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The newsonomics of John Henry buying The Boston Globe

The Red Sox owner will have to figure out why — despite making what seem like a lot of the right moves — the Globe is underperforming its peers.
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It was a big auction — on paper. Literally. The storied Boston Globe, the 141-year-old Globe that has won 21 Pulitzers and dominated its region’s reporting for so long, went for a song: $70 million. The buyer: principal Red Sox owner and private equity billionaire John Henry.

$70 million is a remarkable price. When The New York Times Company bought the Globe in 1993 from the Taylor family — which was one of the bidders to regain it — it paid $1.1 billion. With 20 years of inflation, that would be $1.78 billion today. That means the Globe is worth less than 4 percent of what it was then, without even including in the Worcester Telegram & Gazette and other assets included in today’s deal. (The entire Boston Globe is apparently worth $12 million less than the five-year contract of Red Sox pitcher John Lackey. His record with the Sox: 33 wins, 31 losses.)

We knew the price would be a small fraction, but it’s come in — at the end of a lengthy auction — at the low end. That tells us a lot about the financial value of metro daily newspapers today, and of the troubled Globe in particular.

The big questions of the day: What exactly are the Globe’s issues going forward — and what is John Henry likely to do about them?

The Globe’s issues are fairly public, especially after Thursday’s first-half 2013 NYT Co. financials (“The Newsonomics of the New York Times Running in Place”):

  • Falling revenue, now at a clip of 7 percent annually
  • Print ad revenue declining in double digits, at 10 percent
  • Circulation revenue declining at 2 percent
  • Digital ad revenue declining at about 5 percent
  • Print circulation declining at almost 9 percent daily and Sunday

Other new entrants to newspaper ownership — think the Platinum/Revolution/Loring group (San Diego and Tampa), Warren Buffett (Media General’s newspapers), and Aaron Kushner (Orange County Register) — bought assets that were underdeveloped. They proceeded to work to stabilize the products and put in all-access subscription programs, restrict free digital access, and introduce membership programs.

But as John Henry takes over the Globe, he’s taking on a business that has done all that. Check, check, check. The Times Co. deserves credit for maintaining a healthy newsroom. The Globe paywall has won 39,000 digital subscribers and priced up print subscribers. It has rolled out a membership program. So many of the first things other owners have done when they’ve won other auctions have been done. Yet, the Globe, unlike others who have made those moves, is underperforming those peers.

In particular, its circulation revenue loss is disturbing. Most other metros that have put in paywalls are seeing circulation revenue increases in the mid-single digits or higher.

What’s behind the revenue losses? That’s the forensic work that the John Henry’s people have already begun doing. Did the Globe get ahead of itself with its high circulation pricing, taking still another increase this year? Is the crowded Boston media market different than others? Are the issues ones of strategy or execution or both? How can the potentially valuable Boston.com be turned into a strongly profitable city info service?

Who takes on those issues will be instructive. That, of course, brings us to the question of how John Henry will run the Globe. Will he re-envision the Globe as he did another storied enterprise, the Red Sox? The big question: How can he rebuild the Globe as a winner? Will he bring in top new talent, invest heavily in infrastructure and profit, as he first did with the Red Sox?

Beyond the business issues, we have new ones of journalistic integrity. Henry doesn’t just own the Red Sox, but also a majority stake in New England Sports Network, another big business player in the region. For the Red Sox writers, it’s a headache. Newspapers have long, and properly, been concerned about not just conflict of interest, but he appearance of conflict.

As smart as Henry is, he’s already saying the right things about keeping the two enterprises separate. Even with a firewall of a sort between the Red Sox and the Globe, parts of the reading public will have lingering doubts. The only way to dispel them is in the coverage, and the disclosure. (Of course, the Globe’s been through a version of this before, when the Times Co. owned a 17 percent share of the Sox’ parent company.)

I like the way MLB.com, itself innately conflicted, puts a disclaimer/disclosure at the bottom of each of its stories, saying that it “was not subject to the approval of Major League Baseball or its clubs.” It would be smart of the Globe to put that disclosure prominently on page 2 of the sports section, and keep it there. The Red Sox still (nearly always) sell out their games — so homer coverage isn’t necessary, and controversy about managers and players only feeds interest. Should Red Sox players become embroiled in A-Rod-type controversies, though, the question of who breaks relevant stores when will rise to the fore. That’s been an issue for decades, in Chicago, Atlanta, and L.A., as Tribune, Turner, and Murdoch cross-ownerships have raised related questions.

For the Globe news staff, that’s not the big question, though. That one is: Will John Henry do right by the Globe legacy of quality and public service? He has the deep pockets to do that — and that may be one of the best early indicators here.

For the Times, it’s a relief and a point of closure. The New England Media Group had become a distraction; now it throws off $70 million for debt relief and investment, though the Times has had to retain the papers’ pension obligations to get the sale done.

The New York Times Company once owned regional newspaper chains, classical music stations, unrelated web properties, and more. Now it is the world’s big bet on a global news company — the purest journalistic play out there. The Sulzbergers have long worked toward this day. It’s here. Now, what will they do it with it?

Photo by Scott LaPierre used under a Creative Commons license.

                                   
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  • irate_alien

    The reason: papers like this are now local papers. Who outside New England would read the Globe, and why would you read national or international news in the Globe? I hope papers like this will really focus on their local reporting. For example, I live in DC, but no longer read the WaPo because its local reporting is factual and unenlightening. Once they raised the paywall they lost me completely. If I’m going to pay for news, I want first class reporting. If you’re going to be local, be hyperlocal and let me get to know my neighbors.

  • Daniel L Williams

    Going to go out on a limb and say he taps Janet Robinson to run the Globe.

  • jrhmobile

    On a raw investment basis, John Henry is fine.

    He gets real estate in the deal that’s essentially worth every dime of the purchase price. The NYT holds on to the Globe’s pension liabilities, so Henry et. al. is essentially responsible for running costs vs. receivables. And despite the gloomy forecasts outlined here, The Globe still has roughly twice the circulation of its rival, The Boston Herald, and with the Worcester properties, a clean circulation corridor along the Mass Pike to Springfield.

    I’d contend that Henry can let The Globe run just as it is for a year or so, figure out exactly how it runs and develop a cogent plan to take it ahead. He’s got deep enough pockets to bide his time, and has demonstrated the patience to make prudent calls on growing his business.

  • Matt Robare

    One of the biggest reasons The Globe is having problems, I think, is that almost half the population of Boston is under 35 and we don’t have $150 to spend on newspaper subscriptions.