David Kirkpatrick

February 16, 2009

Internet advertising is drowning …

… in a sea of endless content. This is a case of supply (web pages to advertise on) wildly outstripping demand (eyeballs to view those pages and ads).

From the WSJ:

What does the Internet display-ad market have in common with Zimbabwe?

Both are printing nearly-limitless amounts of their main currency, vastly diminishing its value and undermining their future. The currency, for Web sites, is their ad inventory. And while Zimbabwe, under different management, can change course, the same isn’t true of the display-ad market. Web sites keep generating new content and extra pages on which ads can run.

That is why the sudden sharp weakness in online display advertising, which hit fourth-quarter revenue at companies ranging from Yahoo to Time Warner‘s AOL and New York Times Co., isn’t just about a cyclical downturn caused by the recession.

For sure, part of it is due to depressed demand among advertisers, including those who buy “brand image” ads that suit the display format. AOL, for instance, whose display revenues fell 25% in the quarter, cited “softness” in categories such as “personal finance, technology, autos and retail,” which clearly relate to the economy.

But weak demand is simply highlighting the more fundamental oversupply problem — and pressuring prices. The cost per thousand views of display ads on big Web sites sold through ad networks — rather than sales forces of individual sites, which usually handle premium inventory — fell 54% in the fourth quarter compared with the year earlier, estimates PubMatic, which offers online services to publishers.

December 9, 2008

Tribune Co. files Chapter 11

I’ve blogged on the new troubles facing the newspaper industry (and post itself is on the ailing NYT) here, and left this bit of news out of the post — Tribune Co., publisher of the Chicago Tribune and the Los Angeles Times has filed for bankruptcy protection.

Blame this problem on Sam Zell being a real estate guy (read: asshole until proven otherwise) and not a media guy. He was buying assets and not intellect. That might be the key to old media’s malaise right there.

That problem can even be traced back to the failed AOL/Time Warner merger. Everyone wanted to get into assets and not intellect. Time Warner lost its way and AOL brought hot air to the table.

Zell bought what he thought was an asset to leverage, but the reality was he bought brands and smarts. Real estate investors getting into new fields almost always blow the deal and lose money. Just look at Virgin Entertainment right now and REIT Richard Branson sold out to. That whole process is a slow-moving train wreck.

Big names in trouble here: Tribune in Chapter 11 and the New York Times has mortgaged its building for cash. I’m a huge fan of business and no fan of regulation, but something is quite rotten in Denmark, so to speak.

You’ll get no argument from me that this financial crisis is the result of something being majorly broken in our system. My money’s on high finance being a delicately balanced house of cards that became too tall and too greedy. Something of a modern-day tower of Babel in numbers.

From the second link:

Tribune Co, which owns eight major daily newspapers and several television stations, filed for Chapter 11 bankruptcy protection after collapsing under a heavy debt load just a year after real estate mogul Sam Zell took it private.

Like other big U.S. newspapers, Tribune is under pressure from declining advertising revenue and circulation as more people get news online and as companies cut their marketing budgets because of the economy.

The Tribune Co‘s financial condition is symptomatic of the ills that plague the newspaper industry,” said Jerome Reisman, a bankruptcy attorney with Reisman, Pierez & Reisman.

Tribune’s bankruptcy filing is the latest chapter in the unraveling of the leveraged buyout boom which saw many companies bought by private equity firms and other investors ending up with massive debt loads.

Zell loaded up the privately held publisher with about $8 billion in additional debt when he took the company private in a transaction largely financed by company contributions to an employee stock option plan.

December 8, 2008

Old Grey Lady in the red?

Filed under: Business, Media — Tags: , , , , , — David Kirkpatrick @ 2:35 pm

The New York Times Company is in no small degree of financial distress. Old media has been squawking about its problems — and they are real — for a number of years. Like many of the old order theyhaving a hard time dealing with the changing digital world and loss of their bread-and-butter, advertising, particularly local classified advertising which has been coopted by Craigslist and others.

The ongoing financial crisis and credit crunch just pile misery onto these woes. I’d hate to see print disappear altogether, but it may well be heading that way. I actually dumped my local newspaper subscription early this year. Prices went up, quality and size went down and all the news except for a little local reporting and sports I’d already read more than one place online.

From the link:

The New York Times Company plans to borrow up to $225 million against its mid-Manhattan headquarters building, to ease a potential cash flow squeeze as the company grapples with tighter credit and shrinking profits.

The company has retained Cushman & Wakefield, the real estate firm, to act as its agent to secure financing, either in the form of a mortgage or a sale-leaseback arrangement, said James Follo, the Times Company’s chief financial officer.

The Times Company owns 58 percent of the 52-story, 1.5 million-square-foot tower on Eighth Avenue, which was designed by the architect Renzo Piano, and completed last year. The developer Forest City Ratner owns the rest of the building. The Times Company’s portion of the building is not currently mortgaged, and some investors have complained that the company has too much of its capital tied up in that real estate.

The company has two revolving lines of credit, each with a ceiling of $400 million, roughly the amount outstanding on the two combined. One of those lines is set to expire in May, and finding a replacement would be difficult given the economic climate and the company’s worsening finances. Analysts have said for months that selling or borrowing against assets would be the company’s best option for averting a cash flow problem next year.