Could the L.A. Times's hefty tag mean that the value of newspapers, tumbling for two decades, is actually rebounding? Major papers such as The Post, New York Times and Wall Street Journal have made significant gains in digital subscriptions in recent years, suggesting that the painful transition to online news delivery is beginning to ease.
“Definitely a lot more to go, but this is the first time I've been feeling like the newsroom is starting to shift,” said Daniel Hong, a partner at the management consulting firm Bain & Co. who specializes in the media industry. “That's very encouraging. As an investor, I would say, 'Wow, it's actually possible to do that.' ”
The L.A. Times has more than 100,000 digital subscribers, which makes it the leader among regional papers, and helped parent company Tronc turn a small profit in its most recent earnings report. The company also owns the Chicago Tribune, Baltimore Sun and New York Daily News, among other outlets.
Maybe things are looking up for the newspaper business. Maybe. But analysts cautioned against reading too deeply into the L.A. Times deal.
A little math indicates that the price is way out of line with recent precedent.
“Newspapers in recent times have struggled to get [a purchase price of] 0.5 times revenue,” said Jonathan Knee, co-director of the media and technology program at Columbia Business School and a former managing director of Morgan Stanley's media group.
Tronc's projected revenue for 2017 was between $1.525 billion and $1.54 billion. Let's take the high end. Tronc does not publicize revenue breakdowns, but media business analyst Rick Edmonds at the Poynter Institute, a journalism nonprofit organization, estimates the L.A. Times's share at 30 to 40 percent. Again, let's be generous and use the top of the range. That would put the paper's revenue at $616 million and its value in a sale, using Knee's standard, at $308 million.
Even when you throw in the Union-Tribune, which Tronc bought for $85 million in 2015, the $500 million total appears inflated.
“Odd” is the adjective that comes to mind for mergers-and-acquisitions specialist Karyl B. Leggio, a finance professor at Loyola University Maryland. Leggio noted that on top of declines in the newspaper industry in general, the L.A. Times in particular “has had turmoil in leadership, something that does not tend to create value prior to a sale.”
The Washington Post's Paul Farhi, who broke news of the sale Tuesday, recapped some of the turmoil in his report:
Only last week, Tronc named Jim Kirk, the former editor and publisher of the Chicago Sun-Times, as the Times’s new editor in chief. The appointment of Kirk, a veteran newsman, relieved some of the tension stirred up by his predecessor, Lewis D’Vorkin, a former Forbes editor who did little to foster a close working relationship with his journalists. D’Vorkin lasted just three months on the job; he was appointed after Tronc fired four top editors, including Editor in Chief Davan Maharaj, in August.Meanwhile, Ross Levinsohn, who was named publisher of the Times in August, was put on leave last month after the disclosure of sexual harassment allegations against him while he worked at other companies.
Tronc said Wednesday that Levinsohn would lead a new division within the company after an independent investigation found “no wrongdoing.”
Leggio suggested that Soon-Shiong might have been willing to pay a premium for the L.A. Times and Union-Tribune if he sees value beyond the papers' balance sheets.
“All indications are that Soon-Shiong is a self-promoter,” Leggio said. “Owning a newspaper can be a nice megaphone to promote your interests, and if that is a goal, the price he is willing to pay may not accurately reflect the value of the newspapers. In other words, ultrawealthy individuals have been known to overpay for assets that they want to own.”