Mini-round of layoffs at The Dallas Morning News

The market cap of the Dallas Morning News is about 90 million dollars and there is a pension liability of 37 million dollars. But the company has over 50 million dollars of cash and a vacant headquarters building in Dallas.

If I were the CEO of the New York Times or the Washington Post I would buy the Dallas Morning News and offer a combined on-line subscription for the national and the Dallas paper. The marginal profit if an additional on-line subscriber is close to 100%. So if I were able to to sell another 75,000 on-line subscriptions in Texas the acquisition would be a huge financial success.

Vail Associates has adopted the stategy for ski resorts. They have purchased resorts all over North America and offered a combined season pass. It has been a tremendous success.

 

That's a very good point, to the extent that it seems someone should have done it successfully by now. Gannett, for example, has a national flagship and many local papers. The NYT previously owned regional papers in major markets such as Boston. Not saying it couldn't work, and I would love to get national flagship access with my local paper subscription, but there seems to be some secret to making it work that hasn't clicked for the last couple of decades.

 

The New York Times paid 1.1 billion for the Boston Globe and sold it for 70 million. They sold it to get take a tax loss.

I think USA Today is so inferior to the WaPo or New York Times editions that it can not be considered a worthy contender.

 

I noticed that the Houston Chronicle picked up a few of the writers, is that newspaper doing better?

 

They are owned by Hearst, which is privately owned, so no financial results have been released. Hearst claims to be holding on pretty well. The company just bought some papers in Connecticut and Michigan.

 

The "selling for a tax loss" theory is often baloney. If you have to sell, the tax break eases the pain. But it is ALWAYS better to sell for every dollar possible.

 

True. The NYT would have been better off if they had received more money at the sale.

But NYT had bought the Boston Globe for over 1.1 billion dollars. They sold for 75 million dollars. They received a tax loss of about 360 million dollars which they could apply against future tax bills. Those tax savings exceeded the value of the Globe. So the tax deduction was worth more than the Globe at that time.

Unless NYT had some reason to believe the Globe would turn around and regain some of its former value than the economically rational thing to do is to sell. And NYT had just borrowed a lot of money from Carlos Slim.

 

What is the marginal cost of adding additional papers to the electronic bundle? Basically nothing. So any additional subscribers would basically be additional profit. Who has tried idea this in the publishing industry?

 

That's a pretty good example.

 

Here's where I get tripped up. The cost of adding those papers would be, in your example, buying the papers. Not saying it wouldn't work, but I'm trying to understand the numbers.

What do you envision as the additional profit? Digital ad revenue? A $10-ish premium (on top of current subscription rates) to upgrade to get access to both the national flagship and the DMN (in this case, are we also assuming no marketing costs and back-end updates to the digital infrastructure)? Both?

How much is each additional subscriber worth? Really, I don't know and you seem to have a good handle on these things. Would appreciate your insight here.

 

The Dallas Morning News reported that they had one million dollars of electronic only subscription revenue in Q3. Which means they have about 35,000 electronic only subscribers. I think I read daily print subscription is under 100,000.

Let's have the New York Times buy the Dallas Morning News for whatever price. The New York Times and the Dallas Morning News Electronic edition adds a tab at the top of their electronic circulation that allows you to access the material of the other paper for the current monthly Kindle subscription price of $19,99.

What is the cost of doing that. Damn near nothing. Your biggest worry is cannibalization because subscribers of both products will cancel one. But Dallas has a population of only 35,000 subscribers to cannibalize from.

But every dollar of revenue from a new subscription drops to the bottom line after you pay any intermediaries such as Amazon. No extra paper to buy, no new printing presses to buy, etc. Just some more severs.

Texas has about nine million households. How many new subscribers do you get when you add what is one of the best papers in Texas (I don't see papers in Texas and don't know if Dallas is better than Houston, San Antonio or Fort Worth).

You would also increase your base for purposes of selling ads. Again this revenue largely drops straight tot he bottom line after you pay sales commissions.