Certainly, it's that time in the cycle, when the accountants get their slide rules out and covet thy neighbors' assets. This time around, the stakes are much more interesting: The newspaper industry wants to secure its future, not just for itself, but (more importantly) for society and (less importantly) for the institutional shareholders who have milked the industry for the past few years.

So what are the issues that will drive this particular acquisition cycle?

At the top of the list must be debt - and its causes. Newspapers do not have a profit problem. They have a debt problem. Gannett returned a Q409 margin of 20 percent. Johnston, a big U.K. publisher, chalked up a 12 percent margin even as a Malaysian investor bailed it out.

What next?

Publishers on both sides of the Atlantic have been encouraged to acquire declining businesses rather than using what money they do have to arrest decline. The result is they've run out of acquisitions - and therefore run out of strategy.

The second issue must be about the future of newspapers and the extent to which the industry will recover from this current malady.

The good news is that I believe that newspaper company revenues will recover - in some markets more than others - but the shape of those revenues will be very different from what they are now.

Classified - automotive and employment in particular - are dead in the printed form. In markets where the industry has worked collectively and aggressively to convert these revenues from print to digital, they will see some recovery. Newspapers in the United States and Scandinavia are particularly good at this; U.K. papers far less so.

The challenge is where this leaves news in print once the single package formula is sucked dry. As I've written before, the average newspaper doesn't have a bat's chance in hell of attracting meaningful content revenues online.

The only possible solution might be for publishers to work together to create a single news portal that blocks out all the aggregators.

In France, publishers have been experimenting with exactly this approach. In the United Kingdom, the most logical market for such an idea because of the fragmented share carved out by 10 competing national dailies, I have muted the idea after being told by several of the publishers that it won't work because their competitors won't play. Duh.

Oversight issues

And of course there are the regulators: the puppets of their paranoid masters. It continues to astonish me that newspapers remain so heavily regulated in many countries. Until recently, in the United Kingdom, Trinity Mirror, which accounts for less than 3 percent of total communications expenditure, faced a competition commission enquiry every time it sought to acquire even a relatively small property. But things are beginning to change.

Case in point: Trinity Mirror's recent acquisition of regional publisher Guardian Media Group. The deal says a lot, though, about the state of our industry. TM spent about $70 million to buy GMG. Three years ago, GMG was valued at more than $200 million.

Value to turnover ratio was 0:5, compared with a historical ratio in Europe of 3:2. So it's a great deal for Trinity Mirror.

Meanwhile, in the United States, two publishers, MediaNews Group and Morris Publishing Co., have come back from the brink.

Both companies - each one privately held - filed prepackaged bankruptcy reorganizations, which means they'll quickly be able to restructure their finances and, most importantly, maintain the continuity of news.

The question long-term, however, is the compatibility of institutional ownership and the role of media in society. Trinity Mirror's top-three shareholders, for example, are insurance companies.

Models are emerging. The first is the signal that some media companies can buy some protection from the market. The Rothermere family in the United Kingdom and the Sulzbergers in the United States come to mind.

Of course, some will point to what happened in Chicago and Philadelphia, where investors took newspaper publishers private only to have to resort to filing for bankruptcy protection.

But in both cases, the new owners - Zell and Tierney, respectively - have shown innovation, and an unwillingness to accept past shibboleths. Both have brought more light than darkness.

Taking a chance

So which model will work in the future?

The last thing the industry needs is a federal subsidy, as NAA President John Sturm told Congress last year. While these are common in Europe, in various forms, the reality is that revenues are cyclical and recoverable. Again: The industry does not have a long-term revenue problem. It is buried in debt.

The issue of news provision, in a modern participative world must be addressed. One option is to provide protected status for legitimate news ventures, which are tax advantageous. Companies can then be encouraged to support news operations as part of their wider activities.

The Guardian Trust is a good example. Created in 1936 to "safeguard the journalistic freedom and liberal values of the Guardian, its core purpose is to preserve the financial and editorial independence of the Guardian in perpetuity."

Over the decades, the Trust successfully expanded into a range of other publishing options, all of which exist to support The Guardian. Hence, its decision to punt its regional titles, which were no longer the cash cow feeding its core asset. The problem is that this type of financial arrangement in itself can encourage profligacy. The Guardian employs approximately 50 percent more journalists than benchmark analysis would suggest it requires for a paper of its size. But it certainly shows that media-sensitive models can, and do, work.

As I've learned through many projects across the world, freedom of expression is expensive, and in the West we not only take it for granted, but are increasingly in danger of losing its objectivity and quality.

As we crawl out of the bathtub and into our industry's next phase, now is the time to consider what we want to be, who should own what and who drives our agenda.


Jim Chisholm is a France-based independent media consultant. He can be reached at jim@jimchisholm.net.

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