In a comment about my Projo valuation story, Jef Nickerson asked a good question:
I think an interesting thing to look at is not so much the loss of valuation, but what exactly was wrong with the world when the Journal was bought for $500 million (and the Times bought the Globe for what, somewhere in the neighborhood of a $billion?). Why did anyone ever think these properties were worth so much? When did the valuations get so out of control?
I won’t claim to be a total expert on this, but I can offer some of the history.
One factor is poor timing. The New York Times Co. paid $1.1 billion for The Boston Globe in 1993, and Belo paid $1.5 billion for The Providence Journal Co. (including its nine TV stations) in 1997. Newspapers still looked to be in good shape then – the World Wide Web was only opened to the public in 1993, and while circulation had been shrinking for years, ad revenue wouldn’t peak until 2005.
Sentiment can play a role, too; the romance of owning a newspaper helped convince Rupert Murdoch to overpay for The Wall Street Journal a few years back. Times Co. executives were enamored with the idea of owning two of the nation’s great papers, which seems to have led them to pay a premium for The Globe. Plus, the newspaper industry had been consolidating for years by the time the two transactions happened.
That said, both purchases did raise eyebrows at the time among skeptics who questioned whether either company should be paying as much as they were.
Belo paid “a very full price” for the Journal Co., one analyst told The New York Times in October 1996, and that same month the paper called the $1.5 billion price tag “a big premium.” And in the case of the NYT-Globe tie-up, this June 1993 Times story shows some experts doubted its wisdom, too:
In all of the places where the $1.1 billion deal was being studied, questions were raised that went to the heart of the modern newspaper business: Will the industry’s once-high profit margins return? Does conglomerate ownership of news-gathering businesses hurt the news? Is the newspaper business still the future?
Again and again, in meetings with securities analysts and in news conferences in Boston and New York, Mr. Taylor, Mr. Sulzberger and their executives worked to convince the skeptics. Why, Times executives were asked again and again, would the company make such a huge investment in a newspaper market so much like New York or, for that matter, in a newspaper at all?
“It is a true diversification,” the president of the Times Company, Lance R. Primis, answered. The economies of Boston and New York, he said, are different. As a strong regional newspaper, The Globe, which is much more dominant in Boston than The Times is in New York, is a different type of paper than any the company has owned before, he said.
And Mr. Primis said there were possibilities for joint distribution, advertising sales and new newspaper ventures like efforts to use the huge amounts of data they collect in new commercial ways.