The sale of the Washington Post newspaper is a shock – unless you have noticed that other media empires (Tribune, Time Warner, News Corp) have also separated their publishing assets. But the Post’s parent company should not stop there. Two of its three key remaining businesses are cable and local television stations and both industries are consolidating fast, leaving plenty of scope for more disposals.
The Washington Post Company is ironically titled. The group posted 2012 revenue of $4bn but the newspaper accounted for just $600m of that (most of its revenue comes from the Kaplan education segment). And with the paper only breaking even on a cash flow basis, the $250m sale price is a gift.
The Post’s shares have surged 50 per cent this year, putting its enterprise value on seven times its forward cash flow. But the cable and local TV assets, based on sector valuations, could easily be sold for more than that. They made slightly more than $1bn in revenue last year. Cable One, as it is branded, has just half a million subscribers. Compare that with 4m for Charter or 12m for Time Warner Cable. The pay-TV industry is intent on shrinking to a handful of national players, so there should be plenty of interest in Cable One. Charter and Time Warner trade at seven to nine times cash flow. Attaching a premium to those valuations would be accretive to the Post, depending on taxes.