Given the choice, any publisher would take higher household penetration over lower penetration, but does higher household penetration directly result in higher newspaper value? This question is as difficult to answer as are the causes and effects of varying household penetration.
In our experience, generally speaking, household penetration is less of a factor in value if the newspaper publishes in an isolated market as compared with a more competitive market. Lower penetration requires additional expenditures on non-subscriber products, but newspaper operations in lower penetration markets generally garner advertising revenue--as a percentage of retail sales--equivalent to similar markets where the newspaper has somewhat higher penetration. Low penetration becomes a significant factor, however, in highly competitive markets such as the few remaining multi-daily newspaper cities and suburban and exurban markets. In these situations a change of 10 percentage points in household penetration can make a difference in the purchase price EBITDA multiple of as much as two multiple points.
DV&M has developed a comprehensive system for ranking the attractiveness of newspaper markets that takes into account a broad range of critical factors. In addition to the newspapers’ household penetration, these factors include growth trends, demographic characteristics, the competitive landscape, and subjective factors relevant to newspapers. The more than 150 factors that make up the DV&M Market Index were identified with the firm’s 25 years of experience in tracking newspaper markets, as well as our close interaction with the industry’s key executives involved in newspaper mergers and acquisitions.
The DV&M Market Index’s current top 10 newspaper markets in the country are identified in the chart below, along with their current home county penetration. Only one of our top ten markets has home county penetration in excess of the U.S. average of 48% daily household penetration. This appears to support the argument that penetration is not the most important factor in the value of a newspaper. We would quickly add that five of our top 10 markets have significant numbers of college students, which often skews household penetration numbers, and most of these top markets are growing at a rate faster than the national average, which usually results in a lag in between household growth and circulation growth.