Washington Post Puts Newsweek on the Block

Potential Buyers Unknown for Unprofitable Magazine With Liability of High Subscriber Base

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NEW YORK (AdAge.com) -- The Washington Post Co. has put Newsweek up for sale, according to Chairman Donald E. Graham. He said today the venerable news weekly would lose money again in 2010 and "might be a better fit elsewhere."

Unfortunately, Newsweek's eventual purchase price could be a repeat of recent deals that revealed how far a mighty magazine brand had fallen in value. TV Guide, for example, sold in 2008 for $1.

"I can't tell you that it's more than a buck, unfortunately," said Reed Phillips, managing partner at media investment bank DeSilva & Phillips, referring to Newsweek's potential price tag.

"I think there's precedent out there now, with the sale of TV Guide and BusinessWeek, which sold for under $5 million," Mr. Phillips said. "And again, there may have been only one buyer willing to pay anywhere near that amount in the case of BusinessWeek."

Unpleasant choices
Ann McDaniel, managing director of Newsweek and senior VP at the Washington Post Co., said price was not the only concern. "As a public company, we must pay attention to the return to our shareholders," she said. "But as Don told the staff this morning, there are two other extremely important criteria -- one, a good home for Newsweek and Newsweek.com, and two, a good home for the employees for Newsweek."

In both the case of TV Guide and BusinessWeek, buyers were presented with unprofitable titles carrying significant obligations to existing subscribers -- a factor that must also be on any potential Newsweek buyer's mind. The publication reported an average of 1.9 million subscribers over the final six months of last year, according to the Audit Bureau of Circulations.

"That would be the main reason to put it up for sale rather than shutting it down," Mr. Phillips said. "The issue with shutting it down, for a company like Washington Post, would be that they have to refund money to subscribers who already paid. I think their primary objective is not to see any objectives from the sale but to off-lay the subscription liability to someone else."

The most likely potential buyers for Newsweek aren't obvious, but they are possible to imagine. OpenGate Capital, the owners of TV Guide, might figure that if they can turn around one troubled weekly, they can turn around another, Mr. Phillips said. Perhaps more intriguing, Thomson Reuters might take a look at what Bloomberg did in acquiring BusinessWeek and decide Newsweek could become a new outlet for Thomson Reuters journalism.

One piece of good news for Newsweek today came from a powerful media agency executive who said uncertainty around the sale effort would not hurt his agency's interest in advertising with the title.

"Of course, we will follow the developments on a potential sale closely," said Antony Young, CEO of Optimedia US, a major media agency. "But we don't expect it will impact our day-to-day dealings with Newsweek. We buy a brand and an audience. Nothing we can see is materially changing in the immediate term."

The Washington Post Co. made its announcement one year after Newsweek executed a dramatic redesign to its print edition's look, editorial mission and business model. "We will no longer reflexively cover the week's events if we don't have something original to add," Newsweek told readers then. "But readers will still find reported pieces like our recent cover story on Eliot Spitzer's life after politics." Persuasive informed essays such as "The Decline and Fall of Christian America" would become more frequent. And it committed to cut its paid print circulation guarantee to 1.5 million from 2.6 million. "For decades, Newsweek has succeeded because advertisers wanted to reach our vast audience," Newsweek said. "That strategy is no longer working. Advertisers are seeking more targeted demographic groups."

Time made similar changes earlier on, cutting its paid circulation, for example, by almost 20% back in 2007. "Time continues to be healthy and profitable, and a trusted source of news, reporting and analysis for millions of people in America and around the world in print, online and on the iPad," a Time spokeswoman said, when asked whether Newsweek's fate today could become Time's eventually. "We had a highly profitable year last year and will have an even more profitable one this year."

The Washington Post Co. today acknowledged Newsweek's new approach of the past 12 months, but still said the title may no longer work as part of its portfolio, which now derives most of its profits from education services like Kaplan while Newsweek and the flagship Washington Post itself lose money. Part of the problem may lie in the structure and content of the rest of the company's portfolio. Units operate independently, for example, not sharing corporate overhead to the degree other companies do.

"The losses at Newsweek in 2007-2009 are a matter of record," Mr. Graham said today. "Despite heroic efforts on the part of Newsweek's management and staff, we expect it to still lose money in 2010. We are exploring all options to fix that problem. Newsweek is a lively, important magazine and website, and in the current climate, it might be a better fit elsewhere."

Michael Wolff predicted during a panel talk in 2008 that Newsweek's life was drawing to a quick close, telling panelists: "If Newsweek is around in five years, I'll buy you dinner." Newsweek editor Jon Meacham saw a different future: "I like steak," he told Ad Age later, "and look forward to dinner."

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