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Updated: Newsweek for Sale

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Citing losses in the “tens of millions,” The Washington Post Co. said it would seek a buyer for Newsweek, dealing the latest blow to the struggling newsweekly category.
 
“The Washington Post Company is preparing to sell Newsweek,” Donald E. Graham, chairman of The Post Co. said in a memo to the staff. “We have reported losses in the tens of millions for the last two years. Outstanding work by Newsweek’s people has significantly narrowed the losses in the last year and particularly in the last few months. But we do not see a path to continuing profitability under our management.”
 
The Post Co. has made a number of cuts at its magazine division, which had a $29.3 million operating loss in 2009. Still, those losses pale in comparison to those at its newspaper division, which includes The Washington Post newspaper (the unit lost $163.5 million the same year). To reduce those losses, the Post Co. sold Budget Travel magazine in December. The 76-year-old Newsweek, which the Post Co. has owned since 1961, has laid off staff; cut its rate base to 1.5 million from 2.6 million; and outsourced its Web site operations to Amazon’s cloud.
 
The company has historically operated its business divisions separately, which might have prevented it from saving costs by combining back-office and other functions across its businesses, like The Washington Post and Slate.com.
 
Still, observers doubt such steps would have helped much, given the difficulties facing mass-reach, print news media, which has contracted as more people get their news from the Internet and with the growth of more targeted news magazines like The Economist and The Week.
 
Newsweek trails in a number of key metrics. Ad pages fell 26 percent to 1,117 in 2009; its circulation fell 27 percent in the six months ended Dec. 31; and its Web traffic lags far behind the big news sites.
 
Its chief rival, 3.3-million circ Time magazine, had a 17.4 percent decline in ad pages in 2009, but still retains a big edge over Newsweek in terms of page volume.
 
The sale news and Newsweek’s problems that underlay it has revived an ongoing conversation about the viability of the news magazine category. All the major players have lowered their rate bases in recent years; USNews & World Report gave up on the category altogether last year, going to a monthly from a weekly publishing cycle.
 
“There’s definitely an open question about whether weekly news magazines can survive,” said Reed Phillips, managing partner at media investment bank DeSilva & Phillips. “You just look at what happened with TV Guide and USNews,” he added, naming two weeklies that have severely diminished in size in recent years. “Right now, it’s like the last man standing is Time magazine.”
 
The Post Co. retained Allen & Co. to explore what Graham said he hoped would be a “rapid sale to a qualified buyer.” Observers said that given the magazine’s fundamental problems, a private equity rather than another publishing company is the most likely to emerge as a buyer.
 
Yet mass-reach publications haven’t had a good track record on the M&A front lately. OpenGate Capital paid Macrovision a token $1 for TV Guide in late 2008 plus an assumption of $9 million in a loan from the seller. Bloomberg LP paid a reported $2 million to $5 million for Businessweek, plus the assumption of liabilities, late last year.
 
“The main thing they offer is the name and a loyal subscriber base,” Phillips said of Newsweek, who estimated its subscription liability at $50 million to $100 million. “It could be that we’re looking at a potential scenario where they have to pay the buyer. You’re selling at a time when most people are trying to decrease their subscriber base.”
 
Ann McDaniel, managing director of Newsweek, dismissed the possibility that no buyer would emerge and that the Post Co. would have to consider shutting the magazine down. “We expect a buyer,” she said in an interview. She said there’s no deadline for a sale.
 
Should that happen, the new buyer will inherit an issue facing all traditional print media: that of evolving the ad-dependent business model to one that has consumers paying more of the freight.
 
“I would hope whoever buys it can put the money into the editorial product and keep it going and improve it and work on the Web site as well and get subscribers to help defray the costs,” said Roberta Garfinkle, svp, director of print strategy, TargetCast. “That’s a dilemma for a lot of people. The issue is to create a product people will be willing to pay for.”

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