Did Jeff Bezos Just Steal The Washington Post?

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The financial media is abuzz with the news that Jeff Bezos, founder and Chief Executive Officer of Amazon, just purchased the newspaper assets of The Washington Post (NYSE: WPO) for a cool $250 million.

Not surprisingly, the Washington Post rallied on the news, breaching $600 per share for the first time in years. The Washington Post’s investors, including none other than Warren Buffett, are the big winners on this news. Is Jeff Bezos a winner in this deal too, or did the Amazon chief executive jump aboard a sinking ship?

The two sides of the newspaper coin

It’s certainly true that the Washington Post was a cheaply priced asset, and on that metric, Bezos looks to have gotten a sweet deal. Consider that Bezos paid about 0.5 times sales on the whole deal.  But of course, there’s usually a reason for an asset to sell cheaply, and in this situation it’s not difficult to see why.

Newspapers, at least in their print forms, are dying. Even at the Washington Post, the most important metrics are all going in the wrong direction. Last year overall revenue at the Post dropped 7%, and the paper itself lost more than $50 million--more than double the net loss from the year prior.

Furthermore, readership is going away, which is taking down advertising revenues with it. In 2012 circulation fell 2%, which led to a 14% drop in advertising revenue last year.

This trend isn’t a one-off--this is an industry-wide conundrum affecting newspapers across the country. Consider the case of Gannett Co. (NYSE: GCI), a diversified publishing company, which operates more than 80 daily publications in the United States and internationally, including USA Today.

Again we see a similar pattern emerging. Overall, Gannett’s net revenue rose 2% last year. But once again, we see a clear divergence between print and online operations. Digital revenue was especially strong for Gannett last year, but publishing advertising, which accounts for nearly half of Gannett’s overall revenue, has declined for two years in a row and continues to be an anchor on the company.

Ditto for The New York Times (NYSE: NYT), which reported the exact same story over the first half of 2013. Sales dropped 1% in the second quarter year over year, but a stark contrast can be found once again. Digital-only subscription packages soared 35% in the second quarter.

Meanwhile, print advertising revenues fell 7%, which is especially troubling in light of the fact that print ad revenues account for almost three-quarters of the company’s total revenue.

Not the only paper sale

This isn’t the only newspaper deal making news. The New York Times recently sold The Boston Globe to an acquisition company led by John W. Henry for a tidy $70 million in cash.

The motives for Bezos’s purchase of the Washington Post remain unclear. It’s difficult to see any integration possibilities between Amazon and the newspaper. Perhaps Bezos has a plan to correlate the two entities, but instead, Washington Post investors need to remain focused on what happens to the remaining company and its assets.

On the other hand, it’s rather easy to see why newspapers are eager to shed their print assets.

Quite frankly, I think the best scenario is that Bezos purchased the Post out of personal admiration, akin to an art lover hanging a piece of art on his wall. That actually seems to be what’s happening here, as Bezos himself referred to the deal as a personal endeavor, simultaneously assuring the Post’s employees and readers that the paper’s core values will not change.

The bottom line

The big winners here are clearly The Washington Post’s investors, who will see their new company streamlined and focused on the growing side (a.k.a. digital) of the newspaper business.

Bezos got himself a well-known brand for a cheap price, but he needs a plan. If he’s going to hang The Washington Post on his wall and forget about it, then the dust will continue to accumulate.

At the same time, Bezos is a technology revolutionary and one of the most innovative people of our time. As a result, you can’t count him or his vision for the paper out.

I’d advise The Washington Post investors to carefully monitor developments going forward, but for the time being, the new streamlined company could be a solid bet after the sale, and I can't blame buyers for their sense of optimism.

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