Not quite Washed Out

“Comparing WaPo’s price to Tumblr & Instagram is stupid. Guess what? Great journalism is a worse business than social networking! Who cares?” A tweet from The Atlantic’s Andrew Golis.

Here’s why we should care.

The Washington Post brand – a role model for journalism around the democratic world,and an aspiration in countries that don’t enjoy free press like Singapore and China – was once considered priceless. It has now been assigned a value. Even the Hindustan Times a thinly traded stock,has a value of Rs 2,250 crore today that is based only on their profit and loss,and doesn’t factor in real estate or brand. WashPo’s value at Rs 61 to the USD is 1,550 crore.

This is relevant because it marks a shift in the way news media companies are now being valued,and will probably continue to be.

Newscorp,Disney and New York Times didn’t value Wall Street Journal,ABC (and ESPN) or the International Herald Tribune like private equity (PE) funds at 25 times profit after tax (PAT),they believed they were bidding for brands. Twenty years ago,when the New York Times bought over Boston Globe,they valued it based on current revenues,expected future revenues from joint ad selling,cost efficiencies from scale,and,importantly,value of the Globe’s brand: possibly calculated by assigning a certain dollar value to each paid subscriber.

World over,news companies weren’t valued just based on their profitability,but on intangibles such as their ability to influence public perception,discourse and political agenda,and their brand recall as well.

And for good reason. It’s no small feat for a brand to be recognized by every household in America. McDonald’s,Ford,Elvis Presley during his time,these are brands every American has heard of. Washington Post,New York Times,ABC,CBS,and other media companies,with a fraction of the turnover of McDonald’s or Ford,are names known to every American. How do you assign a value to that?

Similarly,the Red Sox owner John Henry’s purchase of the Boston Globe at a value of 70 million dollars three days ago puts a pretty low value to a brand that is known to every citizen in Massachusetts. Aside from the fact that the sale shows that proprietors are willing to exit without factoring any major value to the Washington Post brand,it also shows that proprietors have given up,maybe without trying enough,finding ways to monetize a brand either by innovative brand extensions or franchise operations beyond the core product.

You can’t blame them. A majority of the experiments world over have shown that audiences stick to the first medium and don’t transfer to another medium that the brand would otherwise consider a natural extension. The most commercially successful radio channels,TV stations and magazines were started by a team of people dedicated to their platform and who didn’t have much to do with the core business. Take Time Out for instance,a magazine present in every major city and owned by very autonomous franchises. There isn’t a city where the Time Out web site is nearly as popular as the magazine. In Bangalore,London,Los Angeles,San Francisco,Prague or St. Petersburg,Time Out’s print edition may be the authority for city happenings,but local city blogs are far more popular than Time Out’s website. Even in Mumbai,mumbaiboss.com and bpbweekend.com have a far larger and loyal audience than timeoutmumbai.net.

As far as readers are concerned,it’s too soon to tell if the sale of the Washington Post is good for journalism or not. It’ll depend on the maturity and seriousness with which the new owner decides to run the paper.

The trend of billionaires owning newspapers will only benefit journalism if they are as ruthless with the bottomlines of their news companies as they would be of any other company they have a stake in. Because for any industry to flourish,bad business models and poorly run companies in the industry must perish quickly. Companies that do journalism the world over will benefit only when Warren Buffet,Jeff Bezos and other billionaire owners use their wealth of knowledge,experience in their areas of specialization and deep pockets to experiment with the goal of creating a business model that sustains itself.

This is why I believe Network 18’s sale to Reliance was a disservice to the news industry in India – it allowed a business that was far too expensively run to survive longer. And the sale,now in its second year,will only help the industry when,with Reliance’s business acumen,the Network 18 group can find a way to be profitable (inclusive of interest cost). Sure it’s legitimate strategy to bleed the competition if you can sustain your loss,but to have a sugar daddy reinforcing poor business will soon lead India to an environment with only vested interest news media owners.

Incidentally,The Indian Express and its owners have no other business interests. The Hindu and Anandbazar Patrika are other such companies.

Being a purely “for-profit” play in the fields of education,healthcare and news media has always seemed to be a little bit of a conflict of interest. But it’s at times like this that we need to remind ourselves that a self-sustaining business model is the most important trait of a company that wants to be consistent in its impact on society.

Anant Goenka is Head – New Media,Indian Express and a Dean’s Scholar from the Annenberg School of Journalism,USC. Follow him on twitter @anantgoenka