Skarbeck: Sale of Washington Post reflects new world order

August 10, 2013

Ken SkarbeckJeff Bezos, CEO of Amazon.com, is buying The Washington Post for a paltry $250 million. Heck, on an average day in the stock market, Bezos’ net worth fluctuates more than that just from the change in Amazon.com’s stock price.

Some observers think Bezos actually overpaid for the newspaper at what amounts to less than 1 percent of his $27 billion net worth. One analyst valued the newspaper at only $50 million.

The sale price of the iconic newspaper exposes just how far the industry has sunk. In the first half of this year, The Washington Post’s newspaper operations generated $138.4 million in revenue and lost nearly $50 million ($40 million of which was a non-cash pension expense).

The newspaper is being sold to Bezos personally, outside of Amazon.com. Included in the sale were other publishing businesses, the free newspaper Express, the Gazette Newspapers and Southern Maryland Newspapers. The remaining businesses of the Washington Post Co.—which include the Kaplan education unit, television and cable stations, and health care businesses—account for the bulk of the company’s $4.4 billion market value. The Washington Post Co. will be renamed and continue to be publicly traded.

Newspaper values have been hammered lower since Rupert Murdoch bought The Wall Street Journal for $5.2 billion six years ago. Since then, the market value of The New York Times has been cut in half, to $1.8 billion.

It is stunning that these once-great media empires, like The Washington Post owned by the Graham family since 1933, find themselves taking a back seat to companies like Buzzfeed and Twitter that are valued at multiples higher. Apparently, more of the world gets its “news” via social media sites and would rather know which stores the Kardashians are shopping at on Rodeo Drive or what Johnny Manziel did on Friday night in 140 characters or less than what changes Ben Bernanke is contemplating in Fed policy.

Interestingly, despite the poor economics that permeate the industry, newspapers have recently been coveted by billionaires. Two weeks ago, The New York Times Co. sold The Boston Globe to Red Sox owner and commodity trading billionaire John Henry for a mere $70 million—a fraction of the $1.1 billion the company paid for the newspaper in 1993. Warren Buffett, whose Berkshire Hathaway owns 23.3 percent of The Washington Post Co., has been on a newspaper-buying spree, acquiring the Omaha World-Herald and 28 daily newspapers over the past two years.

Buffett has said that community newspapers—like the IBJ—can be decent businesses because they have a built-in audience interested in a source for local news.

James Fallows, former editor of U.S. News and World Report, wrote in The Atlantic, “Let us hope that this is what the sale signifies: The beginning of a phase in which this Gilded Age’s major beneficiaries reinvest in the infrastructure of our public intelligence.”

It is likely that Bezos has a long-term vision in mind and is willing to sacrifice near-term profits with an eye toward reinventing the business. Observers point to his success in transforming printed books into e-books, which would make changes at The Washington Post worth watching.•


Skarbeck is managing partner of Indianapolis-based Aldebaran Capital LLC, a money-management firm. His column appears every other week. Views expressed are his own. He can be reached at 818-7827 or ken@aldebarancapital.com.


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