Investor: New model crucial for newspapers
By Erina Lin, Friday 11 April 2008 at 20:52 :: General :: #1527 :: rss
Newspaper company valuations will still be depressing until the industry finds out how to connect with younger readers, according to the private equity firm Quadrangle Capital Partners said on Wednesday.
“Finding that new model, which is heavily dependent on the Internet and other electronic technologies, is crucial for publishers who want to remain relevant to younger readers,” Joshua Steiner, Quadrangle managing principal, said.
Newspaper has been categorised an out of favor industry by Wall Street as ad revenue recesses and readers turn to the Internet for news.
Without a successful new business model that will sustain the strong cash flow papers still produce, publishers can only rely on cost cuts and consolidation to offset slower growth. “With no end in sight to that trend, investors in the business will steer clear until valuations fall further,” Steiner added.
He pointed out that newspapers will keep a strong franchise in many markets for a long period of time, but if the valuations reflect the uncertainty associated with their business model is unclear.
"If you're going to invest into a sector where there is big cyclical risk, or where there is fundamental change associated with the industry, you need to be compensated for it. And the way you're normally compensated for it is through price," said Steiner. However, he did not say that valuations would fall more.
Steiner said new technologies such as Kindle, created outside of the media and wireless industries, could shed light on the media sector.
"Devices like Kindle will be supported through a variety of ways: subscriber revenue and advertising revenue," Steiner told Reuters in an interview.
Over time, devices like the Kindle, which offers e-books for sale and charges subscription fees for newspapers, magazines, and blogs, could turn into an ad vehicle for publishers, Reuters reported.
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