Sale hints at future of newspapers
By ERIC DEGGANS
Published March 14, 2006
When former Philadelphia Inquirer executive editor Jim Naughton heard that McClatchy Co. was the leading candidate to buy Inquirer owner Knight Ridder Inc., he figured the company - and by extension, the industry's prospects - was in good hands.
After all, the Sacramento, Calif., chain is known for managing well its lineup of 12 newspapers, which include the Minneapolis Star Tribune and Sacramento Bee - maintaining a good stock price and stable circulation.
Then the other shoe dropped: McClatchy announced plans to sell a dozen Knight Ridder newspapers as part of the deal totaling $6.5-billion, including both the Philadelphia Inquirer and the Philadelphia Daily News - leaving the fate of all 12 outlets up in the air.
"I'm afraid what this says is that the future of newspapers depends more on people who care about profit than (journalism's) community responsibility," said Naughton, who retired in 2003 as president of the Poynter Institute, the school for journalists that owns the St. Petersburg Times . "I don't think it's the (type) of company which matters so much as the will of the people who run it."
From the moment, months ago, when Knight Ridder investors pushed the 32-newspaper chain into exploring a sale, observers thought the transaction would reveal whether the industry could still grow.
But McClatchy's deal offers few clear indications: The company's reputation for running quality newspapers in challenging economic environments is considered good news. However, the price fetched for the company - about $67 per share - is not as much as analysts expected, and news that McClatchy was the only newspaper company to make an official bid seems a sign of industry maturity.
"McClatchy's strategy has always been to acquire newspapers in growth markets," said industry analyst John Morton, noting the company's explanation for how it picked the 12 newspapers to sell - including the Akron Beacon Journal in Ohio, and Knight Ridder's flagship newspaper, the San Jose Mercury News .
"These that are left have the same prospects for household growth as McClatchy's current newspapers," he said. "And McClatchy has to be thinking about how to raise money to pay for the ($2-billion in) new debt."
Coincidentally, the McClatchy-Knight Ridder deal echoes conclusions drawn in a new report on the state of the media issued Monday by the Project for Excellence in Journalism, a Washington think tank.
Looking back at 2005, the study found the newspapers hardest hit by the downturn in circulation and profits are big metro papers like the Philadelphia Inquirer . It also said the war in newsrooms between journalism idealists and accountants has ended. "The idealists have lost," the report said.
"I wish there were an identifiable and strong correlation between quality journalism - and newspaper sales," Knight Ridder spokesman Polk Laffoon IV said in the report. "It isn't ... that simple."
Tom Rosenstiel, director of the Project for Excellence in Journalism, said the two companies in this deal offer different solutions to the newspaper industry's dipping circulation, sagging advertising revenues and rising costs.
Where Knight Ridder is known for aggressively controlling costs, sometimes by cutting staff or resources, McClatchy's reputation involves targeting areas where the economy is growing or population is expanding. McClatchy's profit margin was nearly 23 percent last year, compared with 16 percent for Knight Ridder, according to the Kansas City Star .
(The Times remains independently owned by the nonprofit Poynter Institute in St. Petersburg.)
"It's two competing visions of the industry," Rosenstiel said. "Are newspapers a mature industry, where pouring more money into the newsroom is a waste? Or is this still a growth industry? (McClatchy) thinks they know how to change newspapers to attract new readers."
Another believer in the future of newspapers: the Newspaper Guild-Communications Workers of America union, which still hopes to organize a "worker friendly" buyout of the newspapers for sale, particularly at the eight papers that are unionized.
"As the transition from print to the Web takes place, I think there is a profitability that is being ignored," said Bernie Lunzer, secretary treasurer for the union.
"McClatchy has to pick absolute winners for this to work because they are so highly leveraged," added Lunzer, who said the union hopes to structure any purchase to shield the employee-owned newspapers from Wall Street's constant profit demands. "Papers need a little bit of air ... a little bit of space to figure out a new business model."
In an e-mail to Knight Ridder employees, CEO Tony Ridder noted the deal was expected to close this summer, leaving McClatchy with 32 daily newspapers and 50 nondaily newspapers after selling off the 12 outlets.
But Ridder could offer no assurances to employees wondering if their jobs would continue. Even Henry Haitz III, publisher of the Knight Ridder-owned Bradenton Herald , couldn't say if his job would survive.
"I guess I'd say I'm trying to do what we tell our employees to do," said Haitz. "Do your best job, and good things tend to follow."
--Eric Deggans can be reached at 727 893-8521 or deggans@sptimes.com See his blog at www.sptimes.com/blogs/media/