Friday, August 21, 2015

Glacier Media, and more bad news for the future of newspapers

It’s a bad sign when even newspaper companies no longer like the business.
Glacier Media’s latest quarterly report, released last week, suggested the corporation has pretty much given up on a long-term future for its 30 newspapers across B.C.
Vancouver-based Glacier had been seen as a newspaper company (to the detriment of its share price). But it also has information services aimed at more specialized markets - real estate, agriculture, energy and mining, for example.
And that, management says, is where the corporation’s future lies. Newspapers are in decline. The company’s plan is to extract cash during their remaining time and invest it in businesses with growth prospects.
Glacier puts it fairly bluntly: “The Company’s objective is to grow its business information assets and the portion of cash flow generated by these operations, which have higher growth profiles and valuations, and harvest the cash flow from community media assets and reduce the related financial and operating exposure.”
Conventional wisdom has been that small community newspapers - the core of Glacier’s holdings - have a brighter future than urban dailies.
But the corporation no longer shares that optimism.
Newspapers do “generate significant cash flow and provide scale for the Company,” the quarterly report says. “Efforts will be made to restructure community media assets to create greater direct value and simplicity for Glacier, or monetize where appropriate value can be realized.” (Restructure usually means cuts. Monetize means sell, which raises some other interesting questions. )
It’s hard to argue with management’s conclusions.
Glacier’s newspaper revenue fell 9.8 per cent in the last quarter, continuing a long skid. And that is after the corporation swapped papers with Black Press in December to eliminate competition in parts of the Lower Mainland and on Vancouver Island and, theoretically, increase profitability.
Newspapers still provide about 65 per cent of the corporation’s revenues. (Hence the reference to providing “scale.” Glacier is a small company without the newspaper revenues.)
But the newspaper profit margins are shrinking. On an operating basis, the business information division produced earnings equal to 27 per cent of revenue; for newspapers the return is nine per cent. (Before joint administration costs, interest, taxes and depreciation.) 
This is the first time Glacier has reported the results of its two divisions separately, as it moves to redefine the corporation.
There was another first. Glacier bought the Victoria Times Colonist in 2011, as part of an $87-million deal that included two other small dailies and 20 weeklies. Postmedia’s community papers in the Lower Mainland were likely the prize that Glacier wanted.
The corporation has acknowledged, vaguely, that it is not the sole owner, describing “certain assets acquired from Postmedia” as “Joint Ventures and Associates.”
In the latest report, after the swap with Black Press, it specifically put the Times Colonist in that category, without saying who was the “associate” involved.
An informed bet would be that Glacier’s associate is David Radler, Conrad Black’s long-time business partner jailed for mail fraud. The corporation has partnered with Radler in newspaper properties in Alberta, the Okanagan and the U.S. He is still, apparently, taking a management or advisory role at the Times Colonist.
Which raise some interesting speculation about the plan to “monetize” its newspaper assets. The Times Colonist, as a daily newspaper in a mid-size city, never fit with Glacier’s focus. It’s even possible Postmedia forced Glacier to take the Victoria daily if it wanted the Lower Mainland community papers.
If Glacier wants out, Radler is the person most likely to take over.
Footnote: I have sat through this movie before. My stints as publisher in Peterborough and Victoria came as the Thomson Corporation made one last stab at bringing growth to its newspapers in Canada and the U.S. It decided, after four or five years of effort, that the future was bleak. It sold the newspapers and invested in high-value information services. Glacier is taking the same route.


RossK said...

Oh boy...

There is no wisdom that goes down harder than conventional wisdom.

A couple of follow-ups for you..

1) Is it reasonable to assume that the re-structuring/cutting will result in more homogenization of the individual community papers (which I reckon would be there death knell)?

2) What was the aimed for ROI of Canadian newspaper chains back in the good old days?

(I'll leave others to ask/speculate on what a Radlerization would mean, ultimately for the VTC)


paul said...

Hey Ross K:
Homogenization through shared services is one way to cut costs and create bigger packages for ad buys, so more sameness probably lies ahead for the papers. It's also harder to do distinctive, community focused journalism when you just don't have enough people.
I haven't looked at return on investment then and now. Return on sales varied. One smallish daily I ran was returning about 20%; I know some Thomson papers were returning around 50%. The difference was that investors thought the companies had growth potential, so the value would increase.

Good piece on Postmedia in the Globe.

RossK said...

Thanks Paul--

Ya, I get the cutting pack on people thing...Didn't Glacier already signal that with the closure of the Richmond Review?

I guess the question is...Are there folks willing to do something with a 10% return on investment which, in some businesses doesn't seem so bad...Was interesting listening to Alex Blumberg's podcast on 'Start-ups' in which he was struck dumb by the realization that there are different kinds of investors...Those that want the next Twitter/blockbuster and those that just want to see a decent return (and, often, like what the company is doing)...Once he found the latter group he got his thing off the ground no problem...'Gimlet'.


paul said...

Ross K:
But in this case the 10% is return on sales revenue, not on investment. Postmedia paid about $1 billion for the Canwest newspapers. If you had invested $100 back then, your shares would be worth about $5 today. Even at that, there are no profits for investors. Glacier just quit paying its eight cents per share dividend.
There might be investors happy with a modest return (but not many). Even for them, the problem is that newspaper revenues haven't hit bottom, and bottom is not even in sight. So you put up $500k accepting a modest return, but you face the likelihood of that return shrinking each year.
That makes the investment most attractive to people who set out to extract as much from the business as possible even if they run it into the ground.
It would be great to experiment with new models to provide news and information to geographic communities on a financially sustainable basis. I'd like to try, and have some good ideas. But I wouldn't want anyone to invest who couldn't afford to lose the money, just in case. I wouldn't bet much of my savings on success.
Even Gimlet got most of its startup cash from people like Chris Sacca, a one-time Google exec who made huge money as an early backer of Twitter and Uber.
I don't want to be gloomy. I think the role of newspapers in communities is important. I'd like to see dozens of new ventures trying different models to provide information and analysis and entertainment to community audiences.
But I don't think you can, at this point, offer a promise of even a modest return on investment. It would be a bet on a new model, with all the risk - and potential - that involves.

Mr. Beer N. Hockey said...

I have long liked the chances of a progressive press to fill the void left behind once the traditional press finishes fizzling out. i.e. Something like the old Out of Line but more entertainingly written. People have to read something besides their electronic devices on the bus and over coffee in the morning don't they?

paul said...

A couple of thoughts, Mr. Beer:
You've got to pay for at least a couple of people to make a community paper or online source happen and basic costs. So figure $150k a year, even with a lot of volunteer contributions. It's not clear that you can attract that much in advertising or donations or subscriptions.
I also get nervous about the 'progressive press' label. The goal, for me, is a community information source that everybody reads. It's easier to reach one segment, but I want everyone reading, getting riled and responding.
(Glad the Hammer is doing well.)

Mr. Beer N. Hockey said...

I struggled with the adjective to describe a new print journalism that might rise out the ashes of what is left of our old newspapers. A press that does not suck up to anybody is a little wordier but more to the point. The question is, can you make money in journalism without doing so? Thanks for the correction.

RossK said...

Thanks Paul, for the clarification.

As for what Mr. Beer is looking for...It will be interesting to see if Jesse Brown, who has hired a few folks, can make a sustained go of it.


Anonymous said...

Hi Paul
Interesting viewpoints, and I agree with yo that there are gaping holes left in community news/entertainment/comment that the twitterverse just does not fill. I too think those holes are an opportunity.
We corresponded a while back when I owned and operated "The Okanagan Business Journal" and you kindly let us rerun one of your articles.
Perhaps we could meet for a coffee, would like to hear your ideas.
Jim Clark

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