By Frank Ahrens
Saturday, June 17, 2006
The recent breakup of the Knight Ridder Inc. newspaper chain has helped spark interest around the country in returning papers to local or private ownership after decades of expansion by corporate media conglomerates.
For example, the Philadelphia Inquirer left Knight Ridder for local ownership, and local groups in Los Angeles and Baltimore are mounting efforts to provoke sales of those cities' papers.
The newspaper business was relatively stable over the last half of the 20th century, controlled by a handful of chains that steadily added newspapers and recorded profit margins of 10 percent to as much as 30 percent. Now, after two decades of circulation decline that have led to strife in boardrooms, some of the very precepts that stabilized the business -- newspapers should be owned by publicly held companies, local ownership is limiting, and bigger is better -- are being repudiated.
The upheaval started last fall, when a major shareholder of the venerable Knight Ridder chain began urging the board to break up the company, saying shareholders were not getting the best value out of their stock. By March of this year, the company had been sold to the McClatchy newspaper company, which began selling the papers it didn't want.
The roiling has spread to the boardroom of the Tribune Co., which owns the Los Angeles Times, the Chicago Tribune and the Baltimore Sun, among other papers and television stations. There, members of the Chandler family -- Tribune's second-largest shareholder and onetime owners of the Los Angeles Times -- are warring with other directors, urging the company to break up. The issue: The board authorized a stock buyback, which would cost the company millions of dollars in new debt, and the family fears losing the value of their stock. Anxiety in the Chandler family may be valid: On Thursday, Moody's Investor Services cut the $10 billion Tribune Co.'s credit rating to "junk" status.
The Baltimore Sun reported yesterday that the local Abell Foundation is using the uncertainty to urge Tribune Co. to sell the Sun. The Abell Foundation is a private organization funded with money the Abell family earned by selling the newspaper in 1986.
"Suddenly, we have all this turmoil," said newspaper analyst John Morton. "Ultimately, when all of this is done, a number of papers will end up in private hands."
Big, century-old chains -- such as Knight Ridder, E.W. Scripps Co. and Gannett Co. -- spent most of their lives as privately owned, family controlled companies. But in the '70s and '80s, the chains sought public money, which allowed them to grow but made them vulnerable to the short-term, quarter-by-quarter earnings demands of Wall Street.
Now, Wall Street has soured on newspaper stocks, and major shareholders -- families, institutions -- are urging sell-offs. Which Wall Street likes. Tribune's stock price has jumped nearly $5 a share since the Chandlers began urging the breakup, in late May.
Some newspaper owners, such as MediaNews Group Inc. chief executive William Dean Singleton, never heeded the siren call of public money. Instead, he relied on revenue, acquisitions and private capital to grow his newspaper chain, headquartered in Denver. In April, Singleton used his own cash to buy four of the Knight Ridder castoffs, making him the industry's fourth-largest owner.
Singleton's reasoning -- one that is gaining traction in the industry -- is that privately owned newspaper companies have debt that can be paid down with the significant amounts of cash papers continue to generate. Wall Street cares far more about earnings than debt, and private companies don't have to talk about earnings to outsiders. With private ownership, shareholders are off your back. A helpful thing, as newspapers take risks to follow their readers to the Internet and beyond.
McClatchy found owners -- all of them privately held -- for all but one of the 12 newspapers it sold off.
Morton has become a convert to the return-to-private thinking, which he said has its journalistic benefits.
"The fact is, Wall Street is so short-nosed and is so dedicated to maximizing return on investment to the exclusion of almost everything else, you're going to have situations where, basically, you have a lot of public shareholders who have interests that are inimical to good journalism," he said.
But lest a generation of newspaper journalists -- who have watched corporate parents slash costs through layoffs, budget cuts, bureau closings and the like -- gets dewy-eyed over the prospect of local, private ownership, Singleton warned: "I don't think there's a lot of difference between performing well to please your shareholder or performing well to please your bankers."
There is some good news in the unrest, Morton and newspaper executives say. If the sale price of Knight Ridder -- $4.5 billion -- was a referendum on the health of the industry, the answer was positive. The price was higher than most expected and acknowledges the fact that many newspapers still enjoy profit margins of about 20 percent -- higher than that of most business.
And even though big-city newspapers are losing circulation, many small and mid-size communities' newspapers are growing. It was those Knight Ridder papers that caught McClatchy's eye.
After buying Knight Ridder's 32 papers, McClatchy chose to hold onto only 20 of them -- and only four of them are large papers, including the Miami Herald and the Kansas City Star. The rest include the Olathe (Kan.) News, with a daily circulation of 4,986; the Idaho Statesman (circulation 62,000); and the 100,000-plus Lexington (Ky.) Herald-Leader.
The smaller papers are growing because, unlike in large media markets, they are either the only or the dominant advertising vehicle in town. It is an advantage that large papers, such as the Philadelphia Inquirer, cannot match, as advertisers have more ways to reach consumers there.
The Inquirer ended up in the hands of a group led by a founder of Toll Brothers Inc., a home builder. Although Toll is a publicly owned company, it is local to the Philadelphia area.
Staff writer Annys Shin contributed to this report.