NEW YORK ( TheStreet) --The newspaper industry has either its latest class of potential saviors or fresh meat. Jeff Bezos' $250 million purchase of The Washington Post came days after John Henry agreed to pay The New York Times ( NYT) $70 million for The Boston Globe. Henry could be seen as a white knight by virtue of his scorebox with the Boston Red Sox. As owner, he broke an 86-year curse when the team won the 2004 World Series, a tempting metaphor for a newspaper business turnaround. In the post-Steve Jobs world, however, there are few examples of digital entrepreneurship on par with Bezos and Amazon.com ( AMZN) Bezos' wealth, and the stature of the Post, greatly overshadow Henry's purchase. "What this is signifying is that the digital transition, although having moved along quite a bit at the Washington Post, still has five years or so of very tough times ahead," said Outsell Inc. analyst Ken Doctor. "I think that's the number one reason the Grahams sold." It has been tough to call the turning point for newspapers. There have been a number of ambitious buyouts that led to Chapter 11. "There are people, especially in the last seven to eight years, who have bought into the newspaper industry believing that it was at a bottom," Doctor said. Sam Zell led an $8.2 billion buyout of Tribune in 2007, a year after Bruce Toll and Brian Tierney bought the Philadelphia Inquirer and Philadelphia Daily News from McClatchyfor $562 million. Both wound up in bankruptcy. "It turns out that they are not distressed assets," Doctor said, "but it's a distressed industry." A fundamental question is what kind of owner Bezos will be. Buffett's Berkshire Hathaway ( BRK.B) has been an active buyer of papers, Doctor noted, but has not changed much of their operations. It has closed a paper, but has left local management in place under the oversight of the Omaha World-Herald's Terry Kroeger. Aaron Kushner, who made a fortune selling an online business and in greeting cards and who previously pursued the Globe, has taken a more active role since buying the Orange County Register.
"We don't know if Jeff Bezos is a Warren Buffett or an Aaron Kushner," Doctor said. Robert McChesney, a professor at the University of Illinois at Urbana-Champaign and co-founder of the advocacy group Free Press, takes a bleak view of the trend of plutocrat publishers. "Perhaps nothing better illustrates the desperation facing American journalism and democracy better than the fact we are reduced to praying we get a benevolent billionaire to control our news, when history demonstrates repeatedly such figures are in spectacularly short supply, and the other times we relied on such a model crashed and burned," he wrote. Even in its diminished capacity, the Post is legendary for getting the story behind the Watergate break-in and publishing the Pentagon Papers -- a tradition it carries through to this day. Just this summer, the Post, along with The Guardian, broke the National Security Administration's Prism surveillance program. It was a good scoop, even if, as Gawker noted, the Post's editorial page simultaneously argued for a government clampdown on leaks. How tough would a Bezos-run paper be on government? Recall that Amazon booted WikiLeaks from its servers after the group posted State Department documents in 2010. Bezos has said he will not be involved in day-to-day operations, and that he will leave the Post's leadership in place. "There is no map, and charting a path ahead will not be easy," Bezos wrote in a letter to staffers. "We will need to invent, which means we will need to experiment." It was a more thoughtful comment, if less forceful, than Zell's proclamation about newspapers when he bought Tribune. "They ain't ended, and they're not gonna end," Zell told employees in December 2007, a year before he took Tribune into bankruptcy protection. While newspapers have not yet ended, they ARE ending as a part of Tribune with the company's planned spin off of its mastheads. The Tribune debacle is fresh and spectacular enough to urge caution on anyone hoping that a Kindle app or an Amazon storefront will turn around the Post.
One concern is that the Post occupies what Morningstar analyst Liang Feng calls a "weird middle ground." It falls between national papers, including The New York Times and The Wall Street Journal, and smaller, local papers with less competition, such as the papers that Buffett has been picking up in places like Roanoke, Va., and Greensboro, N.C. "The problem with some of the regional papers in Washington, D.C., Chicago and Los Angeles is that there are still quite a few competitors," Feng said. The Morningstar analyst calculates that the Post had about $15 million in 2012 EBITDA, excluding pension costs and other items. That would put Bezos' $250 million payout at nearly 17 times EBITDA. Feng cautioned that an EBITDA multiple might not be the best gauge for the price for these assets. Without more cost cutting, the Post could have negative Ebitda this year, which would imply an infinite EBITDA multiple. "EBITDA makes less sense when it is close to zero," Feng said. The Post's enterprise value comes to about .43 times 2012 revenue, or about .34 times sales when factoring in $50 million in net pension surplus that is being transferred as part of the deal. Even at the lower rate, Bezos is paying double the .18 enterprise value-to-revenue multiple John Henry is paying for the Boston Globe, which the New York Times bought for $1.1 billion in the 1990s. The payout is modest compared to the spending at Fenway Park. Doctor observed that the Red Sox paid $82.5 million in the five-year deal the team gave Red Sox pitcher John Lackey, who has 33 wins and 31 losses. Bezos is putting up almost as much equity as Zell did for all of Tribune. Still, the Amazon founder could make the same deal 99 times over before exhausting his $25 billion fortune. Whatever becomes of the Post and the Globe, it is a good bet that Bezos and Henry have not made their last payment. -- Written by Chris Nolter in New York