The Great Media Sale Is On!

Published on 31 Jul, 2015

Global Media Market Analysis

The onset of digitization at the end of the 20th century has led to a prominent shift in the publishing industry. With technological advancements and changing user patterns on how news is consumed, the traditional print media business has been up for a radical evolution.

A study conducted by Newspaper Association of America, highlights a consistent and unmistakable digital divide in media consumption. Nearly half of the survey respondents choose online/mobile medium over print as their primary source for news.

This advent of large technology conglomerates into the business of creating and delivering news has made survival difficult for conventional newspapers already seeing a decline in their print circulation and advertising revenues. The sale of the family-controlled The Washington Post to Amazon for USD 250 million in 2013 is a good case in point.

Likewise, Pearson (the British publishing and education firm) was unable to invest as much necessary to successfully sail the changing media landscape. This is despite the fact that historically it had architected a sophisticated business model and could pretty well wrestle the threat of online disruption (70% of the total subscriber base of 737,000). This marked the end of its 60-year custodianship of the Financial Times (FT).

The famed British brand went into Asian hands – Japan’s Nikkei, Inc. The deal is subject to regulatory approvals with expected closure by 2015-end. Going by press reports, Pearson is now actively scouting for an able suitor for its 50% stake in the Economist. A formal announcement of the new match may be soon in the offing.

Pearson's CEO John Fallon cites divestment of non-core assets (FT accounted for just about 6% of Pearson group’s total operating profit) and channelizing the proceeds to its core education software businesses, as one key reason for its exit (and forthcoming exits). Mr. Ken Doctor, a news industry analyst was quoted in the recent Wharton article, as saying, “Pearson wanted a good steward for the brand, [and] they badly wanted the money.”

The question arises as ‘Why was the Nikkei-FT deal valued at USD 1.3 billion, five times of what Washington Post was bought in 2013?’. Few could have imagined that FT, with an operating profit of just USD 39 million, could command a multiple of over 40x (excluding Pearson’s stake in the Economist), an unreasonable valuation for a print media asset.

But, Nikkei saw value and footed the bill! The acquisition seems to perfectly befit its going global strategy and aim of making it big in the premium-news global arena, the segment it rules at home. Nikkei believes with its capital and FT’s pink dye, particularly in worldwide reporting and online distribution, they can emerge as a strong global media brand. Management professor Emilie Feldman, was noted saying “Nikkei is clearly buying its growth outside of a slow and shrinking market.” in the same Wharton article.

Pearson is not the first company to have disposed of a legacy print media brand at a luxury price. Change of ownership has been rather a frequent event in this space. It seems there is never a dearth of buyers for such assets. Some of the other massive deals in the past half-a-decade include Amazon–The Washington Post (2013), AOL–The Huffington Post (2011), and Bloomberg–BusinessWeek (2010), to name a few.

The buyers apart from focusing on the potential of core print business intend to satiate the desire to get hands on a trophy asset with a global, long-established brand. Rupert Murdoch is a classic example of this approach. To quote from an article by former WSJ reporter Sarah Ellison, “So central are newspapers to Rupert Murdoch’s psychological well-being that the saddest years of the media mogul’s adult life probably came between 1988 and 1993—the only time that he lived in a city where he didn’t own a newspaper.” Murdoch paid considerably extra (a 65% premium over the company's trading price) for Dow Jones Corp and its key publication, The Wall Street Journal, roughly matching the valuation of the FT.

To conclude, it definitely is very clear that with the international status some of the coveted legacy print media brands enjoy, they will probably almost always find buyers ready to open their war chests despite their weak profitability. However, it is hard to say they will continue commanding a premium unless they innovate and go the digital way.