Thursday, April 29, 2010

Thoughts on the Philly auction: debt level, ownership capabilities and new media vision

The melodrama that was the Philadelphia newspaper auction is finally at an end with Angelo, Gordon & Co. the final winners. After a 29 hour process, and 15 months of prelude, the newspapers are now owned by their senior creditors.

The experiment in local ownership under Brian P. Tierney is over and it is back to business as usual as the money men take over. While readers and staffers wonder what this will all mean for the papers -- will there be layoffs, for instance, similar to those experienced at the Minneapolis Star Tribune when Angelo. Gordon & Co. first became involved there -- other questions such as the wisdom of acquisitions involving debt, or what will the new company's vision involving electronic media will mean more in the long run?

Brian P. Tierney and other local investors bought the newspapers and web properties for $515 million only a few years ago -- in 2006. Yesterday's sale price of $139 million looks incredibly cheap in comparison. (In an ironic coincidence, as news was being released of the newspaper sale H-P announced it had acquired the failing cellphone maker Palm for $1.2 billion.)

The financial details of the deal show that the new owners will be about $36 million in debt when they take over the newspapers -- a very small amount for a typical media deal. (Sam Zell, who purchased the Tribune Company in 2007, completed his deal with $13 billion in debt to deal with.)

Despite this, Robert J. Hall, an adviser to the creditors' committee and former publisher of The Inquirer and Daily News, said the publishing company's unions would be expected to make concessions.

The Daily News published a story this morning already asking the question "does the company that prevailed in an auction to control the Daily News, Inquirer and know how to run a media company?"

The company, as mentioned above, does have some experience at this, though their track record in Minneapolis is not terribly encouraging, though the Daily News story does quote a local observer of Minneapolis media as saying "they're acting more like long-term owners than I expected."

Ultimately what will turn the Philadelphia papers around is understanding where the future lies, and making the changes and investments necessary to carry out a coherent strategy. This involves: getting a handle on costs, developing a better web strategy, developing a mobile media strategy, and developing a sales structure that supports the new strategy.

I have no doubt that the new owners will attempt to get costs in line, and I have no intention to go down road of predicting their success in this area. But the three other factors are equally important to the long term chances for success.
Photobucket contains good content, but the web design of the site is outdated and not attractive.

As for mobile media, as far as I can tell the papers are non players in the space and will have to play catch-up.

Finally, the worst thing that could happen to the papers now will for the usual journalism gurus are brought in, the ones who think content is king and monetization is an issue to be dealt with down-the-line. As a former publisher my instincts tell me to leave the newsroom alone and concentrate on the sales and production structure changes that will be necessary to develop, launch and monetize new media ventures.

It will be interesting to watch events in Philadelphia to see if the auction of the properties was simply just another M&A media deal or the beginning of a media transformation for the city of Philadelphia.

More thoughts from other sources:

Newsonomics: The winning group had proposed asking employees to reapply, but dropped that demand during the auction. That proposal, though dropped, is a clear sign to Philly’s numerous unions that tough negotiations are ahead, and that more cuts are inevitable.

Newsosaur (Alan Mutter): The new owners in Philly want to make the papers as successful as Tierney hoped they could be. But they also will do whatever it takes to protect their investment. As a rational businessman, Tierney would have done the same.

Joe Strupp at MediaMatters: Tierney is a local guy who wanted the papers to stay local and have some relevance to the community. Will the creditors who are taking over make things worse? Possibly. If they follow a bottom-line mentality, expect more cuts, changes and perhaps even a merger of the two papers.