Stumbled upon a great blog on the Management of Print Media in the US. Called : Reflections of a Newsosaur billed at “Musings of a veteran media executive, who fears our news-gathering companies are stumbling to extinction”. It’s author Alan. D. Mutter introduces himself as “perhaps the only CEO in Silicon Valley who knows how to set type one letter at a time”.
If one reads about the blood-bath that’s happening in the newspaper industry of the US – life still looks like a party back home in India. Probably – like our banking system – our newspaper industry has also remainded partially insulated to international trends. (This probably explains the unfading smugness of some of our newspaper honchos. A journo friend told me - how she was subjected to an elevator speech by her CEO - on the poor quality of newspaper managers in the West. And how well we've done in comparison. I saw the same CEO with his 'kitchen cabinet' dining on a celebratory mood at The Westview in the ITC Maurya last week!!) But for how long is the question.
The frequency and regularity of Mutter’s posts gives puts me to shame (notwithstanding – like me, he too holds another job and writes this blog as an incorrigible moonlighter who hasn’t been able to get over his love-affair with the industry). But, obviously there’s lot more happening in the playing fields of Uncle Sam’s country than in India which gives him more grist for the mill.
In his recent posts, Mutter writes about many such developments – which he says makes newspapers look like the auto-industry in Denver, with its routine lay-offs and across the board cost cuts. It seems that, Gannet has asked its employees on a week’s compulsory “leave without pay” in March this year (Click here to read). The alternative to this “shared pain”, he reckons would have been the loss of 600 jobs. He talks about the major restructuring that’s going to happen in SF Chronicle – where the newsroom is being cut-down to a bare-bone structure – with the skeletal staffers producing a “modest ration of local stories” with generic content filling the pages. (Read SFO Chronicle Story)
If one reads about the blood-bath that’s happening in the newspaper industry of the US – life still looks like a party back home in India. Probably – like our banking system – our newspaper industry has also remainded partially insulated to international trends. (This probably explains the unfading smugness of some of our newspaper honchos. A journo friend told me - how she was subjected to an elevator speech by her CEO - on the poor quality of newspaper managers in the West. And how well we've done in comparison. I saw the same CEO with his 'kitchen cabinet' dining on a celebratory mood at The Westview in the ITC Maurya last week!!) But for how long is the question.
The frequency and regularity of Mutter’s posts gives puts me to shame (notwithstanding – like me, he too holds another job and writes this blog as an incorrigible moonlighter who hasn’t been able to get over his love-affair with the industry). But, obviously there’s lot more happening in the playing fields of Uncle Sam’s country than in India which gives him more grist for the mill.
In his recent posts, Mutter writes about many such developments – which he says makes newspapers look like the auto-industry in Denver, with its routine lay-offs and across the board cost cuts. It seems that, Gannet has asked its employees on a week’s compulsory “leave without pay” in March this year (Click here to read). The alternative to this “shared pain”, he reckons would have been the loss of 600 jobs. He talks about the major restructuring that’s going to happen in SF Chronicle – where the newsroom is being cut-down to a bare-bone structure – with the skeletal staffers producing a “modest ration of local stories” with generic content filling the pages. (Read SFO Chronicle Story)Lee's Pulitzer Prize
Among these, one story – in particular - caught my attention. It is the plight of Lee Enterprises. In 2005, Lee acquired the Pulitzer group, which made it the fourth largest newspaper publisher in the US in terms of dailies (with 58 titles) and seventh largest in terms of aggregate daily circulation (of over 1.5 million). The group encompasses over 300 weekly newspapers, shoppers and specialty publications with over 10,000 employees.
The stock of Lee Enterprises was then worth about $1.5 billion and the company borrowed
almost an identical amount of money to fund the acquisition. Today, Lee’s stockes are trading at the below $ 1 mark at 30 cents a piece and its valuation is worth only $13.5 million. Its auditors have issued a ‘going concern’ warning – which means there is “substantial doubt about its ability to continue as a going concern.” Lee Enterprises unlikely to have the cash required to make a $142.5 million debt payment due this quarter. (Read: What's next for Lee)
Lee is not alone. It is but one of several publishers who are, more or less, in the same wobbly boat - loaded up on debt to fund acquisitions in the expectation that it could repay the loans though ever-rising sales and profits. “The deep, secular decline in the newspaper industry – exacerbated by the worst economic downturn in several generations – has dashed those hopes” writes Mutt.
“Shareholders, lenders, readers, employees, former employees and soon-to-be-former employees are paying the price for acquisitions between 2005 and 2007, taking advantage of the then-juicy profitability of newspapers and the once-easy access to abundant, relatively cheap debt – which they cannot handle today because industry sales have dropped by 25% since then and profits have dried up despite desperate efforts to throttle expenses.
“Had the newspaper industry continued to thrive in the last three years in the way it had for the decades since World War II, the executives who engineered these transactions would look like heroes today. But that’s not how things worked out. The first major newspaper bankruptcy already has occurred. Less than a year after it was taken private by Sam Zell, the Tribune Co. filed for protection from creditors owed a staggering $12 billion. Stock in the company, whose shares were worth $8.2 billion when Zell bought it 366 days ago, is worth nothing today.Beyond Lee and Tribune, publishers struggling with too much debt include Journal Register Co., GateHouse Media, McClatchy, MediaNews Group, Minneapolis Star Tribune, Morris, New York Times Co. and Philadelphia Media Holdings. The details in each case may be different. But the story is the same. (Click here to read)
That brings me to the question of how Indian Print Media Houses will fare in this crisis. In the absence of published data one doesn’t have a clear idea about the level of gearing in Indian newspaper companies – with the exception of a few such as HT Media, Deccan Chronicle – which are publicly listed. But, I do not wish to go into detailed Financial Analysis here. My worry lies elsewhere.
The Satyam Effect
The stock of Lee Enterprises was then worth about $1.5 billion and the company borrowed
almost an identical amount of money to fund the acquisition. Today, Lee’s stockes are trading at the below $ 1 mark at 30 cents a piece and its valuation is worth only $13.5 million. Its auditors have issued a ‘going concern’ warning – which means there is “substantial doubt about its ability to continue as a going concern.” Lee Enterprises unlikely to have the cash required to make a $142.5 million debt payment due this quarter. (Read: What's next for Lee)Lee is not alone. It is but one of several publishers who are, more or less, in the same wobbly boat - loaded up on debt to fund acquisitions in the expectation that it could repay the loans though ever-rising sales and profits. “The deep, secular decline in the newspaper industry – exacerbated by the worst economic downturn in several generations – has dashed those hopes” writes Mutt.
“Shareholders, lenders, readers, employees, former employees and soon-to-be-former employees are paying the price for acquisitions between 2005 and 2007, taking advantage of the then-juicy profitability of newspapers and the once-easy access to abundant, relatively cheap debt – which they cannot handle today because industry sales have dropped by 25% since then and profits have dried up despite desperate efforts to throttle expenses.
“Had the newspaper industry continued to thrive in the last three years in the way it had for the decades since World War II, the executives who engineered these transactions would look like heroes today. But that’s not how things worked out. The first major newspaper bankruptcy already has occurred. Less than a year after it was taken private by Sam Zell, the Tribune Co. filed for protection from creditors owed a staggering $12 billion. Stock in the company, whose shares were worth $8.2 billion when Zell bought it 366 days ago, is worth nothing today.Beyond Lee and Tribune, publishers struggling with too much debt include Journal Register Co., GateHouse Media, McClatchy, MediaNews Group, Minneapolis Star Tribune, Morris, New York Times Co. and Philadelphia Media Holdings. The details in each case may be different. But the story is the same. (Click here to read)
That brings me to the question of how Indian Print Media Houses will fare in this crisis. In the absence of published data one doesn’t have a clear idea about the level of gearing in Indian newspaper companies – with the exception of a few such as HT Media, Deccan Chronicle – which are publicly listed. But, I do not wish to go into detailed Financial Analysis here. My worry lies elsewhere.
The Satyam Effect
Post Satyam – the auditors will now be doubly cautious in certifying Debtors and Receivables. As indeed, they would be in valuing investments – such as in Subsidiaries or companies in which they have taken stakes in ( call it Private Treatise, Ads for Equity or what you will). They should be equally strict about “capitalisation” of losses from new ventures or investments. While – the BCCLs of the world will be sitting on huge reserves to absorb any such shocks I am not so sure about some other companies which had aggressively geared up to fund new investments and production capacity ( in terms of new Presses etc).
In my lay financial judgement – I would think the more vulnerable of the lot are those companies – who put themselves under the pressure of byouyant quarterly results for the consumption of dala Stret to keep their stock prices afloat.
As one of the astute readers of Mutt ( a retired editor of a 3rd generation newspaper and not a Finacial Analyst) points out – in the absence of “large debt, newspapers still are more profitable than several other classes of industry.” But the, “powerful Wall Street law of the jungle” is more at work in publicly-traded companies … which require constant, aggressive growth to meet the expectations of the short-term bottom line”.
In my lay financial judgement – I would think the more vulnerable of the lot are those companies – who put themselves under the pressure of byouyant quarterly results for the consumption of dala Stret to keep their stock prices afloat.
As one of the astute readers of Mutt ( a retired editor of a 3rd generation newspaper and not a Finacial Analyst) points out – in the absence of “large debt, newspapers still are more profitable than several other classes of industry.” But the, “powerful Wall Street law of the jungle” is more at work in publicly-traded companies … which require constant, aggressive growth to meet the expectations of the short-term bottom line”.
7 comments:
Creative accounting can and must be happening all across so why haul the Media alone into it.
I remember people holding others in hi esteem because they could always show high OP.
Check out the blog:
http://www.retheauditors.com/2009/01/price-waterhouse-indias-slumdog.html
"hmmm. interesting. about this para from your blog:
"It would be interesting, however, to see if the same logic of consolidation and exploiting synergies would now get extended even to other areas of operation such as the newsrooms and news-gathering."
i wonder what people's opinion on that is. i would be interested to know"
my allusion was not as much to "creative accounting" but the chickens coming home to roost - from the excesses of the boom years. to that extent, perhaps, the title is misleading, i admit !!
Liked your piece on Satyam and the possibility of a similar scam in the Media sector. I guess several such cases may be in the pipeline, especially of recent media projects which have started business with generous funding from international investors and are now preparing to sell out.
At least one Indian media company(or their auditors) seem to have taken the Satyam experience seriously. Why else would they report over 20% of their investment under exceptional item as provision for 'Dimunition in Long term investment' under Partnership for Growth (read 'ad for equity')in their quarterly report.
The worst is yet to come. When some of those companies where the investments have been parked, vanishes. One has seen them in the past.
The only solace being, if the market leader & innovator with a team of presumably top class analyists and number crunchers can completely mis calculate, then i with a bunch of mediocre brained team am better off, eh!
A space to watch out...
Post a Comment