Something about newspapers reminds me of airlines. They both seem to be the kinds of businesses that can help investors turn cash into memories. So I don't think anyone should have been surprised when Jeff Bezos bought The Washington Post from the Washington Post (NYSE:GHC)-- he's the champion of cash consumption. Since the announcement, most outlets have focused on what Bezos plans to do to bring the Post into the 21st century.
Innovation is going to be the buzzword that everyone applies to Bezos as owner of the paper, and to be sure, there is going to need to be a lot of "new" to make things work. Revenue dropped slightly last quarter, with advertising putting up a particularly poor showing. But maybe Bezos doesn't need to be trapped in the Internet-paywall-advertising triangle that newspapers are in right now. Maybe, he can learn from Amazon.com (NASDAQ:AMZN).
Find something to sell, then sell all of it
Bezos has said that, in general, he looks to maximize the total amount of cash that Amazon brings in, with little regard to margins. At Amazon, he's used the philosophy to build a business that can generate $61 billion in revenue in a year and yet not manage to generate any income. Instead, the business invested its cash in things that it wanted to grow. Amazon actually had over $3 billion in free cash flow in 2012, but it bought its way into a loss.
The flip side of the weird margin business is that Amazon is now the king of market share. You can't talk about tablets, books, apparel, garden supplies, cloud computing, or food without mentioning Amazon. The idea that the Post could actually add subscribers must be a fantastic thought to lovers of the newspaper. Last quarter, the company dropped 7% of its daily circulation, and now it's down to just 447,700 on average.
On the other hand, News Corp.'s Wall Street Journal has been absolutely caning it. Between print and digital, circulation was up 12% year over year at the end of March. The Journal now runs about 2.4 million copies a day, making it the widest-circulating paper in the U.S. The Post needs to get some of that market back.
Content versus cost
While blaming the new challenges of distribution is easy, there's no denying that a change in content can be a bigger deciding factor in a newspaper's growth. The New York Times, for instance, has an impressive hold on the Pulitzer Prize. A quick look at recent winners makes it clear that the Pulitzer committee has a soft spot in its heart for Times' reporters.
The Times has also posted solid growth online and in print. According to recent figures, total circulation of the daily paper increased 17.6% over the 12 months ending this April. The majority of that circulation came through the paper's digital distribution.
It's not like Bezos has just purchased some local rag, but a notable change in content or tone could be the impetus that people need to pick up the paper. Again, he should be able to draw on the experiences that he's had at Amazon to work on differentiation.
In 2009, Amazon picked up Zappos, an online shoe retailer. The draw of Zappos wasn't just its prices or distribution, it was the content and tone of the company that made it stand out from the competition. Zappos was heavily focused on customer service, and upon making the purchase, Bezos said, "Zappos has a customer obsession which is so easy for me to admire."
The bottom line
That focus on the customer and consumer combined with Bezos' market-grabbing background could be all he needs to get the Post back to its former glory. Sure, he's going to push online and make digital a priority, but there are more fundamental retail ideals that Bezos can bring to bear on the newspaper to help it grow. In fact, I think he would be better off setting the innovation aside and getting the fundamentals repaired before he dives too deep into digital. He certainly has the tools, he just needs to use them.