She's So Fine  | American Journalism Review
 AJR  Features
From AJR,   July/August 2001

She's So Fine   

Wall Street's media analysts have an impact on the way publicly held newspaper companies operate. Few are as high-profile as Merrill Lynch's Lauren Rich Fine.

By Valarie Basheda
Valarie Basheda, a former AJR managing editor, is an editor at the Atlanta Journal-Constitution.     

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LAUREN RICH FINE GREW up in a house near Cleveland where three newspapers were delivered every day. But even at a young age, it wasn't the black-and-white columns of the Cleveland Press or the New York Times or the Wall Street Journal that caught her fancy.
It was something of a slightly different color.
"I was always interested in making money," she admits.
At the age of 12, Fine asked her parents to help her find a job and embarked on her working career by putting together candy boxes at Draeger's ice cream and candy store. She hasn't stopped since--graduating from serving up chocolates to offering financial advice to some of the biggest players in the financial world as a publishing and advertising analyst for Merrill Lynch.
What she dishes out now isn't nearly as sweet, but it certainly gets attention. As one of the most media-accessible of the newspaper company analysts, she seems to be everywhere talking about the industry's woes. Profit margins in the 20s aren't enough. Knight Ridder has been an underachiever. You need to maintain earnings in the short term.
When Lauren Rich Fine talks, people listen. And among the people listening to Fine and other analysts are newspaper company CEOs, who have slimmed down their companies' workforces and products at an accelerating rate in the past several months. After all, the analysts are the liaison between Wall Street and the companies, the people who tell investors whether a company is a "buy" or "hold."
They've also become the favorite punching bag of late of some journalists, who deride what they see as the analysts' cold-blooded, bottom-line mentality. And as journalists hear the news of cutback after cutback from companies like Knight Ridder, the New York Times Co. and Dow Jones, they worry that analysts seem to increasingly dictate how newspaper companies run their businesses. Reviled by some, respected by others, who are these gurus of Wall Street who can send a stock price soaring or reeling with a single pronouncement?
Take Fine, for instance. She's smart and well regarded among Wall Street types and newspaper CEOs alike. She's earned high marks in rankings of analysts put out by consulting firm Greenwich Associates and publication Institutional Investor--two of the most influential in the field.
On the weekends, she's a soccer mom, shuttling her two children and niece to soccer matches and tennis lessons. But during the week, Fine works at whirlwind speed. She's monitoring the stock market, reading and writing reports, talking to clients and the companies she monitors, attending quarterly meetings. Although she used to work in Manhattan, she and her husband returned to the Cleveland area more than four years ago because they thought it was a better place to raise their family.
When Fine works out of her third-floor office in her Shaker Heights home, she starts her day at 7:30 a.m., after getting the kids off to school. She sits at an L-shaped desk with two computers, surrounded by files stacked on the floor and on wall shelves. She's also usually accompanied by her springer spaniel, Bogart (who more than once has been known to mess up those files).
On this particular day in May, Fine had just come off a three-day West Coast trip that took her from a speech in Los Angeles to meetings with clients from Southern California to Portland and Seattle. Her next task was finishing a 165-page "primer" on the newspaper industry that she prepares annually. As is usual when she works at home, Fine takes a dinner break with her family at 6:30 p.m., then heads back to work at 9:30 p.m. for several more hours.
Fine, 41, fell into becoming a newspaper analyst after working at Merrill Lynch a second time. (She had worked there part-time to put herself through school while getting an MBA at New York University.) She didn't like what she was doing in the treasury division and was ready to leave when some friends hooked her up in equity research. She started working with the top analyst there, whose responsibilities included newspaper publishing. After he retired, she took over that role herself in 1994.
She loves the pace of her job, which keeps her on the road about 40 percent of the time, and says it takes advantage of her talents as a number cruncher and her outgoing personality. "I thrive on being busy," she says. "I feel I've got one of these jobs where you really are asked to use your intellectual capacity."
She talks at a dizzyingly fast speed--rattling off statistics, opinions and analysis about the 10 newspaper companies she monitors and the entire industry without hesitation. And if you can keep up with her--usually by employing electronic aids--she's a quote machine:
On the layoffs at Knight Ridder: "There's a human side of me. I never want to see anybody lose their job. But there's the purely capitalist side of me that says it's no way to run a company, and I just call it as I see it."
On the tough choices facing public companies: "If they don't like what it means to be a public company, the best thing to do is go private."
On quality: "Until you can show me that your subscribers are willing to pay more money because of the quality, I sort of feel like the average reader isn't that sensitive to the quality at a certain level, and you really do need to make decisions that sometimes seem short term in nature, because you chose to go public, and shareholders really do deserve a return."

THIS, THEN, IS THE MESSAGE. It's not a message solely from Fine or other top-rated analysts such as William Drewry from Credit Suisse First Boston or Kevin Gruneich of Bear, Stearns & Co. It is Wall Street's message.
It's neither new nor surprising to newspaper CEOs. The job of analysts is to recommend to their clients whether to invest in a stock, either for the long or short term. Most often, those clients are huge institutional investors such as Fidelity and Janus. The analysts, with the help of researchers, gather statistics on things like circulation and advertising revenues from the companies, then use models to help determine what their earnings are going to be. That's what investors want to know: Which stock is going to provide a better return on their money?
"When you look at your own 401K or mutual fund, if you are interested in whether it went up in the last quarter, you are interested in where an analyst is coming from," says Polk Laffoon, vice president of corporate relations for Knight Ridder, who oversees investor relations.
Although most people believe the analysts are influential, there is no agreement on how much sway they have. Fine says she can't answer that question, either, but thinks she does best in providing industry perspective for her clients and in creating economic models. She thinks she has less clout as a stock picker, although "I know that because I work with Merrill Lynch, and if I make a big call on something, it will have an impact. But I don't know if that's because it's me or if it's because it's Merrill Lynch."
Gary B. Pruitt, chairman, president and CEO of the McClatchy Co., agrees that the analysts' views have impact. "What they say can influence the behavior of some institutional stockholder or potential stockholder," says Pruitt. "They are influential because what they write about your company resonates."
As CEO, Pruitt joins his colleagues twice a year when newspaper companies have meetings in which they make presentations to the analysts. At those meetings, the companies have to deliver their own message: Why they are worthy of investment. Their speeches tend to be heavy on numbers and opportunities for growth, and light on the public service aspects of journalism.
During a February media roundtable with some analysts, E.W. Scripps Co. President and CEO Kenneth Lowe answered the question of why his company was a good investment in part by saying: "Probably the fact that we're really focusing on building the intrinsic value of our businesses. We believe over time that not only will the market recognize it, but it will be manifested in our stock price. We have a trusted management team, I think, that allocates capital very wisely. In this day and age, that's critical."
This is part of Pulitzer Inc. President and CEO Robert Woodworth's response to the same question: "We have in St. Louis a relatively low ad-volume paper that has historically run with low advertising rates. That, in addition to some structural elements on the cost side, has added a margin performance that's been toward the lower end of the industry. We're very focused on improving that revenue, and really delivering value for advertisers."
The focus on financials is something that worries Steve Geimann. "We have relinquished too much of the stewardship of journalism to the financial marketplace," says Geimann, past president of the Society of Professional Journalists and former chair of its ethics committee. "Those of us who stand up and speak up, we sometimes feel like lonely voices in the wilderness."
But Knight Ridder's Laffoon says mentioning Pulitzer Prizes or quality journalism wouldn't do any good because analysts really don't care. "That is not the focus of the group," he says. Bob Ingle, a former Knight Ridder executive who attended analysts' meetings, agrees. "They don't consider good journalism to have any bearing at all. It was all earnings per share."
Still, that hasn't stopped Pruitt, along with Donald E. Graham of the Washington Post Co. and a few others, from mixing his numbers with a little journalism. "We have always taken the position at McClatchy that good journalism is good business," says Pruitt.
McClatchy is one of the few publicly traded newspaper companies that hasn't announced staff reductions since the economic downturn and doesn't plan to, although it's not filling all vacancies. "To take steps to preserve the profit margin with declining revenue this year would be a mistake," Pruitt says. "You'd be slitting your throat."
He's already warned the analysts that the company's profits will be down. "We as a company aren't running scared.... We're not worried that if we didn't cut newshole the analysts will be upset," says Pruitt. "We're not making decisions internally based on what the analysts will think and say about the company."
The company also has a significant amount of family ownership, making it less beholden to Wall Street.
While this might seem to go against the grain, the company has earned praise from Wall Street for going into high-growth markets, boosting circulation and containing costs. Although its 20.5 percent profit margin was lower than the industry average of 22.4 percent, total return on its stock over the past five years was better than that of its peers, according to the company's annual report.
Certainly, no analyst is telling companies to lay off employees and shrink their papers. But they do reflect the wishes of Wall Street--to generate higher profits--and that desire puts pressure on companies to make cutbacks in rough times.
Still, Fine says that newspaper companies are free to shape their message to the investment community. Washington Post Co. stock, for instance, is relatively cheap. If a client asks about it, Fine says she explains that the near-term return is not likely to be as high because the company wants to maintain its high journalistic standards and is less concerned about its quarterly returns. So the stock is priced accordingly. If other companies watched their earnings slide, their stock prices would likely suffer, she says.
"There are different ways to create who you want to be when you grow up," says Fine. "You don't have to do it the way the rest of the group does it."
Hodding Carter, president and CEO of the John S. and James L. Knight Foundation, says that if companies believe they are susceptible to the whims of Wall Street, they have no one but themselves to blame. They are the ones who started talking to them about the numbers, forsaking the journalism side of their businesses.
"The analysts are not the big, bad monsters of the market," says Carter. "Sadly enough, they accurately reflect what they are told by the industry.... What matters is profits above all."

OGRE OR NOT, Fine says she sometimes gets treated like one. But the criticism, she says, doesn't bother her; it comes with the territory.
After Knight Ridder announced its first round of layoffs earlier this year, Fine heard from journalists who told her they were "disgusted" by her point of view. "My attitude was, 'Look, you know, you don't have to work there,' " says Fine.
" 'No one's making you work there. And if you don't like their policies, then work somewhere else.' "
Fine says she always listens to people who criticize her stance and will change her mind if they make good points. But she stands by her position on Knight Ridder. "I completely understand the emotions that come in from the journalism point of view. But that's because I covered the sector for so long, I know that...in general, many journalists hold themselves to a higher calling. That's great. It just isn't reality working for a public company. I work for a public company, and we have layoffs all the time. Sometimes it's my friends who get laid off. I certainly don't like that, but it's reality."
Fine also points out that when it comes to newspaper layoffs, very few are generally in the newsroom. "I assure you that people at newspapers who are upset about layoffs are only upset if they're on the editorial side, that it is well understood in any other part that you are in a manufacturing operation and there's layoffs all the time and nobody ever gets upset about that."
Despite the furor over increasing profit margins, Fine does think they will soon plateau for newspaper companies. She worries about the threat of online classifieds and what that will do to pricing of regular classifieds. Circulation is generally going down. On the cost side, the industry isn't bloated, she says. To grow in the future, newspapers will have to find new ways to make money.
While Fine may not be particularly bullish on newspapers as investments right now, she certainly is a reader. These days, three newspapers are still delivered to the Fine household: the Wall Street Journal, New York Times and, on the weekends, Cleveland's Plain Dealer. When she's working at home, Fine gets up at 6 a.m.--which gives her an hour to read them before the kids get up.
"One of my greatest pleasures each day is reading the newspaper," she says. "I get up early to do it. I bask in it. It's just amazing to me what they pull off every day."

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