Friday, December 02, 2005

Buying a business? Learn from the pros

Community newspapers can be very profitable businesses. Did you ever want to buy one, but didn’t want to pay a fair price?

Here’s how the pros do it. It's a long read, but very enlightening. (As you go through this, you'll realize why you don't read about this stuff in the newspapers.)

This is an edited version of a transcript of the Proceedings of the Standing Senate Committee on Transport and Communications. In its mission to probe the state of Canadian media, it held a session in Dieppe, N.B. on April 21, 2005.

Senator Joan Fraser (Chairman) led the investigation. The first witness was David Henley, who had owned four community newspapers in New Brunswick. That is the province where the Irving family owns most of the daily newspapers, the weeklies, the TV stations, and the biggest industrial employers (forestry, agriculture, oil, etc.).

Here is the abridged transcript.

Mr. Henley: I am from Woodstock, N.B., and I am the former owner, with my wife, of Henley Publishing Ltd., which owned four community papers in Western New Brunswick until November 2002, when we sold those properties to the Irving-owned Brunswick News....

When it was announced that a committee was being formed to study Canadian media and, specifically, the concentration of ownership, I told my wife I would like to appear before this committee. She said, "What is the point? The barn door is already open and the horses are gone.'' My daughter then added, "Yes, and they have taken all the hay.''

Senator Munson: Why did you sell?

Mr. Henley: Well, I am 68 years old... It was becoming time to sell. Some pressures were brought to bear as we got closer to making that decision that had a great effect on what we eventually did.

Senator Munson: Are those confidential pressures, or is it the same story of a big company marching forward and gobbling up little newspapers?
...
Mr. Henley: Essentially, a former employee started a shopper in competition with us in Woodstock. They could not make a go of it, so they transferred it over to another person, who also could not make a go of it. In any case, the ownership eventually came into Irving hands and things then changed, because we noticed a definite increase in the competition in a number of ways.

The Chairman: What do you mean by, "a number of ways''?

Mr. Henley: For instance, before the sale, the shopper offered free classified advertising and put out a price list [for other types of ads]. There is nothing wrong with this, I suppose, but they sold ads that were far under the price list.

…. Obviously, by offering free classifieds, that cut into the classified advertising revenue of our publication. Newspapers are usually sold based on their revenue, and so when the time came to sell, obviously, the price would have reflected the decreased revenue.

(Rick: Nice work. Now here's the kicker...)

Henley: By the way, there is certainly a price now to put your classified ad in the shopper. Since The Bugle is now the only publication in the area, the classified rates are now double what they were when we owned the paper.

Rick talking: I had to omit a lot of interesting details - how Irving consolidated those papers, their alleged "predatory" pricing, why it would be hard for anyone else to enter these markets, and why Henley rejected the idea of going to the Competition Bureau.

When you have some free time, read the whole story here.