Newspapers Are Down, But Not Out

As the newspaper industry continues in its downward spiral, not all major investors are backing out. To some, like David Geffen of music industry fame, and CEO of General Electric Jack Welch, American newspapers are a hot commodity.

Welch is interested in buying the Boston Globe while Geffen is considering a bid for the L. A. Times.

It's hard to see what is driving these business moguls' interest. American newspapers in general have steadily, precipitously, declined in readership as the online news industry has taken off.

According to an Australian news organization, The Australian

New York Times Company bought the Globe in 1993 for $1.1 billion but Mr Welch's group reportedly values the paper at $US550 million to $US600 million.

What makes these companies, with their markedly declining profits, an attractive investment?

The obvious thing to note is that they are cheap, cheaper now than they have ever been. Newspapers still command a certain degree of respect. Even the online blogging community cannot yet thrive independently. As I'm sure many of you have noticed, blogs often take their direction from mainstream news. It's what we bloggers comment on. Despite the trends, mainstream news organizations still have the financial backing and the clout to get to the hot spots in the world and gather the hard news. Newspapers are still relevant, however much status they may have lost in recent years.

But none of this explains, from a pure business perspective, why capitalists would be willing to take that risk.

According to the Australian (as Prof. Penenberg has repeatedly driven into our heads):

the average profit margin of all publicly held newspaper companies is 17 per cent - twice that of the average Fortune 500 firm.

This is a hefty return on investment for such a relatively small price tag. The big question is, will newspapers continue to decline in profitability at the same rate they have in recent years, and if so, when will Geffen, Welch, an co. decide enough is enough?

Are these bigwigs just speculating?

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