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Investing in Newspapers in 2018
Panelists: Mark Adams, CEO, Adams Publishing Group
Mark Aldam, executive vice president and COO, Hearst
Jeremy Halbreich, chairman and CEO, AIM Media Management
Jim Moroney, chairman, president and CEO, A.H. Belo Corporation publisher and CEO, The Dallas Morning News
Moderator: Penelope Muse Abernathy, Knight Chair, Digital Media Economics, UNC-Chapel Hill School of Media and Journalism
Fewer Newspapers, Fewer Readers
1383 Fewer Newspapers in 2018 Circulation Decreases Since 2004
2004*may include some seven-day averages
*2004 and 2018 exclude the circulation of three largest national newspapers
20182004 2018
Where the Top 25 Companies Own Papers
Source: newspaperownership.com
Jim Moroney,chairman, president and CEO, A.H. Belo Corporationpublisher and CEO, The Dallas Morning News
What are you investing in?
5
Growing paid digital subscribers
What else are you investing in?
6
Growing paid digital subscribers
Is there anything else you are investing in?
7
Growing more paid digital subscribers
8
Why such a focus?
Marginal cost = ZERO
Fastest way for publishers
to build profitable revenue:
Recurring monthly revenue
9
10
1. Paid digital
subscriptions2. Digital
advertising
3. For us: Digital
marketing
services What are your three?
You need at least three legs
on your sources of revenue stool
Mark Aldam, executive vice president and COO,
Hearst 2.27.18
DAILIES
2015 2017
15 - 24 WEBSITES
2015 2017
40 - 50
COMMUNITIES
2015 2017
31 - 60
DIGITAL BUSINESSES
2015 2017
5 - 8YP DIRECTORIES
2015 2017
28 - 35
MARKETING SERVICES
2017
103
1100 JOURNALISTS
800 SALESFORCE
12
Overview
13
Growth BusinessHIGHLIGHTS
• Digital + Consumer = 60%
• 2017 Total Revenue Up 2.6%
• Organic Growth Top Priority for Hearst
• Execution Performance is Job One!
• Favor Bolt-on Solutions that Scale
• Growth through Acquisitions Secondary
• Expansion if Part of Cluster Strategy
2012 2013 2014 2015 2016 2017 2018
• Core EBITDA Over 22%
• New Cluster Assets Add Synergy Benefits Immediately
• Cost Savings Support Reinvestment in Local Journalism and Local
Advertising Sales Resources
• Accretive Tuck-ins Offer 2 to 3-Year Payback
• Disciplined Valuations – Will New Asset Earnings Produce 3 to 5-Year
Payback before Synergy Value?
• Importing Hearst Go-to-Market Playbook Changes Revenue Curve
Long-Term - Acquisition Strategy
14
• Independent Business Struggling
• 22 Weeklies and 2 Small Dailies
• Revenue Declines – Steep Earnings Decline –
No Digital Revenue
• 17% Ad Revenue Growth
• ROI Less than 1 Year
Houston Community Newspapers
15
NORTH GROUP NORTHEAST GROUP NORTHWEST GROUP SOUTHWEST GROUP SOUTH GROUP
The Woodlands VillagerSpring ObserverThe Courier
Humble ObserverAtascocita ObserverLake Houston ObserverEast Montgomery County Observer
Kingwood ObserverCleveland AdvocateEastex AdvocateDayton News
Tomball PotpourriMagnolia PotpourriCypress Creek Mirror (Cy-Fair)Cypress Creek Mirror (Klein)
ExaminerMemorial ExaminerKaty RancherSugar Land Sun
Pasadena CitizenDee Park BroadcasterBay Area CitizenPearland JournalFriendswood Journal
• 3 Dailies and 7 Weeklies
• Revenue Down Double Digits & Rapidly Declining
Print Circulation
• Invested in News Resources & Local Ad Sales
• Earnings Growth of 70% in First 8 Months
• Circulation Volume Up Q1
• Digital Revenue Growth Outpacing Print Declines
New Haven Register Group - CTNEW HAVEN ZONE
MIDDLESEX ZONE
LITCHFIELD ZONE
Jeremy Halbreich, chairman and CEO
AIM Media Management
We InvestIn
Newspapers
Local & Regional MarketingServices
Web Sites
E-Commerce
Media-RelatedTechnology
Shoppers
18
Decision toInvest
NewGeography:
Minimum $3M-$5MEBITDA
Access by Single Non-Stop Flight from DFW
Characteristics of Specific CommunitiesServed
CanWe MakeADifference?
ExistingGeography:
AnySize
19
Return on Investment
12%-15% Annual Pre-TaxCash Distributionon InvestedCapital
LLC “Pass-Through”Structure
Low DebtLeverage
PrincipalRepayments Begin Immediately in Month 1
BusinessModel ReflectsContinuedOrganicDecline in TraditionalPrintBusiness
GrowthOpportunities
No CorporateHeadquarters& No CorporateStaff
20
Mark Adams, CEO
Adams Publishing Group
We love
newspapers
as an
investment!!
Mark Adams, CEO
Adams Publishing Group
Why?
a. Strong brands
b. Community service
c. Availability of seasoned management
d. Fragmented ownership – lots available for purchase
e. Consolidation and integration opportunities
f. Low purchase multiples = high ROI
Mark Adams, CEO
Adams Publishing Group
So…..what’s
our strategy?
Mark Adams, CEO
Adams Publishing Group
The Purchase:
a. Buy quality newspapers in solid, growing communities that are underserved by other local media.
b. Buy newspapers from families, steering clear of private equity and/or public sellers that have stripped out the newsroom.
c. Buy newspapers that have upside: Digital: many newspapers still haven’t exploited their digital opportunities.
Retail: many newspapers have cut ‘boots in the street’. More ‘boots’ = more revenue.
Circulation: Many newspapers don’t invest in marketing and promotion. Isn’t this the business we’re in??
Mark Adams, CEO
Adams Publishing Group
The Investment:
a. Stay conservative and remember that revenue
headwinds won’t subside in the near future.
4x – 5x trailing EBITDA.
b. Evaluate the condition of the press assets.
Commercial printing can be a strong revenue generator
as many publishers are outsourcing printing.
c. Upgrade systems and software so associates are as
efficient as possible
d. Invest in the pressroom?
Not just ‘yes’, but ‘heck yes’!!
Mark Adams, CEO
Adams Publishing Group
Operating for the long term:
a. Leave the newsroom alone:
They know how to do it better than most owners
b. Hire and upgrade the sales teams.
Pay them what their worth.
c. Don’t live quarter to quarter.
d. Manage to a reasonable operating margin: 15%
e. Create efficiencies in the ‘back office’, without diminishing the local
nature of the franchise.
Continued Mark Adams, CEO
Adams Publishing Group
Operating for the long term:
f. Go after strategic ‘bolt-ons’.
A bigger footprint is usually a better footprint.
g. Keep corporate expenses to a minimum:
1% of revenue
h. Cap-Ex: 1% of revenue
i. Invest in digital agency products:
This is a truly long-term item
Continued
Mark Adams, CEO
Adams Publishing Group
What lies ahead?
a. Continued choppy retail environment
b. More migration of readers to digital.
Let’s keep them in OUR digital world.
c. Continued cycling out of over-levered companies,
some with untenable pension obligations.
Perhaps more bankruptcies.
d. What’s going to happen with the remaining
private-equity owned companies?
Mark Adams, CEO
Adams Publishing Group
Investing in Newspapers in 2018
Panelists: Mark Adams, CEO, Adams Publishing Group
Mark Aldam, executive vice president and COO, Hearst
Jeremy Halbreich, chairman and CEO, AIM Media Management
Jim Moroney, chairman, president and CEO, A.H. Belo Corporation publisher and CEO, The Dallas Morning News
Moderator: Penelope Muse Abernathy, Knight Chair, Digital Media Economics,UNC-Chapel Hill School of Media and Journalism