Investing in Newspapers in 2018 - Creative Circle...

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Investing in Newspapers in 2018

Panelists: Mark Adams, CEO, Adams Publishing Group

Mark Aldam, executive vice president and COO, Hearst

Jeremy Halbreich, chairman and CEO, AIM Media Management

Jim Moroney, chairman, president and CEO, A.H. Belo Corporation publisher and CEO, The Dallas Morning News

Moderator: Penelope Muse Abernathy, Knight Chair, Digital Media Economics, UNC-Chapel Hill School of Media and Journalism

Fewer Newspapers, Fewer Readers

1383 Fewer Newspapers in 2018 Circulation Decreases Since 2004

2004*may include some seven-day averages

*2004 and 2018 exclude the circulation of three largest national newspapers

20182004 2018

Where the Top 25 Companies Own Papers

Source: newspaperownership.com

Jim Moroney,chairman, president and CEO, A.H. Belo Corporationpublisher and CEO, The Dallas Morning News

What are you investing in?

Growing paid digital subscribers

What else are you investing in?

Growing paid digital subscribers

Is there anything else you are investing in?

Growing more paid digital subscribers

Why such a focus?

Marginal cost = ZERO

Fastest way for publishers

to build profitable revenue:

Recurring monthly revenue

1. Paid digital

subscriptions2. Digital

advertising

3. For us: Digital

marketing

services What are your three?

You need at least three legs

on your sources of revenue stool

Mark Aldam, executive vice president and COO,

Hearst 2.27.18

DAILIES

2015 2017

15 - 24 WEBSITES

2015 2017

40 - 50

COMMUNITIES

2015 2017

31 - 60

DIGITAL BUSINESSES

2015 2017

5 - 8YP DIRECTORIES

2015 2017

28 - 35

MARKETING SERVICES

1100 JOURNALISTS

800 SALESFORCE

Overview

Growth BusinessHIGHLIGHTS

• Digital + Consumer = 60%

• 2017 Total Revenue Up 2.6%

• Organic Growth Top Priority for Hearst

• Execution Performance is Job One!

• Favor Bolt-on Solutions that Scale

• Growth through Acquisitions Secondary

• Expansion if Part of Cluster Strategy

2012 2013 2014 2015 2016 2017 2018

• Core EBITDA Over 22%

• New Cluster Assets Add Synergy Benefits Immediately

• Cost Savings Support Reinvestment in Local Journalism and Local

Advertising Sales Resources

• Accretive Tuck-ins Offer 2 to 3-Year Payback

• Disciplined Valuations – Will New Asset Earnings Produce 3 to 5-Year

Payback before Synergy Value?

• Importing Hearst Go-to-Market Playbook Changes Revenue Curve

Long-Term - Acquisition Strategy

• Independent Business Struggling

• 22 Weeklies and 2 Small Dailies

• Revenue Declines – Steep Earnings Decline –

No Digital Revenue

• 17% Ad Revenue Growth

• ROI Less than 1 Year

Houston Community Newspapers

NORTH GROUP NORTHEAST GROUP NORTHWEST GROUP SOUTHWEST GROUP SOUTH GROUP

The Woodlands VillagerSpring ObserverThe Courier

Humble ObserverAtascocita ObserverLake Houston ObserverEast Montgomery County Observer

Kingwood ObserverCleveland AdvocateEastex AdvocateDayton News

Tomball PotpourriMagnolia PotpourriCypress Creek Mirror (Cy-Fair)Cypress Creek Mirror (Klein)

ExaminerMemorial ExaminerKaty RancherSugar Land Sun

Pasadena CitizenDee Park BroadcasterBay Area CitizenPearland JournalFriendswood Journal

• 3 Dailies and 7 Weeklies

• Revenue Down Double Digits & Rapidly Declining

Print Circulation

• Invested in News Resources & Local Ad Sales

• Earnings Growth of 70% in First 8 Months

• Circulation Volume Up Q1

• Digital Revenue Growth Outpacing Print Declines

New Haven Register Group - CTNEW HAVEN ZONE

MIDDLESEX ZONE

LITCHFIELD ZONE

Jeremy Halbreich, chairman and CEO

AIM Media Management

We InvestIn

Newspapers

Local & Regional MarketingServices

Web Sites

E-Commerce

Media-RelatedTechnology

Shoppers

Decision toInvest

NewGeography:

Minimum $3M-$5MEBITDA

Access by Single Non-Stop Flight from DFW

Characteristics of Specific CommunitiesServed

CanWe MakeADifference?

ExistingGeography:

AnySize

Return on Investment

12%-15% Annual Pre-TaxCash Distributionon InvestedCapital

LLC “Pass-Through”Structure

Low DebtLeverage

PrincipalRepayments Begin Immediately in Month 1

BusinessModel ReflectsContinuedOrganicDecline in TraditionalPrintBusiness

GrowthOpportunities

No CorporateHeadquarters& No CorporateStaff

Mark Adams, CEO

Adams Publishing Group

We love

newspapers

investment!!

Mark Adams, CEO

a. Strong brands

b. Community service

c. Availability of seasoned management

d. Fragmented ownership – lots available for purchase

e. Consolidation and integration opportunities

f. Low purchase multiples = high ROI

Mark Adams, CEO

So…..what’s

our strategy?

Mark Adams, CEO

The Purchase:

a. Buy quality newspapers in solid, growing communities that are underserved by other local media.

b. Buy newspapers from families, steering clear of private equity and/or public sellers that have stripped out the newsroom.

c. Buy newspapers that have upside: Digital: many newspapers still haven’t exploited their digital opportunities.

Retail: many newspapers have cut ‘boots in the street’. More ‘boots’ = more revenue.

Circulation: Many newspapers don’t invest in marketing and promotion. Isn’t this the business we’re in??

Mark Adams, CEO

The Investment:

a. Stay conservative and remember that revenue

headwinds won’t subside in the near future.

4x – 5x trailing EBITDA.

b. Evaluate the condition of the press assets.

Commercial printing can be a strong revenue generator

as many publishers are outsourcing printing.

c. Upgrade systems and software so associates are as

efficient as possible

d. Invest in the pressroom?

Not just ‘yes’, but ‘heck yes’!!

Mark Adams, CEO

Operating for the long term:

a. Leave the newsroom alone:

They know how to do it better than most owners

b. Hire and upgrade the sales teams.

Pay them what their worth.

c. Don’t live quarter to quarter.

d. Manage to a reasonable operating margin: 15%

e. Create efficiencies in the ‘back office’, without diminishing the local

nature of the franchise.

Continued Mark Adams, CEO

Operating for the long term:

f. Go after strategic ‘bolt-ons’.

A bigger footprint is usually a better footprint.

g. Keep corporate expenses to a minimum:

1% of revenue

h. Cap-Ex: 1% of revenue

i. Invest in digital agency products:

This is a truly long-term item

Continued

Mark Adams, CEO

What lies ahead?

a. Continued choppy retail environment

b. More migration of readers to digital.

Let’s keep them in OUR digital world.

c. Continued cycling out of over-levered companies,

some with untenable pension obligations.

Perhaps more bankruptcies.

d. What’s going to happen with the remaining

private-equity owned companies?

Mark Adams, CEO

Investing in Newspapers in 2018

Panelists: Mark Adams, CEO, Adams Publishing Group

Mark Aldam, executive vice president and COO, Hearst

Jeremy Halbreich, chairman and CEO, AIM Media Management

Jim Moroney, chairman, president and CEO, A.H. Belo Corporation publisher and CEO, The Dallas Morning News

Moderator: Penelope Muse Abernathy, Knight Chair, Digital Media Economics,UNC-Chapel Hill School of Media and Journalism

Investing in Newspapers in 2018 - Creative Circle...

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