Consolidation has been the order of the day in the newspaper industry for some time now. The internet has accustomed people to the idea that they should get for free what they once had to subscribe to read, and as much as we talk about the rise of digital advertising, the companies that buy it won't pay as much for digital ads as they did for similar print ads. To cope, news organizations everywhere have tightened their belts wherever they could. They've also glommed together into larger companies and eliminated redundancies.
Which brings us to the news of the news for this week: USA Today publisher Gannett (NYSE:GCI) -- which also owns upward of 100 daily local newspapers and nearly 1,000 weeklies -- is being targeted by a hostile takeover offer from MNG Enterprises and its hedge-fund backers. Gannett's stock price is up in response, but as Market Foolery host Chris Hill and longtime Fool contributor Dan Kline discuss in this segment of the podcast, the would-be buyer's consistent strategy of strip-mining its publications is very bad news.
A full transcript follows the video.
This video was recorded on Jan. 14, 2019.
Chris Hill: Let's move on to Gannett, the parent company of USA Today. Shares of Gannett up 20% on reports of a takeover bid by MNG Enterprises, a fund that includes the Denver Post, the San Jose Mercury News. They're talking $12 a share. Right now, when we walked in the studio, the stock was trading at $11.68, something like that. This seems like a takeover bid that is marked for success.
Dan Kline: This is disturbing. I used to work for a company called the Journal Register Company, which was a predecessor of Digital First Media, which is owned by this hedge fund. As a fan of news, as people who produce a lot of content, these are people who come in and they don't just combine the back offices. If they were saying like, "We don't need the Denver Post and the Los Angeles whatever to both have CFOs," all right, maybe. No, no. They get rid of 40% of the news staff. And then, when, surprisingly, the audience doesn't like that, their answer isn't, "Let's hire some news people back," it's, "Let's keep cutting."
So, as a shareholder, be careful what you wish for. Yeah, you might get a slight premium on your stock, but you're going to lose your source of local news. There's a scorched-earth track record. To give you an example, the paper I worked at in Torrington, Connecticut, when I was the editor there, was understaffed at 18 full-time editorial staffers. There are three people in that room right now.
Hard to run a newspaper. And yeah, some of the production was outsourced. But how can you cover the local news with three people in the newsroom?
Hill: Here in the D.C. area over the last 25 years, we've watched the Washington Post as a stand-alone public company shift its business focus to include educational services, that sort of thing. It's only when Jeff Bezos comes in and buys the paper and starts to invest in it, and it's removed from the public markets, that it begins to thrive. Although, I should say, in terms of a publicly traded company, The New York Times over the last couple of years has done a good job in expanding its digital audience and rewarding shareholders.
Kline: You're seeing in other places, too. It's privately owned, but the Boston Globe, where I used to work. They decided, "It's a premium product, we're going to charge a premium price," and they're putting resources into the news people want. Hearst in Connecticut, buying up a bunch of newspapers and combining assets where it makes sense. It's fine to only have one UConn reporter covering women's basketball, not three. But nobody's going to buy USA Today or any of their local papers if they don't actually have reporters. And we're a partner. USA Today uses our content. So, in some ways, them having less staff might be good for The Motley Fool. [laughs] But, overall, you have to understand when you buy a newspaper, public or a share of stock, the returns have to be modest for the business to work.
Chris Hill has no position in any of the stocks mentioned. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool recommends The New York Times. The Motley Fool has a disclosure policy.