Transcript No Slide Title

VALCON 2010
Restructurings and the Media Sector
February 26, 2010
Thomas J. Allison
Moderator
Mesirow Financial Consulting, LLC
Panelists:
William Lisecky
Oppenheimer & Co. Inc. – New York, NY
Thomas E. Hill
Alvarez & Marsal North America, LLC – Chicago, IL
David L. Eaton
Kirkland & Ellis LLP – Chicago, IL
1
Discussion Topics
The Current State of the Print Media Industry
• Transition from Print to Digital Media
• Declining Advertising & Circulation Revenue
• Financial Instability & Bankruptcy
Evolution of Media Operating Models
• “Content Providers”
• Strategic Partnerships
• Leveraging Technology to Generate Revenue
• The Competitive Landscape for Media Companies has Broadened
Valuation trends
2
The Transition from Print to Digital Media
As many media company’s struggle to find new opportunities to offset declining advertising,
circulation and other revenues, they will also need to create innovative ways to reach
consumers.
The Esquire: Augmented Reality
The Sports Illustrated App for the iPad developed by Wonderfactory
3
The Transition from Print to Digital
– A recent study by the Boston Consulting Group found that 48% of regular Internet users in the United States would
pay to read the news online
– Online

The WSJ has set up a “pay wall” charging consumers for access to online content
-
Rupert Murdoch believes that quality content should cost money
– Mobile Phones (via dedicated “Apps” or via mobile internet browsers)

The WSJ will begin charging for mobile phone “App” access in addition to their online wsj.com site access ($1.00
per week if you are also an online subscriber or $2.00 per week if not)
– E-Reader / Internet Tablets (Kindle, Nook, Sony, pending Apple I-PAD, etc.)
-
Is there room for another consumer electronic device in additional to smart phones & laptops?
-
Will the next generation of these devices be a game-changer? How long will it take for this device to
penetrate the market?
-
Recently, five magazine publishers (News Corp., Time Warner Inc., Conde Nast Publications Inc., Hearst
Corp., and Meredith Corp.) announced they are creating a digital store with common technology and
advertising standards to sell their titles
– Integration of Advertising with Digital Content

4
How successfully publishers integrate advertising onto these platforms could determine the winners and losers
Traditional Media Vs. New Media
• Traditional Media Companies have been losing market capitalization to “New Media” (ie Google).
0
$343.4
$350
$400
$400
$343.4
$350
$350
$400
$400
$400
Market Capitalization of Google vs. Traditional Media Companies
$343.4
$343.4
$350
$327.1
$302.8
$350
$343.4
$302.8
$350
$343.4
$302.8
0
$300
$300
$300
$300
$300
0
$250
$250
$250
$250
$250
$302.8
$302.8
$302.8
$300
$150 $141.0
0
$200
$200
$216.3
$200
$150 $141.0
$150
$141.0
$150
$141.0
($ in Billions)
$200
($ in Billions)
($ in Billions)
0
($ in Billions)
($ in Billions)
$268.5
$250
($ in Billions)
0
$400
$216.3
$200
$150 $141.0
$216.3
$216.3
$100
$100
0
$50
$50
$50
$50
$50
$50
$0
2006 $0
$0
2006 2007
20062007
1905 2006
Large-Cap Media
$141.0
$127.5
$96.8
$100
2006
$141.0
$127.0
$100
$100
$0
2006
$196.7
$171.4
$150
$127.5
$100
2006
$0
2007
2006
20072006
$216.3 $216.3
$200
0
0
$216.3
$127.5
$122.5
$96.8
$0
2006
2008
2007
2008
2006
2007
20072008
2008 2007
1905 2006
1905 2007
1905
$127.5
$122.5
$121.8
$96.8
$127.5
$127.5
$122.5
$121.8
$96.8
$122.5
$121.8
$122.5
$121.8
$121.8
$96.8
$96.8
$96.8
2007
YTD
2008
2007
YTD 2008YTD
2008
YTD
2008YTD
2007 2008
2008
1905 YTD
19052008
2008
1900 2009
YTD
YTD
Large-Cap
Public
New spaper Public
Google,
Inc. Public
Television
Public New
spaperLarge-Cap
Inc. Large-Cap
Public
Media
Television
Public
Public
New
Media
spaper
Radio Media
Public
Google,
New
spaper
Inc.
Google,
Television
Inc.
Public
Public
Television
Radio Public Radio
Public Total
Radio
Large-Cap
Media
PublicGoogle,
New
Media
spaper
Public
Google,
New
spaper
Inc. Large-Cap
Public
Google,
Television
Inc.
Public
Public
Television
Radio
Public
Radio
Source: FactSet, Year end 2006, 2007, 2008 and 2009
Note: Large-Cap Media is comprised of the following companies: NWS, CBS, VIA, DIS, TWX
Radio Index is comprised of the following companies: BBGI, CMLS, EMMS, ETM, ROIA, RGCI and SALM
Television Index is comprised of the following companies: BLC, EVC, GTN, HTV, TVL, NXST and SBGI
Newspaper Index is comprised of the following companies: AHC, GCI, GHSE, JRN, LEE, MEG, MNI, NYT, SSP and WPO
5
$121.8 $122.5
YTD
YTD
April 2009
2009
U.S. Advertising Expenditure vs. Nominal GDP Growth
• Changes in advertising expenditure are typically correlated to movements in nominal GDP, but changes in advertising
expenditure demonstrate much greater variability than changes in nominal GDP
20.0%
15.0%
10.0%
5.0%
0.0%
(5.0%)
(10.0%)
(15.0%)
% Change in Ad Exp
Source: MAGNA; Bureau of Economic Analysts; J.P. Morgan estimates.
6
% Change in GDP
2010E
2009E
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
(20.0%)
Circulation- Declining Readership
• Newspaper readership has been falling for decades in the U.S. as the number of news/ information sources have
proliferated.
Daily Newspaper Readership % Amongst Adults
90%
80%
81%
70%
60%
50%
48%
40%
Source: Newspaper Association of America
7
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977/78
1973
1970
1964
30%
Advertising Dollars Follow Consumer Media Consumption
Advertisers tend to follow their customers wherever customers are spending time
• As highlighted in the chart above, a typical person spends 1/3rd of his/her total media time on the
Internet, yet, the Internet currently attracts only 12% of total advertising budgets. This gap is
expected to close over the next 18-36 months as advertisers continue to follow their customers
Source: Forrester Research.
8
Declining Advertising Expenditure
•
Newspapers are experiencing a significant decline in advertising revenues (which generally comprises 70% of total revenue).
•
The continued challenges in the U.S. economy has led to advertising expenditure declines across all media sectors. The
substantial decline of advertising spend in the newspaper industry has been due to both cyclical factors and secular changes
Year
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
National
5,996
7,005
7,505
7,910
8,083
7,797
7,210
7,004
7,653
6,732
5,721
Expenditures (USD mil)
Retail Classified Online
18,769
9,975 3,109
21,018
14,186 3,166
22,121
16,986 2,664
22,187
17,312 2,027
22,012
16,608 1,541
21,341
15,801 1,216
20,994
15,898
20,679
16,622
21,409
19,608
20,907
18,650
20,331
17,873
-
Source: Newspaper Association of America.
9
Total
37,849
45,375
49,276
49,436
48,244
46,155
44,102
44,305
48,670
46,289
43,925
National
(14.4%)
(6.7%)
(5.1%)
(2.1%)
3.7%
8.1%
2.9%
(8.5%)
13.7%
17.7%
7.7%
Year- Over -Year % Change
Retail Classified Online
(10.7%)
(29.7%) (1.8%)
(5.0%)
(16.5%) 18.8%
(0.3%)
(1.9%) 31.4%
0.8%
4.2%
31.5%
3.1%
5.1%
26.7%
1.7%
(0.6%)
1.5%
(4.4%)
(3.4%)
(15.2%)
2.4%
5.1%
2.8%
4.3%
5.7%
6.6%
-
Total
(16.6%)
(7.9%)
(0.3%)
2.5%
4.5%
4.7%
(0.5%)
(9.0%)
5.1%
5.4%
6.3%
Newsprint Pricing Moving into 2010
•
Decreasing newsprint prices have been a bright spot for publishers in 2009, helping to offset revenue losses and
stabilize cash flow margins
•
Major suppliers announced a series of price increases in the latter part of 2009 and it is yet to be determined if these
increases can hold going into 2010. Any increase in price will have a detrimental impact on publishers cashflows.
Standard 30lb. Newsprint Price ($/ton)
$800
$750
$700
$650
$600
$550
$500
$450
$400
1/2/2007
7/2/2007
Source: Foex Pricing Index
10
1/2/2008
7/2/2008
1/2/2009
7/2/2009
Media Industry—Financial Instability Led to Several Bankruptcy Filings in 2009
11
Legacy issues: Antiquated labor structure
• Mature union relationships. The unions tend to be "old-line" organizations, such as the communications workers, graphic
artists, typographers, machinists, Newspaper Guild, etc.. These unions, including some of the bargaining unit employees,
likely will have been involved in significant labor disputes with the employer in the past, and won many of them.“
• Adversarial bargaining relationships. Union-management relationships tend to be adversarial, and the Unions demanding
and insensitive to changed and changing economic realities confronting the industry, and often protecting union
membership in bargaining units that are declining in size.
• Union Jurisdictional Disputes. Lines have blurred between the different types of bargaining units (e.g., typesetters,
lithographers, machinists, operators, technicians), and newspaper unions tend to have been slower to adapt fully to the
fundamental changes in the newspaper business that have led to this blurring. With restructuring, the employer often has
leverage enough to complete this transformation union jurisdictional disputes (i.e., which union "owns" the work) can be
anticipated, as each separate union seeks to preserve its representational status at the expense of the others.
• Onerous collective bargaining agreements. CBA's tend to be long and complex, with types of provisions that reduce
operational efficiency, raise costs and impede cost-cutting efforts.
a. Ever-escalating wage rates that fail to account for business downturns
b. Strict work rules (that restrict, e.g., management's ability to schedule work, require overtime, transfer employees
between jobs, maintain and repair equipment, introduce technology advancements, subcontract or relocate
bargaining unit work, implement short-term furloughs/layoffs based on work loads, etc.)
c. Strict seniority rules (that tend to insulate longer-tenured employees from even-handed enforcement of disciplinary
and performance standards)
d. Costly employee benefits plans (above-market vis-a-vis other industries), e.g., health insurance, disability benefits,
severance pay, vacation, paid sick/personal leave, training/tuition reimbursement, etc.
12
Print Media Industry: Response to Current market
• Cost Cutting Initiatives - Aligning expenses with the new revenue realities has been the focal point of publishers for the past year
– Headcount reductions, furloughs, suspension of benefits are all tactics that have been undertaken by publishers as they seek
to streamline operations and maintain positive cash flow
– Centralize certain back office and editorial operations across all publications (e.g., sales support staff and writers and editors
for national news)
– Web width reductions have become common practice in the industry, as newspapers seek to shrink the size of the pages
within the newspaper
– Decrease the number of pages printed as well as increase the ratio of advertising to editorial content
– Vendor concessions have also produced cost-savings for newspaper publishers
– Negotiate labor concessions with unions
– Defer capital expenditures and reduce discretionary spending
– Modify advertising pricing programs and provide discounts to incent advertisers to continue to spend
– Increase single-copy (newsstand) and home delivery price for newspaper; however, increased price leads to reduced
circulation, so need to evaluate potential net impact on revenue
• Debt Restructuring - As the credit markets have thawed in the latter half of 2009 newspaper publishers have increasingly looked
to restructure their debt profile, either through refinancing to push out maturities or straight buy-backs of debt at depressed
prices
– Gannett completed a $500mm senior note offering in October 2009 aimed at refinancing existing debt
– In March 2009 , New York Times redeemed $250mm of notes due 2010 at a discount with proceeds from a sale/leaseback
transaction
– Minneapolis Star Tribune emerged from bankruptcy in September 2009 with its main lenders becoming the new owners and
its debt level reduced by 80%
– In May 2009, McClatchy announced an exchange offer for over $1bn in outstanding public notes at a significant discount
13
Evolution of Media Operating Models
Market Factors / Trends
Historical
Operating
Model
 Print media dominated the industry;
Current
Operating
Model
 Influence of print media continues to decline as online
media expands;
 Revenue driven by print advertising and circulation;
Valuation Concepts
 Traditional valuation methods (discounted cash
flows, comparable public companies, comparable
transactions) historically utilized in this industry
 Online media less influential
 Many newspapers/publishers forced into bankruptcy
due to reduced revenue, high levels of debt, and high
fixed costs;
 Companies focused on decreasing leverage,
improving efficiencies, implementing cost-cutting
measures, and enhancing online content
 Valuation methods are currently challenging for
newspapers/publishers due to negative cash flows
and/or negative EBITDA, which leads to more asset
based valuations (including liquidation valuations);
 The Chicago Sun Times was sold in October 2009
through a §363(a) transaction for approximately
$26.0 million, which was close to it’s forced
liquidation value
 Move toward strategic partnerships (e.g. Chicago
Tribune’s distribution partnership with the Chicago
Sun Times)
Future
Operating
Model
 Growth in online media expected to continue;
 Customers want mobile access to content/information
(i.e. iPhone, iPad, Kindle, WSJ online, etc);
 Local news/content may be able to generate a
premium for newspapers/publishers;
 Charging for online content a relevant issue
14
 Valuations will remain challenging as the industry
evolves and the economy continues to recover;
 Industry consolidation likely to continue;
 Eventually industry will stabilize and traditional
valuation methods will return
The Web and the Creation of Content Aggregators
Content Providers vs. Content Aggregators
Among the top Internet Properties, the vast majority aggregate content from outside sources and repackage it into well
organized and often customizable websites
Original content providers now create material especially for the Internet or reconstitute their content for online consumption
Subscriptions on the Internet are like traditional subscription models; users pay to obtain content that they would not be able
to get elsewhere
– Over the past few years, users have shown a general reluctance to pay for online content, however, a variety
of entities such as ESPN, RealNetworks Inc., and the Wall Street Journal, have shown that Internet users will
pay for online content if it is unique, compelling, and reasonably priced
– A la carte purchasing options, whereby users pay for a specific article or song, are growing increasingly
prevalent, largely as a result of the success of Apple Inc.’s iTunes and individual applications for mobile
devices
Top 25 U.S. Web Properties by Unique Visitors, January 2010 (in Thousands)
1.
174,253
6.
95,665
11.
76,065
16.
55,845
21.
46,843
2.
164,088
7.
86,605
12.
72,992
17.
51,327
22.
41,512
3.
141,052
8.
83,626
13.
68,557
18.
50,000
23.
40,997
4.
112,442
9.
82,432
14.
66,862
19.
47,641
24.
38,808
5.
110,420
10.
77,578
15.
57,661
20.
47,525
25.
37,370
Source: comScore.
15
Strategic Partnerships
• As advertising and circulation revenue continue to shift away from newspapers, publishers must shift their focus
toward increasing their online presence and attracting advertisers and readers with online products; initiatives include:
– Some publishers have formed cooperatives in order to leverage buying power and create new online ventures
aimed at traditional Classified arenas
 Careerbuilder.com, a nationally recognized online avenue for employment postings and placements, is jointly
owned by Tribune Co., Gannett and McClatchy
 Classified Ventures, LLC is an operator of web portals which provide classified advertising for autos and real
estate. Significant assets include Cars.com, Apartments.com and Homegain.com. Classified Ventures is jointly
owned by Tribune Co., Gannett, McClatchy, The Washington Post and Belo Corp.
– These initiatives have seen some success, however publishers have not been able to come close to effectively
replacing lost Classified revenues
 Competition with free sites such as Craigslist has limited the monetary success of pay-sites
– Bundling pricing for advertisers to promote both newspaper and online advertising to minimize loss of newspaper
advertising
– Many publishers have hired specialized sales personnel to sell online advertising
– Publishers have also partnered with internet leaders such as Google and Yahoo! in an attempt to maximize online
revenue
16
Valuation Trends
•
Valuations in the newspaper industry have been declining over the past several years with an increase seen in 2009
related to improving advertising revenue trends as well as improving cashflow margins related to cost cutting/deleverageing initiatives.
Price (1)
@2/18/10
Company
52 - Week
High
Low
Market
Value (2)
Firm
Value (3)
LTM
Firm Value / Revenue
CY 2009E
CY 2010E
Firm Value / EBITDA
CY 2009E
CY 2010E
LTM
E W Scripps Co.
$6.98
$9.00
$0.67
382
384
0.5 x
0.5 x
0.5 x
9.3 x
6.6 x
Gannett Co.
15.27
17.33
1.85
3,607
6,759
1.2
1.2
1.3
6.4
6.6
7.1
Lee Enterprises
3.72
4.77
0.24
168
1,262
1.6
NA
NA
7.3
NA
NA
Media General
8.57
11.65
1.25
195
905
1.3
1.4
1.4
9.1
9.2
7.6
The McClatchy Company
10.2 x
5.16
6.28
0.35
442
2,170
1.4
1.5
1.7
6.8
6.6
7.7
11.13
14.87
3.44
1,609
2,368
0.9
1.0
1.0
7.7
8.1
8.3
416.80
495.60
300.16
3,919
3,377
0.8
NA
NA
6.3
NA
NA
Median
$442
$2,170
1.2 x
1.2 x
1.3 x
7.3 x
8.1 x
7.6 x
Mean
1,475
2,461
1.1
1.1
1.2
7.7
8.0
7.5
The New York Times Company
Washington Post
Historical EV / LTM EBITDA
12.0x
9.9x
10.2x
8.8x
8.0x
7.9x
6.7x
4.0x
0.0x
2005
2006
2007
2008
Note: LTM = Latest Twelve Months
NM = Not Meaningful; NA = Not Available
(1) Stock price as of February 18, 2010
(2) Market Value reflects fully diluted shares (common shares outstanding, options, warrants, in-the-money convertibles)
(3) Firm Value (FV) equals Market Value plus debt less cash
Newspaper index includes GCI, LEE, MEG, MNI, NYT, SSP, and WPO
Newspaper index includes BLC, GCI, GHS, JRN, LEE, MEG, MNI, NYP, SSP, and WPO
17
2009
Net Debt / EBITDA
Valuation Trends
•
The following table demonstrates valuations in the newspaper industry since 2002:
Date
Jan-10
Oct-09
Oct-09
Jun-09
Mar-09
Mar-09
Sep-08
May-08
Dec-07
Oct-07
Oct-07
Aug-07
Jun-07
May-07
Apr-07
Apr-07
Jan-07
Jan-07
Dec-06
Dec-06
Oct-06
Jun-06
Jun-06
Jun-06
Jun-06
Jun-06
May-06
Apr-06
Mar-06
Jul-05
May-05
Jan-05
Jul-04
Jun-04
Apr-04
Jan-04
May-03
Oct-02
Apr-02
Apr-02
Feb-02
Acquiror Name
Stephens Capital Partners
Carpenters' Union Pension Fund
Sun-Times Media Holdings
Creditors
Tennessee Valley Printing
Platinum Equity
Journal Community Publishing Group
Cablevision
Shaw Suburban Media Group
GateHouse Media
Hearst Corp.
Arlington Capital Partners
American Consolidated Media
News Corp.
GateHouse Media
Investor group led by Sam Zell
Courtside Acquisition Corp.
Macquarie Media Group
Avista Capital Partners
GateHouse Media
Community Newspaper Holdings
Wilkes-Barre Publishing Company
Schurz Communications
Sound Publishing Holdings
Forum Communications
The Nutting Company
Philadelphia Media Holdings
Media News & Hearst
McClatchy
Community Newspaper Holdings
Fortress Investment Group
Lee Enterprises
Journal Register
Hollyrood Holdings
Wicks and Wachovia Capital Partners
McClatchy
Dow Jones
New York Times
Eagle-Tribune
Lee Enterprises
Community Newspaper Holdings
Target Name
Transaction
Implied EV /
Value
LTM EBITDA
News-Journal Corporation
Philadelphia Newspapers
Sun-Times Media Group
American Community Newspapers
TimesDaily & TimesDaily.com (The New York Times Regional Media Group)
Union-Tribune Publishing Company (The Copley Press)
Waupaca Publishing Company
Tribune (Newsday)
Lee Enterprises (DeKalb Daily Chronicle)
Morris Publishing Group (dailies and weeklies in 8 states)
Southern Connecticut Newspapers
Daily Racing Form
Superior Publishing (19 newspapers) & Grove Sun (4 newspapers)
Dow Jones
Gannett, 4 publications
Tribune Company
American Community Newspapers
American Consolidated Media
Minneapolis Star Tribune (McClatchy)
Journal Register Company, 7 publications
Dow Jones, 6 publications
Wilkes-Barre Times Leader (McClatchy)
Aberdeen American News (McClatchy)
Akron Beacon Journal (McClatchy)
McClatchy, 2 publications
The News Sentinel (McClatchy)
McClatchy, 2 publications
McClatchy, 4 publications
Knight Ridder Inc
Eagle-Tribune Publishing
Liberty Group Publishing
Pulitzer
21st Century Newspapers
Telegraph Group
Heartland Publications (Community Newspaper Holdings)
Merced Sun-Star
The Record of Stockton, CA
Washington Post - 50% share of Int'l Herald Tribune
Dow Jones - Essex County Newspapers
Howard Publications
Dow Jones, 4 publications
$20.0
30.0
26.5
32.0
11.5
NA
7.0
650.0
24.0
115.0
62.4
200.0
65.0
5,729.2
410.0
6,323.8
165.0
79.3
530.0
78.3
282.5
65.0
28.0
190.0
139.4
92.6
562.0
1,000.0
6,042.7
NA
480.0
1,460.0
415.0
1,244.7
90.0
40.5
144.0
65.0
70.0
694.0
182.0
Mean:
Median:
18
NA
NA
NA
NA
NA
NA
NA
8.1x
14.0
8.2
NA
NA
10.3
19.7
11.6
7.1
12.8
11.6
6.5
9.7
11.3
8.3
21.5
9.5
10.7
11.9
10.0
11.5
9.6
NA
10.3
13.5
11.9
20.3
NA
16.2
13.6
NA
10.0
11.5
13.0
11.9x
11.5x
“New Media” vs. “Traditional Media”—Historic Valuation Metrics
Average TEV/EBITDA
100.0x
50.0x
80.3x
47.9x
40.2x
29.5x
8.0x 12.5x 6.8x
11.6x
13.5x
9.3x
0.0x
2001
2003
"New Media" Average
Source: CapitalIQ.
19
2005
2007
2009
"Traditional Media" Average
“New Media” includes:
“Traditional Media” includes:
Google, Yahoo, Apple
Gannett, Washington Post,
New York Times
“New Media” vs. “Traditional Media”—Historic Valuation Metrics
Return on Assets
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
(2.0%)
(4.0%)
14.2%
12.3%
10.4%
7.7%
6.1%
6.9%
11.3%
5.8%
2.8%
2001
(2.9%)
2003
"New Media" Average
2005
2007
2009
"Traditional Media" Average
“New Media” includes:
“Traditional Media” includes:
Google, Yahoo, Apple
Gannett, Washington Post, New
York Times
In 2001, YHOO and AAPL both suffered 30-35% revenue declines Y/Y resulting from the macro tech
environment. As a result, both companies suffered financial setbacks as reflected in their financial
statements and financial ratios
Source: CapitalIQ.
20
Questions and Answers
21
Appendix
22
Circulation Revenue Continues to Decline
As total paid circulation continues to decrease, advertisers will continue to search for new mediums to
reach consumers
• From 1998-2008, the Average Year/Year % Circulation Decline was 1.5% for Daily Papers and 2.0% for Sunday
Papers
• From 1998-2008, the Total Circulation Decline was 15.6% for Daily Papers and 22.3% for Sunday Papers
Total Paid Circulation
Number of Daily and Sunday Newspapers
Daily
Year
Morning
Evening
Total
Newspapers
Morning (000)
Total (000)
% Decline
Total (000)
898
60,066
% Decline
1,489
45,643
10,539
56,182
1999
736
760
1,483
45,997
9,982
55,979
-0.4%
905
59,894
-0.3%
2000
766
727
1,480
46,772
9,000
55,773
-0.4%
917
59,421
-0.8%
2001
776
704
1,468
46,821
8,756
55,578
-0.4%
913
59,090
-0.6%
2002
777
692
1,457
46,617
8,568
55,186
-0.7%
913
58,780
2003
787
680
1,456
46,930
8,255
55,185
0.0%
917
58,495
-0.5%
2004
814
653
1,457
46,887
7,738
54,626
-1.0%
915
57,754
-1.3%
2005
817
645
1,452
46,122
7,222
53,345
-2.4%
914
55,270
-4.5%
2006
833
614
1,437
45,441
6,888
52,329
-1.9%
907
53,179
-3.9%
2007
867
565
1,422
44,548
6,194
50,742
-3.1%
907
51,246
-3.8%
2008
872
546
1,408
42,757
5,840
48,597
-4.4%
902
49,115
-4.3%
-1.5%
-15.6%
-
Trend
781
Trend
721
Source: Editor and Publisher International Yearbook.
-
Total Newspapers
1998
Average Year/Year % Decline
Total Circulation Decline from 1998-2008
23
Evening (000)
Sunday
-0.5%
-2.0%
-22.3%
Circulation- Declines Since 2007
•
Although circulation figures had been slowly falling for years, the pace of declines has increased rapidly since 2007
•
Publishers have sought to fight against declining circulation revenue by increasing subscription and single copy prices
significantly through 2008 and 2009
•
While price increases have helped to stem circulation revenue losses , many publishers fear they are testing the upper
bounds of how much loyal customers are willing to pay for a physical newspaper
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Newspaper
Wall Street Journal
USA Today
New York Times
Los Angeles Times
Washington Post
Daily News (NY)
New York Post
Chicago Tribune
Houston Chronicle
New York Newsday
Pheonix Republic
Minneapolis Star Tribune
Chicago Sun-Times
Plain Dealer (Cleveland)
Detroit Free Press
Boston Globe
Dallas Morning News
San Francisco Chronicle
Star-Ledger (Newark, N.J.)
Union-Tribune (San Diego)
Sep-09
2,024,269
1,900,116
927,851
657,467
582,844
544,167
508,042
465,892
384,419
357,124
316,874
304,543
275,641
271,180
269,729
264,105
263,810
251,782
246,006
242,705
Sep-08
2,011,999
2,293,312
1,000,666
739,147
622,714
632,595
625,428
516,031
448,271
377,517
361,332
322,358
313,174
305,528
298,243
323,980
338,932
339,430
316,281
269,820
YOY Change
Sep-07
2009-2008
2008-2007
2,011,882
0.6%
0.0%
2,293,137
-17.1%
0.0%
1,037,828
-7.3%
-3.6%
779,678
-11.1%
-5.2%
635,012
-6.4%
-1.9%
681,415
-14.0%
-7.2%
667,118
-18.8%
-6.2%
559,402
-9.7%
-7.8%
507,452
-14.2%
-11.7%
387,498
-5.4%
-2.6%
382,415
-12.3%
-5.5%
336,697
-5.5%
-4.3%
326,018
-12.0%
-3.9%
334,195
-11.2%
-8.6%
320,125
-9.6%
-6.8%
360,696
-18.5%
-10.2%
373,586
-22.2%
-9.3%
365,234
-25.8%
-7.1%
353,005
-22.2%
-10.4%
278,176
-10.0%
-3.0%
Top 20 Average Change
Source: JP Morgan Equity Research October 2009
24
-12.6%
-5.8%
Advertising Mix Continues to Shift
• The adverting media mix has changed dramatically over the past 30 years
– In 1980, newspapers and magazines (“Print Media”) were the largest mediums, comprising 38% and 16%,
respectively, of the overall advertising market, as compared to 16% and 10% in 2009
– Revenue for Print Media has decreased by approximately $29.0 billion (-41.3%) since 2000, while online media has
increased by $14.9 billion (183.9%)
– Online media is now one of the largest mediums behind TV and newspapers, with 14% of the overall mix

The growth of online media is expected to continue in the future, potentially surpassing newspapers in 2010
– The trend toward online media is expected to continue in the future
($ in billions)
Medium
Newspaper
1980
$14.8
% of Total
38%
1990
$32.3
% of Total
34%
2000
$48.7
% of Total
27%
2009E
$25.6
16%
Radio
3.6
9%
8.8
9%
19.9
11%
14.0
9%
Magazines
6.1
16%
12.2
13%
21.6
12%
15.7
10%
National Broadcast/Syndicated TV
4.1
11%
9.2
10%
15.7
9%
15.1
9%
Local Broadcast TV (a)
4.4
11%
9.9
11%
17.8
10%
12.5
8%
Cable TV
0.1
0%
2.6
3%
12.2
7%
20.1
12%
Outdoor
1.0
3%
2.6
3%
5.2
3%
6.1
4%
Direct Mail
2.4
6%
8.6
9%
16.6
9%
19.2
12%
Directories
2.5
6%
7.7
8%
12.4
7%
10.7
7%
Other online media (b), (c)
0.0
0%
0.0
0%
8.1
5%
23.0
14%
Total
$39.1
100%
$93.9
100%
$178.2
100%
$162.0
(a) Includes Political and Olympic spending, (b) Includes Lead generation, internet yellow pages, paid search and local online revenues, (c) Online
revenues for each media are included in this line item.
Source: Brian Wieser, MAGNA, July 2009.
25
% of Total
100%
Media Industry—Financial Instability Led to Several Bankruptcy Filings in 2009
($Millions)
Assets
Liabilities
Company Name
Company Description
Clinton, Conn.-based Heartland, a daily and weekly newspaper publisher
primarily in the Southeast and Midwest regions, filed for bankruptcy
because its revenue has steadily decreased as advertisers retreat from
print products.
100.00
$ 100.00
12/21/2009
Canwest Global Communications Corp.
500.00
50.00
10/6/2009
Winnipeg, Manitoba-based newspaper and television media company.
Questex Media Group Inc.
100.00
100.00
10/5/2009
Newton, Mass.-based Questex Media, a trade magazine publisher.
33.15
85.98
9/14/2009
Lawrenceville, Ga.-based Triple Crown Media, a publisher of seven
newspapers.
757.00
1,077.00
9/1/2009
2,200.00
3,400.00
8/24/2009
8.46
10.00
5/1/2009
Vancouver, Wash.-based Columbian Publishing, which publishes The
Columbian daily newspaper.
50.00
100.00
4/28/2009
Addison, Texas-based American Community, a newspaper publisher.
Sun-Times Media Group Inc.
479.00
801.00
3/31/2009
Chicago-based Sun-Times Media Group, the owner of the Chicago SunTimes newspaper.
Philadelphia Newspapers LLC
333.69
432.48
2/22/2009
Philadelphia-based Philadelphia Newspapers, which publishes the
Philadelphia Inquirer and Philadelphia Daily News.
Journal Register Co.
142.18
706.27
2/21/2009
Yardley, Pa.-based Journal Register, a newspaper owns 20 daily
newspapers and more than 150 other publications.
Star Tribune Holdings Corp.
493.20
661.10
1/15/2009
Minneapolis, Minn.-based Star Tribune Holdings, publisher of the
Minneapolis Star Tribune which is Minnesota’s largest newspaper and
ranks 15th nationally by daily circulation.
Heartland Publications LLC
Triple Crown Media Inc.
Freedom Communications Holdings Inc.
Reader's Digest Association Inc.
Columbian Publishing Co.
American Community Newspapers LLC
26
$
Filing date
Irvine, Calif.-based Freedom Communications, a newspaper publisher
and television station operator.
Pleasantville, N.Y.-based Reader's Digest, a multi-brand media and
marketing company.
Growing Trend Toward Advertising on the Internet
As stated above, total U.S. Internet advertising as a percentage of total U.S. advertising is
estimated to increase from 7.6% in 2007 to 12.6% in 2012
The main reason for the migration of advertising dollars from traditional media to the
Internet:
• The Internet allows advertisers to deliver their market communication messages
to their target audiences in the most effective, timely, and cost-efficient way with
a high degree of measurability
Source: Universal McCann; IAB & PricewaterhouseCoopers; Collins Stewart LLC estimates.
27
Response to the Current Market: in their own words
– Excerpted from the Reader’s Digest Disclosure Statement:
– “The debtors and their predecessors have been at the forefront of the highly-competitive media and direct marketing
industry for more than 80 years and, as a result, have engendered strong brand loyalty among their customers and
established substantial credibility among distributors, marketing partners and competitors. The Debtors also recognize that
the traditional publishing supply chain is evolving, in some cases rapidly, to keep pace with the digitalization of popular
culture. As more and more consumers access media through digital channels, the Debtors’ online presence has grown
commensurately. With 65 branded websites and strategic allegiances with leading Internet destinations, the Debtors
believe they are uniquely able to capitalize on their iconic heritage and trusted brands, and leverage their media and
marketing expertise to expand into multi-platform brands in the medium that best suits the “networked generation.”
– “Through expanded digital investments and the development of new mobile, video and multimedia applications, including
rolling out a new suite of products under the “Reader’s Digest Version” banner, the Debtors are well-positioned to satisfy
the growing consumer preference for on-demand, easily digestible content in a flexible format (e.g., accessible, quick-hit
content delivered through new media channels such as social networks, blogs and tags) and expand market penetration
and grow brand equity in a new, younger consumer market.”
28
“New Media” vs. “Traditional Media”—Current Valuation Metrics
"New Media"
Company
TEV/EBITDA
P/BV
Return on Assets %
Return on Equity %
Total Debt/Equity
Total Liabilities/Total Assets
LTM
Dec-31-2009A (1)
LTM
Dec-31-2009A (1)
LTM
Dec-26-2009A
Google
Yahoo
Apple
Average
14.6x
4.7x
12.0x
1.7x
10.8x
4.9x
12.5x
3.8x
14.4%
20.3%
NA
11.1%
2.2%
5.0%
0.7%
16.4%
17.3%
31.9%
NA
33.7%
11.3%
19.1%
0.7%
20.4%
"Traditional Media"
Company
TEV/EBITDA
P/BV
Return on Assets %
Return on Equity %
Total Debt/Equity
Total Liabilities/Total Assets
LTM
Dec-27-2009A (1)
LTM
Sep-27-2009A
LTM
Sep-27-2009A
Gannett
Washington Post
New York Times
Average
6.0x
2.3x
6.7x
1.4x
7.8x
3.4x
6.8x
2.4x
NA
29.2%
240.3%
NA
2.4%
1.0%
13.9%
43.5%
3.3%
(6.7%)
187.4%
84.4%
2.8%
7.8%
147.2%
63.9%
Notes:
(1) Financial information taken from company press release.
Source: CapitalIQ.
29