Like the sale of the Washington Post this time last year, the merger of E.W. Scripps and Journal Communications, announced last night, and their reorganization into separate print and broadcast companies came as a jaw-dropping surprise.
But the morning after, the complicated transaction makes perfect sense.
- Local broadcasting is seeing a wave of consolidations. The business is healthy, and getting bigger provides station groups more leverage negotiating retransmission fees with cable providers. That has become a significant new source of revenue growth as political and automotive advertising remain strong.
- Financially squeezed newspapers drag down the share price of companies with prospering TV, cable and digital divisions. The spinoff of Tribune Publishing scheduled next week and the division of News Corp a year ago give the remaining parent television and entertainment companies investment wind at their back.
- At the same time, newspaper groups theoretically do better with management whose exclusive focus is on the particular challenges of that industry. Otherwise, they can end up a neglected problem child, getting less capital allocation and management attention, in a company with several financially stronger divisions.
My colleague Al Tompkins has separately rounded up a list of broadcast mergers and print spinoffs, and he also documents the stock price kick broadcast/digital companies have experienced. (Scripps stock is up smartly today – more than 10 percent by early afternoon.).
For the newspaper industry, the de-consolidation trend has been building steam for seven years now, since the business took a deep dip during the recession of 2006-2009, Scripps did a version in 2007. leaving legacy broadcast and newspapers in one company while putting Food Network and other cable stations in another.