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Monday, July 28, 2008 | The San Diego Union-Tribune is for sale, but there’s little chance that the usual suspects will want to buy.
A year or two ago, the newspaper’s newly announced bid for buyers might have drawn attention from publicly traded media companies, including some with reputations for high-quality journalism. But the newspaper world has entered an unprecedented state of collapse over the last several months.
“Given the devastation and uncertainty in the industry, it is unlikely that a public company would make a large purchase right now, as they would have their head handed to them,” said Lauren Rich Fine, a retired Merrill Lynch newspaper analyst who teaches at Kent State University.
Instead, analysts think the most likely buyer would be a private company or a group of investors. But even that’s a long shot considering that the few newspapers on the block aren’t attracting offers.
At this point, everything is speculation, of course. Details about the U-T‘s financial condition are hard to come by since it is privately owned and not required to release data publicly.
One thing is clear, however: Battered by sharp falls in subscribers and advertising, the nation’s 21st-largest newspaper is not in a position of strength. Its bid for buyers seems to be a sign of desperation.
“It defies all reason to want to sell the newspaper now, unless they believe that things are only going to get worse from here,” said Alan Mutter, a media analyst and former newspaper executive.
On Thursday afternoon, the Copley Press announced in a post on the Union-Tribune website that it had hired an investment banker to pursue a possible sale.
“We have every reason to believe the business will rebound with the economy, but the uncertainties pose too great a risk to sit still,” said company official Harold W. Fuson Jr. in a statement, according to the post.
The Copley Press owns the U-T and its sister publications. The La Jolla-based company has been shedding newspapers in California and the Midwest over the past few years.
The motivations of David C. Copley, president and CEO of Copley Press, are unclear. He most recently made the news by donating $6 million to create a center for costume design at the University of California, Los Angeles.
The Outsell consulting firm estimates that Copley Press made $350 million in revenue in 2007. If its profit margin is in the 10-15 percent range, its price might be between $200 million and $300 million, said Outsell consultant Ken Doctor.
He thinks the low end — near $200 million — is more likely.
“With recent history as a guide, whatever price you can get now is probably better than what you can get a year from now,” Doctor said. “We’re not sure how long the economic downturn will last, and it’s clear that when recovery comes, not all the lost advertising will return.”
Who would buy the paper? The various publicly owned newspaper empires in California (see sidebar) appear to not be in the buying mood.
A private group of investors could borrow money to buy the paper and then sell it in a few years after returning it to healthy profitability. This approach, similar to “flipping” a house, isn’t unusual in the business world.
But anyone making such a purchase would hope to make a tidy profit in the long run, and that may be difficult. “It’s a tough time, particularly for larger newspapers,” said newspaper consultant John Morton of Morton Research Inc.
A major dip in classified-ad revenue has hit newspapers hard this year, Morton said. Free sites like Craigslist had already pummeled newspapers, and the economy has socked real estate ads, automobile ads and jobs listings.
On Thursday, new newspaper earnings reports painted an even grimmer picture.
To make matters worse, newspapers have shed subscribers at a fast clip during this decade.
The U-T‘s weekday paid circulation hit an average of 288,669 in the six months prior to April 1, according to the Audit Bureau of Circulation. By contrast, in 2002, the U-T‘s Monday-Wednesday circulation was 346,612 and 376,940 for Thursday-Saturday.
(The Thursday afternoon post on the U-T website said the paper’s weekday circulation “exceeds 300,000.” Spokesman Sid Shapira said that number is based on an audited Thursday-Saturday circulation figure of 314,257 from Dec. 30.)
The U-T has bought out or laid off dozens of staff members over the past two years, although its cutbacks came later than those at many other major newspapers. The paper now has 1,241 employees overall, compared to 1,422 last December.
While a newspaper spokesman declined to confirm the number of remaining employees in the newsroom, estimates suggest it is around 280. If that’s correct, the U-T would have a ratio of one newsroom employee per every 1,000 people who buy the newspaper.
A one-to-1,000 ratio had been an unwritten industry standard, according to media analyst Mutter, but a number of newspapers have gone below that level in recent months, according to his calculations.
The Los Angeles Times, for example, now has a ratio of .92 newsroom employees per 1,000 in circulation, Mutter reports. The San Jose Mercury News has one of the lowest ratios at .67.
A new buyer could choose to beef up the U-T by expanding the number of pages and hiring more newsroom employees. But such a mandate would go against the prevailing belief that newspapers must goose profits by cutting costs and eliminating content.
Among other cutbacks, the U-T has eliminated the separate book section, slashed the pages devoted to homes coverage in the Sunday paper, and eliminated most stock listings.
The U-T is now one of the largest newspapers in the country without its own movie critic on staff, and it has fewer reporters covering everything from local news and sports to business and the arts.
The newspaper has also tinkered with its approach to zoning — customizing the newspaper for specific regions. It has eliminated some zoned content while adding twice-weekly zoned sections.
At the same time, the U-T just raised the price of its street copies from 50 to 75 cents.
But the U-T hasn’t taken the drastic steps that other major newspapers have. Business news is still found in a stand-alone section; it hasn’t eliminated or folded into another section. The newspaper still publishes an extensive opinion section each day; The (Cleveland) Plain Dealer, another major metropolitan paper, recently went down to one page on weekdays.
Some observers have speculated that newspapers may have to make even bigger cuts, perhaps even eliminating their Monday and Tuesday editions, which are traditionally weak on advertising.
What happens if nobody makes a bid for the U-T? Its closure seems to be the most unlikely prospect of all. While newspapers are having their worst year since the Great Depression, they remain in business. No major American city has lost its only paper, although many no longer have competing papers.
Although the U-T is probably making a marginal profit, if any, “it’s still a strong franchise,” said newspaper consultant Morton. “I would say there’s not a chance at all of these any of these (struggling) newspapers shutting down. But when this is over, they’re certainly going to be a lot less profitable than they used to be.”