A common question on the minds of publishers today is whether reducing print frequency could reduce the value of the company. The short answer is no, and there is a possibility that such a move would increase the value of your company.
It’s true that throughout the 80s and into the 90s a daily newspaper typically would command a higher multiple on its revenue and cash flow than a non-daily. That was true because of several factors outlined below.
However, in the later 1990s and 2000s, how buyers calculated the value of newspaper operations began to evolve. As consistent year-over-year revenue gains became less predictable, and the new reality set in that revenues were likely to retract rather than grow, the emphasis was placed almost entirely on stable cash flows. If revenues were not going to grow, buyers wanted a property in which they could increase cash flow through expense reductions.
At this point, daily newspaper publishers started to buy weeklies in adjacent markets in earnest, and in some cases decided there was greater value in buying a group of non-dailies at a lower multiple of cash flow than there was to buy a daily at a higher multiple. The balance sheet leverage of many acquisition-minded publishing companies also increased during this time, decidedly mandating a greater focus on near-term cash flow, regardless if it came from a daily newspaper or a non-daily.
Then, as revenue of publishing businesses declined, certain days of the week became unprofitable. And as the pressures to maintain profitability have grown, cutting publishing days has become a logical place to look. DVM&A calculates that more than 500 daily newspapers have cut publication days during the last 10 years. The current economic downturn will result in substantially more doing the same.
The focus on cash flow is more intense today than it has ever been. That’s why, in our opinion, if a newspaper company is losing money on certain days of the week, management should seriously consider discontinuing printing and delivering a paper on those days, a move that will immediately increase the cash flow of the operation.
Why dailies commanded higher multiples in the 1980s and 1990s