Will reducing print frequency reduce the value of your company
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
- In the 80s and 90s acquisition-minded companies put a greater focus on the revenue line than on existing cash flow. More publishing days usually meant more revenue. The focus today has shifted to cash flow.
- A daily publishing cycle indicated that the newspaper was publishing in a market that was substantial enough to support five, six or seven days of a product. If a newspaper was going from three days to five days, or adding a sixth or seventh day to its publishing cycle, it signaled the market was experiencing strong growth and thus the prospects for an owner were good.
- In that era, a daily newspaper garnered national advertising that wasn’t always available to weekly newspapers simply because the ad buyer for the national chain had decided that advertising worked better in a daily than a non-daily.
- There were more buyers, and better-financed buyers, for daily newspapers than there were for non-dailies. This resulted in more competitive bidding processes, which in turn resulted in higher multiples.
- Daily newspapers tended to operate at higher margins. It was common to see daily newspaper operations consistently generating margins 10 percentage points higher than non-daily operations. This was primarily due to efficiencies gained through publishing every day and amortizing fixed expenses over five, six, or seven issues a week versus one or two days of the week.