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Little relief in sight for newspapers: Quadrangle
2008-04-09
Newspaper company valuations will remain depressed until the industry figures out how to connect with younger readers, private equity firm Quadrangle Capital Partners said on Wednesday. Finding that new model, which is heavily dependent on the Internet and other electronic technologies, is crucial for publishers who want to remain relevant to younger readers, said Joshua Steiner, Quadrangle managing principal, at the Reuters Hedge Funds and Private Equity Summit. "So unless newspapers can ... engage readers, especially readers under the age of 40, the long-term prospects for the industry are not great," he said. Newspaper publishers embody Wall Street's definition of an out of favor industry as ad revenue tanks and readers turn to the Internet for news. To offset slower growth, publishers have cut jobs to slash costs, and none dares to guess when their online business will compensate for print declines. Absent the discovery of a successful business model that will sustain the strong cash flow papers still produce, publishers will have to rely on cost cuts and consolidation, he said. With no end in sight to that trend, investors in the business will steer clear until valuations fall further. "We think newspapers will continue to have a strong franchise in many markets for a long period of time, but it's unclear that the valuations reflect the uncertainty associated with their business model," Steiner said. "We're not opining on any particular newspaper company, but if you're going to invest into a sector where there is big cyclical risk, or where there is fundamental change associated with the industry, you need to be compensated for it. And the way you're normally compensated for it is through price," Steiner added, but he did not say that valuations would fall more. So far, Quadrangle, whose managing principal Steven Rattner is an adviser to The New York Times Co (NYT.N), has not invested in the sector. "We've examined a lot of newspapers that have come up for sale. We think a lot of them are very good businesses. As I said, I don't think they're disappearing tomorrow," Steiner said. "Generally speaking, we can't get to the prices that people are paying for them, and that's why we haven't bought them." Steiner said new technologies like Amazon.com's (AMZN.O) Kindle wireless electronic book reader, created outside of the media and wireless industries, could drum up new business for the media sector. "Devices like Kindle will be supported through a variety of ways: subscriber revenue and advertising revenue," Steiner told Reuters Television in an interview. Over time, devices like the Kindle, which offers electronic copies of books for sale and charges subscription fees for newspapers, magazines, and blogs, could turn into an advertising vehicle for publishers. "I suspect over time there will in fact be an opportunity for devices like the Kindle to generate revenue for advertising," Steiner said. (For summit blog: http://summitnotebook.reuters.com/) (Click on http://blogs.reuters.com/category/themes/mediafile/ to see Reuters MediaFile blog)
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