Belo Buys Some Time for Its Papers

We think of companies like Belo, Gannett, Scripps and others as newspaper companies. Sure, they grew out of ink and pulp, but many have become hybrids over the years, mostly in acquiring broadcast TV stations. The names are newspaper names, but the companies are no longer newspaper companies.

So Belo's announcement this a.m. that it is breaking the company baby in two is not all that surprising. Investors have pummeled the stock, looking in the familiar phrase to "release value," a concept Bruce Sherman re-taught newspaper execs as he tried to unlock Knight Ridder's value two years ago. Belo is becoming two, with the current Belo taking the 20 (many highly rated) TV stations and the new A.H. Belo taking the newspapers. Both entities keep their respective web properties. Each company will have about $750 million in revenue (the timing is such that this is the first time that the TV properties are showing signs of surpassing the newspapers in overall revenue).

It's an interesting bet and one that will be watched from several angles by the industry and its investors.

Consider that Belo is moving its current debt of $1.2B to the TV business, leaving the newspaper company debt-free. That company, to be headed and operated by Robert Decherd, is thus given a fightin' chance to make it through to the other side. What other side? That unknown terra incognita, further explained by (St. Petersburg) Times Publishing Company CEO Paul Tash in a good piece in the New York Times yesterday: “I don’t see a eureka moment yet. You have to keep the ball in play long enough until you see how you might win the game.”

And that's what everyone running in newspaper business has to do today, keep time on the clock while the offensive and defensive strategists figure out some new winning plays. So Belo's move puts some more time on that clock. The Belo newspaper approach stands against the soon-to-close (?) Tribune approach. That one ladles more than $10B in debt on the "new Tribune," highly leveraging it. Belo seems to understand that each dollar it puts into debt service is a dollar it can't use to keep the newspaper content and ad engines primed, until that eureka moment arrives.

Everyone in the industry has got to be figuring out a new three-to-five-year "transition" plan. Belo adds a new approach to the mix.

We can also expect the Belo move to put pressure on other newspaper/broadcast hybrids, including Media General, Gannett and Scripps, as investors continue to struggle to determine value of their assets.

What we see in the broadcast business is a healthier brother to the sick sister the newspaper business has become. Healthy, but maturing. Broadcast is yielding growth still (compared to the now-expected declines in print ad and circulation revenues), but it's in low-to-mid single digits. And the age of broadcast news viewers, last I checked, was older than newspaper readers, about 60 to 55. But, with little exposure to the ravages of the classified business, TV stations have been able to weather the storm of Internet ad competition better. They are not out of the woods yet, but they've got more time to manage their transitions. And they have a couple of advantages that the market hasn't yet made too much sense of:

----The value of TV news content is about to markedly increase. News video is now yielding CPMs of $25-90. Further, the ability of Belo and other TV operators to make money off syndicated news video will increase in 2008 and beyond. Just last week, Belo formally announced its partnership with and investment in Mochila, one of the wave of 2.0 syndicators. In addition, AP is moving fast into the middle of the news video mix with its own network. All in all, the dollars yielded by syndicatable news video should help offset pressures in the core business.
----The power of the Yahoo and broadcast aggregator networks. Its Yahoo deal will help. Belo has also had involvement with WorldNow, one of the biggest aggregators/enablers of broadcast TV websites.

In an age of networking both ad sales and syndicatable video, such relationships will help push stodgy broadcasters into the new age.