Will All Newspapers Fold?

"1950 marks the high point of newspaper penetration in America: 100 percent of American homes took one or more daily newspapers. Fifty-six years later fewer than half of American homes get one. At the current rate of decline, no homes will get any newspapers in the not-too-distant future."

That's from an article by media writer Michael Wolff in the February issue of Vanity Fair magazine, which interweaves two well-known and interrelated phenomena: the seemingly unstoppable decline of newspaper readership, and the apparent desire of more than a handful of billionaires to at least project an interest in acquiring their local papers.

Recently, for instance, Los Angeles real estate mogul Eli Broad and supermarket magnate Ron Burkle met the deadline for the submission of bids to acquire Tribune (NYSE: TRB  ) . The Broad-Burkle proposal would involve a restructuring of Tribune, rather than an outright acquisition, and as such it's unlikely to appeal to the company's board. Nevertheless, it follows an earlier offer for just the company's Los Angeles Times newspaper by movie and music mogul David Geffen.

Pocket change
Geffen's offer for the paper apparently was in the vicinity of $2 billion, or less than half his own reported net worth. It was submitted at about the same time that insurance mogul Hank Greenberg was sniffing around New York Times (NYSE: NYT  ) , and former General Electric (NYSE: GE  ) CEO Jack Welch was leading a -- thus far unsuccessful -- charge by a group of Beantowners to purchase Times' Boston Globe newspaper.

To a point, Wolff is unquestionably correct about the first issue in his article -- the decline of the daily newspaper in the U.S., and indeed in many other parts of the world. But the real slippage in newspaper readership, which today is normally laid at the feet of the Internet's emergence, actually began in earnest during the Kennedy Administration. And even before that, the number of newspapers published in North America had begun to fall sharply.

Indeed, one of the accepted truisms about the relationship between newspapers and their readers is that there are progressively fewer of each. In 1914, for instance, there were 2,580 dailies published throughout our newly industrialized nation. Knock about 1,000 off that figure, and you're not far from the number of dailies published in the U.S. today.

And as Wolff notes, also correctly, older people tend to read newspapers far more regularly than do younger ones; the average newspaper reader is 56 years old, according to his article.

Will you be my cohort?
In fact, a perhaps far too academically arcane factor called "cohort replacement" is at work in the declining rate of newspaper readership. Cohorts are groups of people born at roughly the same time. As cohorts move up in the relative age hierarchy, their newspaper readership rates remain relatively constant, but they are replaced by younger cohorts. This inevitably results in shrinking overall readership, because the younger "replacement" cohorts invariably read papers less frequently and less thoroughly than their predecessors.

I have no idea whether this seemingly unstoppable march will eventually leave the daily newspaper readable only at the Smithsonian. In the meantime, however, it's rendered both the business and day-to-day operations of daily newspapers mere shadows of their former selves. Lower readership leads to reduced circulation numbers. That drives advertisers casting about for more robust media. In turn, their departure leads to reduced -- or at least moribund -- newspaper financial yields. Sagging earnings drive publishers' stock prices down, which finally leads to clarion calls by large investors for company sales or restructurings.

As Wolff documents:

"A year ago, institutional shareholders at Knight Ridder, owner of more than 30 daily papers -- with Gannett (NYSE: GCI  ) and Tribune Company, K.R. was part of what's been known in the industry as the three bears -- in a display of petulance and impatience and power, forced management to sell the business to the highest bidder (and not so high, at that -- $4.5 billion). Almost immediately thereafter, the largest block of shareholders at the Tribune Company (the former shareholders of Times Mirror, the company that had owned the L.A. Times) became aggrieved, too, and in a series of push-pull maneuvers forced the Tribune Company -- which, in addition to the Tribune, and the L.A. Times, owns Newsday, the Hartford Courant, the Baltimore Sun, many television stations, and the Chicago Cubs -- to put itself on the block, where it now teeters, entertaining offers."

But, of course, Tribune isn't the only newspaper publisher being peppered by its largest shareholders. Just this week, New York Times, the object of aforementioned interest from Welch and Greenberg, reiterated its refusal to comply with a Morgan Stanley-led effort to do away with the dual-class share structure that, as is the case at several other major media enterprises, keeps its founding family -- in this case the Sulzberger-Ochs clan -- from having to trifle with one share-one vote considerations.

Given their business prowess, why would the billionaires be interested in owning withering daily newspapers? The author thinks he has a logical answer:

"...all of these egomaniacs are, themselves, pretty old (which partly explains their restlessness) -- Geffen is 63; Burkle, 53; Broad, 73; Welch, 71; Greenberg, 81. That puts them among the more and more rarefied group of people who actually still read newspapers. And because they are billionaires they reasonably might assume that they are at the center of the world, and, accordingly, since they read newspapers, everyone else must read, or want to read, a newspaper."

I'm not certain I agree with Wolff's contention that the abovementioned quintet of billionaires -- Welch is actually only a megamillionaire -- have combined age, egomania, and perhaps senility into a desire to own their own newspapers or publishers. In fact, I think I prefer another of Wolff's possible explanations for the phenomenon:

"...it could well be that none of these egomaniacs really want to own a newspaper. The opportunity they are most attentive to might not be the actual paper but the currency of saying you might buy the paper -- that in itself provides a valuable opportunity."

Stay tuned for my conclusions on the industry in part two of our newspaper exploration.

For related Foolishness:

New York Times is a Motley Fool Income Investor selection. Discover our entire Foolish lineup of dynamic dividend payers with a free 30-day trial subscription.

Fool contributor David Lee Smith, a former journalism professor, finds himself reading newspapers -- sans his hometown's sports section and The Wall Street Journal -- less frequently. He doesn't own shares in any of the companies mentioned, and welcomes your comments and questions. The Fool has a disclosure policy.


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