Beer a Better Investment Than Newspapers

If you, like me, had told newspaper companies in 1998 that they would begin to die if they didn’t adjust to new media, newspaper executives would have laughed. If you told them that in 2003, they would still have dismissed you. Today, however, newspaper executives are hiding in whatever shelter they can find as the digital storm wrecks their businesses.

American daily newspaper companies used to be darlings of Wall Street because the average paper had a local monopoly and had a profit margin of 15 to 25 percent. That was then.

Now the average American has broadband access and always-on access to the Internet. How bad has the situation gotten for the first old medium to be affected by new media? Let’s look from the twin perspectives of beer and finance.

Rather than invest $10,000 in U.S. newspaper companies three years ago, you would have done better financially had you purchased $10,000 worth of beer and drunk the equivalent of a six-pack every day. You also would have had much better time!

Do the math. At the Complete Beverage Discount Center in New York City, $10,000 would have purchased more than 55 half-kegs of Budweiser ($105 each, plus a $75 deposit per keg three years ago). That many half-kegs contain 109,120 fluid ounces of beer, the equivalent to 10,912 10-ounce U.S. beer bottles. If you had drunk the equivalent of a six-pack of this brew every day during the past three years, you would have 22 full half-kegs (equivalent to 742 six-packs) left, plus keg deposits still worth $4,125.

By contrast, if three years ago you had purchased $10,000 worth of shares in Media General Co. (NYSE: MEG), publisher of the “Tampa Tribune” and 23 other U.S. dailies, when its stock was trading for $53.56 per share, you would have just $1,833 left when it closed at $9.82 per share on Tuesday (when I’m writing this).

What if you had invested $10,000 in the Gannett Co. (NYSE: GCI), publisher of “USA Today” and 85 other U.S. dailies? Three years ago its stock was trading for $71.03, but today you’d be left with $1,853 when the stock closed at $13.16 per share.

Things could be worse. If you placed a $10,000 investment three years ago in the McClatchy Co. (NYSE: MNI), publisher of the “San Jose Mercury News” and 29 other U.S. dailies, you have only $647.76 now that its stock price has dropped from $62.06 to $4.02 per share.

Just during the past year, the per-share price of the Journal Register Co., publisher of 27 U.S. daily newspapers, had plunged so low that the company was dropped from the New York Stock Exchange and now trades on the Over-The-Counter exchange (OTC: JRCO), so I can’t precisely calculate how much its stock has dropped during the past three years. However, if you had invested $10,000 in Journal Register this past April, when it started trading on the OTC at 38 pennies per share, your investment would be worth $211 on Tuesday when the stock closed at one penny per share.

Two years ago, Gatehouse Media, publishers of 97 U.S. dailies, went public and began selling its stock at $22 per share. A $10,000 investment in it then would be worth only $95.45 on Tuesday when the stock closed for 21 cents per share.

Eight months ago, the A.H. Belo Co., publishers of “The Dallas Morning News,” the “Providence Journal-Bulletin,” and other U.S. dailies, split into two companies, one containing its newspapers. That deconsolidation makes it hard for me to detail its newspaper-related per-share price three years back. However, if you had invested $10,000 on February 15 of this year when the newspaper part began trading at $13.18 per share (NYSE: AHC), you’d have only $2,898.33 left when it closed at $3.82 per share on Tuesday.

The only major U.S. newspaper company lately that’s done better than drinking beer is The New York Times Co. (NYSE: NYT), publisher of it eponymous daily, the “Boston Globe,” and 17 other dailies. A $10,000 investment in it three years ago would be worth $4,822.22 today. That’s $697.22 more than the deposits on the 55 half-kegs of beer. However, if you’d invested $10,000 five years ago, you’d have only $2,786.82 on Tuesday, which is $1,338.18 less than the keg deposits.

Has the recent Wall Street crisis been the cause of these companies’ stock declines? No. Although the Dow Jones Industrial Average has plunged approximately 34 percent during the past year, it’s dropped only 9.5 percent during the past three years. Neither of those drops in the Dow explains the 81 percent per-share average drop in those newspaper companies’ stocks during the past three years.

Institutional and private investors no longer have confidence in those newspaper companies’ future. Many of those companies will see their current share prices rebound somewhat and some might survive. However, American newspapers are becoming the first sector of traditional media to go down the drain due to their inability to adapt to new media.

If you had money to invest three years ago, the financially savvy move would have been to purchase kegs full of beer and begin drinking a six pack a day rather than to invest in newspaper companies. Not only would your keg deposits today be worth more than the equivalent investment in almost all newspaper stocks, but you’d still have 22 full half-kegs of beer left over (retail price $2,310 at $105 per half-keg), more than enough to continue drinking at that pace through the remainder of the decade. Bottoms up! Newspaper company executives are proving to have been the ones who weren’t financially sober.

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