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In early May, the Washington Post Company (WPO) hired media investment bank Allen & Co. to help it find a suitor for Newsweek magazine. The magazine was founded in 1933 and has been owned by the newspaper conglomerate since 1961. But, WPO’s magazine publishing segment has taken a nosedive over the past few years.

Newsweek had posted substantial losses since 2007. Recessionary pressures and the burden on advertising markets have weighed heavily on the weekly. Last year, the deficit deepened. In response. the magazine shed much of its workforce through voluntary buyouts and layoffs, and slashed circulation in an effort to lower production costs.  Regardless of management’s best efforts, results will probably linger in the red in 2010. Although the company recently initiated an editorial makeover, which was designed to attract a more elite, target audience, this did not tempt advertisers. In all, advertising revenues dropped about 20% during the March quarter.

Over the past couple of years, Newsweek has digitized its format, and tried to widen its readership base on the World Wide Web. Even with this modernization, it will probably still lose money over the long haul, due to the nature of digital advertising as opposed to printed classified linage.

The news serial has also rebranded itself over the last several years. Now, it offers a more analytical approach to its content. This focus helped the magazine somewhat in the past few years, especially during a very polarizing political environment.

Some believe that the news magazine era is coming to an end. Given the prominence of news articles and opinion pieces on the Internet, newsweeklies have become somewhat dated. U.S. News and World Report, which also began in 1933, recently switched to a monthly publishing schedule.

This hoped-for sale is hardly unique. Magazine publishing has been suffering over the last several years. In light of margin pressures, several companies have decided to divest their weeklies.  Many news magazines have changed hands over the past few years. In October, 2008, Macrovision, now Rovi Corp. (ROVI) sold TV Guide for a mere dollar (in comparison to the $2.29 newsstand price) to private equity firm OpenGate Capital.  Even though the following October, McGraw Hill (MHP) sold BusinessWeek at a higher premium, many felt that the $5 billion Bloomberg paid could still be categorized as a fire sale.

When the news was first announced, editor, Jon Meachem, said that he considered finding a backer to buy out the newsweekly.  The Economist is partly owned by its staff and by Pearson (PSO). This structure appears to be successful, as that magazine seems to have been bucking the trend that other news serials have faced in the recent past.

When Tribune Company went private in August, 2007 billionaire Samuel Zell helped restructure the newspaper company as an ESOP (employee stock ownership plan). And Newsweek may be in discussion with Ownership Associates and the Newspaper Guild to explore a similar option.

Those in the digital sphere might consider buying the news magazine. Last month, Yahoo! (YHOO) purchased Associated Content, a content farm with almost no brand recognition for roughly $100 million. The search engine will probably not sprint for the news magazine due to the hefty losses it could incur from the wavering publisher.

Indeed, the compounding losses Newsweek may well face in the coming years is probably deterring media conglomerates Thomson Reuters Corp. (TRI) and Time Warner (TWX) from throwing their hats into the ring.

Still, smaller media companies might consider such a purchase. NewsMax, a conservative news agency has expressed interest here. Other potential buyers debating the purchase may be looking to build on the Newsweek brand name and its powerful news personalities. The purchase would expand its circulation file.  OpenHouse may decide to add this magazine to its roster, for the significant upside of splitting production and back office costs with another periodical.

Other hedge funds or private equity firms, or even individual investors, may also eye the news publisher. In the last three years, we have seen similar cases in which investors have taken their place as members of the press. For example, Harbinger now owns a minority stake in The New York Times Company (NYT).  What’s more, over the last couple of years, several billionaires have speculated purchasing newspapers. In this specific case, media mogul Haim Saban; Sidney Harman, founder of Harman Kardon; and hedge-fund manager Thane Ritchie have been rumored to have expressed interest.  

Even though the first round of nonbinding proposals came in during the first week of June, prices have been undisclosed. The news magazine could stay on the market for a while, as potential buyers are aware of the long-term challenges Newsweek will likely face.  Readership has fallen precipitously as its subscribers have turned to the Internet for news analysis. Also, multi-media marketing trends have proliferated and hurt the print-advertising market.