock price has been cut nearly in half since late April, dropping to less than $11 last week from more than $19.
Tribune Publishing reported net income of $42 million on revenue of $1.7 billion last year, a 55 percent decrease from the previous year, due mainly to lower ad revenue and costs associated with the spinoff, according to a Securities and Exchange Commission filing. Tribune Publishing’s net income for the second quarter was only $3.4 million, way below the same quarter last year.
It has been reported that California News Group, the Tribune Publishing subsidiary that owns the Times and Union-Tribune, accounts for about 40 percent of the company’s revenue.
“If you take the Times out of the Tribune Group, you’ve got a very small pond,” said Gabriel Kahn, a professor at USC’s Annenberg School of Communication and Journalism who follows the economics of the news industry.
That makes the decision by Tribune Publishing Chairman Eddy Hartenstein to solicit an offer from Broad for the Times somewhat of a head-scratcher: Why would Tribune want to unload its biggest property?
“It doesn’t make economic sense,” said Hamed Khorsand, an equity analyst with BWS Financial Inc. in Woodland Hills.
Tribune Publishing is not only lagging behind digital media giants like BuzzFeed, it’s also underperforming in relation to some of its print competitors.
The Times has the fourth-largest circulation of daily papers in the United States, behind USA Today, the Wall Street Journal and the New York Times.
While it is worth significantly more than the $70 million investor John Henry paid for the Boston Globe when he purchased it from the New York Times Co. in 2013, Tribune Publishing’s market cap is more than $1.7 billion less than that of the New York Times. It’s also a far cry from the $1.5 billion market capitalization of Gannett Co. Inc., whose papers include USA Today, the Arizona Republic and the Des Moines Register.
Then there is Daily Journal Corp., though to be fair in that comparison one has to take into account that the bulk of its assets are in investments guided by Berkshire Hathaway Inc. Vice Chairman Charles T. Munger.
If the shrinking advertising picture wasn’t bad enough, Tribune Publishing carries $386 million in long-term debt and $129 million in pension and postretirement benefits payable, as of June.
Its three largest shareholders, Oaktree Capital Management, Angelo Gordon & Co. and JPMorgan Chase Bank, which together controlled 39 percent of the company, in April sold off 25 percent of their combined stakes in the business. After that sale, the stock swooned.
Yet despite all these negatives, Tribune Publishing is still cash-flow positive, which not even the world’s newly minted largest retailer, Amazon.com Inc., can claim.
Khorsand, the Tribune Publishing analyst, said he expects the company’s digital revenue to pick up in coming years as its year-old online publishing platform kicks into gear.
“That’s an area of the business that is not reflected in the stock price,” said Khorsand, who added that he expects more editorial videos and content paywalls going forward, similar to initiatives made by the New York Times and Wall Street Journal.
“They haven’t quite hit their stride with video they can monetize effectively,” added USC’s Kahn, who noted that video ad rates are higher than traditional banner ads.
In January, the Times hired former Wall Street Journal and USA Today advertising executive Don Reis as its senior vice president and chief revenue officer.
How those efforts, begun under Beutner, fare will be up to Timothy E. Ryan, the Baltimore Sun publisher who was installed to take over California News Group after Beutner’s ouster.
“They placed the most experienced executive in their biggest newspaper,” said Khorsand.
Still, that does not mean the Times is not in play.
Khorsand doesn’t expect Broad to simply give up, noting that with a fortune estimated at $7.6 billion, the third-wealthiest man in the city made a run at the paper before last year’s spinoff. And last week, more than 60 Southern California civic leaders, including former Mayors Richard Riordan and Antonio Villaraigosa – and Broad – urged Tribune Publishing to institute local leadership at the paper.
“I don’t think Eli Broad is the type of character to walk away,” said Khorsand.
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