This article first appeared at The McAlvany Intelligence Advisor on Friday, August 9th, 2013:
It was suggested here on Wednesday that Jeff Bezos and John Henry might have overpaid for their recent purchases of the Washington Post and the Boston Globe. Newspaper revenues have been declining for years, and more precipitously in recent years. The best minds in the business have been unable to halt that decline. Pay walls have offended readers who have the freedom to go elsewhere for their news. Package deals and bundling haven’t worked. The Drudge Report continues to gain ground at their expense and is now worth more (with just two or three employees) than what Bezos paid for the Post. Even Bloomberg suggested that Bezos paid too much for the Post: $200 million too much.
On the other hand, Bezos is an entrepreneur in the truest sense. He took a gamble with Amazon, thought he saw an opportunity to reduce the cost of reading through e-books, developed Kindle, and has bankrupted Borders and is about to do the same to Barnes and Noble.
And he has made himself wealthy in the process. How wealthy? About $25 billion wealthy. When it was suggested that his balance sheet took a hit when he wrote a check to Donald Graham at the Post for $250 million, that represented a nearly infinitesimal nick out of his portfolio. He has staying power.
He’ll likely need it. Last year the Post lost $54 million.
But The Economist took another look at Bezos’ purchase and his timing. He might just be buying at the bottom:
He is one of Silicon Valley’s most admired entrepreneurs and a man with deep enough pockets to bear continued losses while [he] experiments with new features and business models.
Mr. Bezos’ reputation should help the Post attract the managers and technology specialists it will need to help turn it around, and to retain its star journalists.
There’s something else, too, that was missed in Wednesday’s article: in the past, most newspapers focused on generating their revenues from advertising and not subscriptions. But as the advertisers have melted away like an ice cream cone in summertime, Bezos focuses on the ultimate customer: the reader. If he can figure out a way to customize content for his readers (i.e., Amazon’s “recommended purchases” based upon a reader’s previous purchases) he might just discover the Post’s salvation.
Last year circulation revenues (but not advertising revenue) increased by 5%, the first gain in nearly ten years, and the slide in overall revenues slowed to just 2% over the previous year. The waterfall in overall revenues projected by the good economist Mark Perry might possibly have overstated significant further declines.
One comment from The Economist is revealing. Gordon Crovitz builds pay walls for newspapers and so has his hand directly on the pulse of the business. He said that now “is a better environment for buyers than it was even a year ago.”
Perhaps Bezos (and Henry) didn’t overpay after all.