What Did Bezos Actually Buy?

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Jeff Bezos, not Amazon, is dropping $250 million in cash to purchase the venerable Washington Post. But it’s not only the paper that Bezos is picking up for his quarter billion. As part of the purchase, the Amazon founder will also become owner of a host of smaller local papers, the Washington Post website, and a printing outfit by the name of Comprint that the Post itself notes “publishes several military publications.”

That’s a slurry. In short, Bezos now owns a minor newspaper empire, crowned with the Washington Post itself.

But just how healthy are the assets that Bezos has purchased? Let’s take a trip through the numbers. Keep in mind that the Washington Post company is only so specific in its breakdown of revenue from its newspaper division. So, our looking glass is slightly dim.

In the second quarter, the newspaper division at the Washington Post company had revenue of $138.4 million, which was essentially unchanged from the year ago quarter. This is to say that the newspaper business that Bezos just bought a large piece of isn’t in as steep a decline as you might have assumed.

Print advertising revenue for the Washington Post itself was $54.5 million in the quarter, down 4% from the same quarter a year before. Again, that’s somewhat stable. The Washington Post and Slate.com, roughly, saw their online incomes rise to a combined $29.8 million, an increase of 15% in the quarter. Bezos did not buy Slate, however, so that figure is inflated compared to what the Washington Post will be able to generate on its own. That said, the Washington Post is the larger of the two, and so presumably commands a larger share of that specific revenue pool.

Online advertising revenue for the newspaper division rose 25% in the second quarter. However, online classified revenue fell 7%. What does all that mean? Essentially that the online portion of the Washington Post is growing at a decent pace, even as one of its revenue streams – online classifieds – stutters.

Print revenue is drifting downwards, as circulation slips. In the first half of 2013, the Washington Post saw its daily circulation decline 7.1% to 447,700.

It’s difficult to tell how much money the Washington Post loses, if any. The larger and now all-but -former newspaper division lost $49.3 million in the first two quarters of 2013. However, of that loss, $39.7 million was related to pension expenses. Also, in the first half of 2013, $19.6 million in “early retirement and severance expense” was recorded.

If there had been no retirement costs, and we deducted the pension expenses, the newspaper division would have been profitable, it appears.

Turning to pensions, a SEC filing states that:

[T]he Purchaser shall assume all liabilities that relate to providing post-retirement welfare benefits to Post Employees, and the Seller shall retain all liabilities that relate to providing post-retirement welfare benefits to Former Post Employees.

So, Bezos will not be responsible for endless legacy pension costs. And, according to AllThingsD, Bezos will be given “what amounts to $50 million” to help with the costs of newly acquired employee’s pension promises. That sweetens the overall deal, and lowers its effective price.

Given the inherent opacity of the financial information that we have, it isn’t precisely clear just how strong of a financial entity Bezos has purchased. However, I think that if we speak broadly, we can state that the Post’s rising digital revenues are encouraging, and could more than cover its falling print income. Therefore, if Bezos can control continuing one-time expenses, and stabilize its cost structure, the Post might not bleed cash. For a newspaper of its scale, that’s actually a somewhat impressive statement. Still, the same pressures that have long weighed on the newspaper industry remain in place.

The obvious thought is that given the close connection between Bezos and Amazon, the company that he founded, there could be additional revenue streams that would bolster the Post as a standalone entity. For example, Bezos could provide access to the Post’s paywall as part of the Amazon Prime service, carving out a small slice of that yearly revenue that could provide material benefit for his new paper.

However, when it comes to paper, that cost is coming down. As the company’s second quarter earnings report stated: “Newsprint expense was down 17% and 14% for the second quarter and first six months of 2013, respectively, primarily due to a decline in newsprint consumption.” Yes.

Top Image Credit: Jon S