The Shrinking Newspaper Industry May Shrink Further

The stock of Tribune Publishing (NYSE: TPUB), the company behind the Chicago Tribune and Los Angeles Times, exploded last week after Gannett (GCI), the company behind USA Today, made an unsolicited offer to buy the company for $815 million.

In this clip from the MarketFoolery podcast, Chris Hill, Jason Moser, and Taylor Muckerman talk about what Gannett wants from Tribune, why the newspaper industry has had such a rough time in the past few decades, and why Warren Buffett is still bullish on this industry in spite of its struggles. Also, they look at some of the strategic moves Gannett packed into its offer in order to gain the favor of Tribune shareholders and employees.

A full transcript follows the video.

This podcast was recorded on April 25, 2016. 

Chris Hill: The No. 1 performing stock in the New York Stock Exchange today is Tribune Publishing. Shares are up 56% after Gannett made an unsolicited bid to buy Tribune Publishing in a deal worth $815 million. People may be slightly unfamiliar with those names, Jason. They're probably more familiar with the properties that these two companies own. Think of it as the company that owns USA Today is trying to buy the company that owns the Chicago Tribune and the Los Angeles Times. And there are other smaller media properties within both of those companies. But, this seems like, as we've seen with other industries in the past, one of those bids where Gannett said, "Here's a big offer. We want you to take it right now."

Jason Moser: Yeah, it was definitely a premium offer. We're in the midst of this big media shift, where the entire media landscape is changing. And I think the big question today, perhaps, that investors need to be asking is, what's worth more, the information or the brand that is giving it to you? And I think, a time ago, the brand that gave it to us mattered more. In the days of The New York Times, for example.

Hill: The newspaper of record.

Moser: Right. You look at those names that hold a lot of sway here, historically speaking -- those names and brands really used to matter. Now, information is really just a commodity, and we can get it anywhere, pretty much any time, for very little if any cost, which puts all of these newspaper companies in a real bind. So we're seeing a lot of consolidation here. We see Warren Buffett, obviously, has been very bullish on newspapers, in the sense that they are the record of information for communities, for smaller localities. Maybe not as effective on a national scale because of the way the media space has changed. But there are plenty of places around the country where you're not able to get that kind of local information anyplace other than maybe a newspaper. That doesn't necessarily make it a great investment. 

But as we make this shift from paper to digital, and all of these different sorts of properties that give us this information beyond just the names of the newspapers, I mean, I think that's something you have to consider. If you look at the New York Times, this is a very interesting story here. Revenue over the past 10 years at The New York Times has been cut in half. They've been trying to make this shift into the digital model, which, you could argue that they were late to the game there, but it's better late than never. And perhaps they're able to do OK with that, but I don't know that I'd necessarily be holding my breath there.

Again, I think it's just a matter of, you need to be unique, you need to offer something that other people don't offer. We were talking about this earlier, before taping. It's everywhere from ESPN to newspapers, and everyone in between, they're all feeling this in some form or another today.

Hill: Yeah, it's interesting. You can look at Tribune Publishing, which is a stock that has been cut in half and then some over the past few years, since it got spun out from Tribune Media. There are, still, within that business, specific entities. Mainly, I'm thinking about the Los Angeles Times. If you're Gannett, you're looking at this thinking, "OK, we can get the Chicago Tribune, and we can get the LA Times, and yes, we'll have some other smaller properties within that, but those are really the two that we want." And that makes sense to me. 

By the same token, as I said before, I think this is just a, "We want to get this done as quickly as possible." If you just look at the newspaper industry in the United States, Gannett has the largest market share at about 12%. And Tribune Publishing has about 5%. This would just further pad Gannett's lead, if this goes through.

Taylor Muckerman: Apparently they've presented this to management at Tribune Publishing, but they shot it down. Maybe this deal was a little more outlandish over a 60% premium because they want to go directly to shareholders. And as a shareholder, your shares are down at least 50% if you've been a longtime shareholder. Maybe you get a 63% boost and then cash out, or you're a shareholder of a bigger company. This deal, I think, is probably a little bit more inflated than what they originally presented to Tribune management.

Hill: I think they're going after shareholders. And I know they're going after employees at Tribune Publishing. Part of the statement from the CEO at Gannett was aimed directly at Tribune employees, saying, "Hey, we want you to be part of our growing empire, and there are going to be opportunities for advancement."

Moser: Yeah. Think about the leverage they have there, because it doesn't take a genius to figure out that the journalism profession has taken a really big hit here. The data is clear in that there are fewer journalists today than there were a year ago. That's projected to continue on that trend, as it becomes a less sustainable ... it's just really difficult to make a living doing it. And again, it just goes back to, the Internet has basically given everybody a voice. And that's great, unless you made your living that way. Then it's offered up some challenges. 

But again, I think, you have to be a property that offers something unique. You look at Sirius XM Radio, for example. There was consolidation there, sort of a unique way to distribute that content. I would make the argument that once Howard Stern is not a part of that business anymore, they're going to have a real problem. Luckily for them, they've wrapped up his content for the next 12 years.

Look at the Washington Post. Jeff Bezos buys the Washington Post; now you have this property that, he has a number of different ways he could play that. He could make that part of the Prime relationship, he can offer that as a very cheap digital subscription for Prime members, whatever. There are a number of different ways he could do it to make it unique. That's the key -- we're going to see more consolidation. And again, I think they want to focus on having something unique to make them stand out, because otherwise, you're just a drop in a big ocean.