Zephyr buys Register-Mail

-- At least some shares of it –

by Norm Winick

The Zephyr, Galesburg

08/07/08

Some faithful readers may remember that headline from one of our April Fool’s editions years ago. That time, we paid 50 cents for a copy from a vending machine. This time, my 50 cents on Monday bought me a share of GateHouse Media, Inc., the owner of the Register-Mail and 97 other daily newspapers plus hundreds of weeklies. (Actually, in the interest of full disclosure, I bought 400 shares for $200. Also, in the interest of full disclosure, I will admit that I have spent that much or more on other unwise investments (Betamax, anyone?))

The savaging by Wall Street of newspaper stocks is a major problem for the companies that publish them and we’re right in the heart it. The President and Chief Operating Officer of GateHouse is Scott T. Champion who lives in Monmouth and has his office in Galesburg. Lee Enterprises, the company that owns the Quad City Times and the St. Louis Post-Dispatch, which has seen its market value plummet from $2 billion in 2004 to $132 million today, is based in Davenport.

GateHouse, when the firm went public in 2006, was valued by the market at about $1.2 billion with the stock at about $22 a share. Today, its market capitalization is about $26 million. That’s a drop of almost 98 percent. When we ran our April Fool’s edition parodying the Register-Mail, it alone had sold for $15 million.

GateHouse’s stock was worth about $17 a share a year ago, $9 a share six months ago, $6 in April, $4 in June, $2.50 in July and has been as low as 40¢ a share in August already. If it stays below $1, it will be delisted by the New York Stock Exchange. It’s already traded only electronically rather than on the floor.

GateHouse is not alone. The Sun-Times Media Group is down 91 percent. Even the big guys are hurting. The New York Times is down 26 percent; the Washington Post 24 percent and Gannett is down 52 percent — all in the last year. In the first ten trading days of July, newspaper shares lost $4 billion in value.

Sam Zell’s purchase of the Tribune Company is a disaster for him, too. He took it private but he’s cutting costs as fast as he can and trying to sell whatever assets he can unload. He recently announced the sale of the very profitable Newsday.

This makes newspapers an incredible bargain — if anyone were buying them — which they are not.

The owners of all papers, from The Zephyr to The New York Times, are in major cost-cutting mode. Besides the drastic rise in the costs of newsprint, ink and transportation on which the industry relies, readership is down dramatically.

The biggest expense in running a newspaper is personnel and thousands of newspaper people have lost their jobs this year and more layoffs are announced almost every day.

GateHouse is not alone in making their papers smaller to save paper and ink. They have discontinued Monday editions and gone to five-day-a-week schedules for many of their smaller dailies which lets one 40-hour crew do the job.

In addition to layoffs, big papers are also trimming down, closing news bureaus and cutting back on distribution. The Chicago Tribune no longer gets to Galesburg every morning.

The demise of the major metropolitan daily was first predicted when radio came on the scene, then with television, but newspapers survived, even flourished despite the competition from those media.

Radio and TV didn’t cover news stories in depth; they didn’t provide a forum for readers to write in and express their opinions; they didn’t allow advertisers the flexibility to explain their products in detail.

Then came the Internet. News became free. It became instantaneous and as detailed as you wanted. Websites could easily include all the information that could fit in a newspaper ad. Surfers could add their comments and read others — instantly. While haste may have led to accuracy suffering, conscientious readers could verify information; others believe what they want anyway.

And instead of figuring out a way to compete with the Internet, newspapers joined the revolution and are contributing to their own demise.

We all know Galesburgers who look at the Register-Mail online and have let their subscriptions lapse — and there are probably thousands who have done so.

Internet advertising generates but a small fraction of the revenue generated by print advertising. People expect news sites to be free.

Big companies being big companies, their response is drastic cost-cutting. While that may help them weather the storm for a short time — and that’s doubtful — the endemic problems aren’t going away and the product they will have remaining will possess a fraction of its previous value as a news source and as an advertising medium.

Ted Rall, a very liberal columnist who is probably not read by newspaper executives who wouldn’t want to hear his ideas to save their floundering industry, sent us his most recent syndicated column where he outlines the problems and makes some revolutionary suggestions to save newspapers.

He claims that cost-cutting can never close the gap. “A reader of the New York Times print edition generates 170 times as much revenue as someone who surfs their website.” He says that readers spend an average of 47 minutes with the print edition but browsers only stay on the site for an average of seven minutes. “There just isn;t enough budget to cut in a future where income has dropped to 1/170th.”

Espousing Keynesian economics, where scarcity increases demand, Rall says that newspapers can only save themselves by becoming more valuable — scarcer.

“Newspapers have made news free and plentiful, which is why they are going broke.”

His three-point plan will meet with wide resistance and is anathema to everything that newspapers have been doing.

First, he says newspapers should go offline and shut down their websites. “Stop giving away news! At the very least, papers should charge online readers twice as much for print subscriptions.”

Second, he says newspapers should copyright every article. The vast majority of news sources on the web do not actually report any news; they post stories reported and published by others. Newspapers are paying the reporters and all their expenses and others are taking advantage of it. Even radio and TV stations frequently read stories out of newspapers without paying for them.

Thirdly, Rall says that newspapers should stop feeding stories to the wire services where other media get to use them cheaply. Newspapers should charge what stories are worth to anyone else using them.

He admits that there are some serious problems with his ideas. They only work if every newspaper participates. They would also mean a vast decrease in the amount of information available to citizens in our society.

The chances of the Internet ceasing to be the news source of choice for Americans, especially younger ones, is slim. The fear that some (or many) newspapers will cease publishing is real. Unless owners with philanthropic motives (like those of us who contribute their time to The Zephyr) take over, the future for dead-tree publishing appears bleak.