Sell or Else!
A big investor’s threat to Knight Ridder is bad news for the newspaper industry.
By Rem Rieder
Rem Rieder (email@example.com) is AJR's editor and senior vice president.
Greed is good, Michael Douglas (as Gordon Gekko) said famously in the movie "Wall Street."
But it's not so good for the newspaper business.
The beleaguered industry took another shot across the bow last week when something called Private Capital Management, which owns 19 percent of Knight Ridder's stock, called upon the nation's second-largest newspaper company to put itself up for sale. And if that didn't happen, the big shareholder said it would support a hostile takeover.
This was a seriously menacing development. As Doug Clifton, editor of Cleveland's Plain Dealer and before that a longtime Knight Ridder editor, told the Los Angeles Times, the ploy "has the feeling of a momentous event."
Seems the 19.4 percent profit the company made last year just didn't satisfy the high-flyers at the money management firm.
Private Capital Management had given Knight Ridder a stern talking to in July. The company soon shed the Detroit Free Press (a Knight Ridder mainstay) and ordered up yet another round of layoffs in Philadelphia and San Jose. But that wasn't enough.
It's never enough for Wall Street.
Where's Karl Marx when we need him?
Maybe it's a character flaw, but I can't work up much sympathy for those impatient profit-mongers at Private Capital Management. It knew what it was getting when it bought up all that Knight Ridder stock (and big chunks of other newspaper companies as well, another reason to celebrate). And it's not like Knight Ridder wasn't doing quite nicely, thank you. Despite all the endless gloom and doom, the newspaper business remains more profitable than many other industries.
It's enough to make you feel bad for Tony Ridder. Here the guy is flogged relentlessly for cutting back, but to Private Capital Management he's a big spender.
So who would buy Knight Ridder should the company acquiesce to the bully boys? Gannet and Tribune Co. are the usual suspects. Gannett certainly knows a thing or two about profits. And while that merger wouldn't brighten the hearts of the quality journalism crowd, it certainly would be grounds for celebration for all those who don't think they have witnessed quite enough consolidation in the newspaper industry. A Gannett-Knight Ridder combo would own 131, count 'em 131, daily newspapers, many of them quite large.
It seems doubtful that Tribune would weigh in, given that it's still absorbing the Times Mirror papers it purchased in 2000 and nursing a nasty tax hangover from that deal.
Or maybe the lucky winner would be a company with no newspaper tradition, one that knows how to make money but has little respect for journalism traditions.
The problem is that newspapers aren't a business like any other. Sure, they need to make money to prosper. But, unlike your basic manufacturing plant or Internet startup, they have a vital public service role to play in our democracy.
There's no doubt that newspapers face serious challenges. The steady decline of circulation is alarming. Figures released this week show circulation dipped by 2.6 percent in the past six months, the sharpest drop in nearly 15 years.
Actually, readership of the stories that newspapers produce is soaring, thanks to the Internet. Newspaper sites are quite popular because newspapers have the staffs to report in-depth information that no one else can.
But while online advertising is increasing, it will take quite awhile to reach levels that can support newsgathering operations of the scope of newspapers.
Meanwhile, all of the profit pressures push newspapers in the wrong direction. No matter how the reality is camouflaged in feel-good mumbo jumbo, the relentless string of cutbacks leads to weaker dailies.
And I'm not sure trying to woo new customers with an inferior product is a brilliant business strategy.
It's clear that all the journalism purists' angst over Wall Street isn't going to stop the bleeding. But that doesn't mean that we have to pretend that the profit mania is just fine.
Thanks, Private Capital Management, whoever you are. We needed that.