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From AJR,   March 1999  issue

Partnering To Improve Newspaper Profits   

Singleton and Donrey join forces in California.

By John Morton
John Morton (mortoninc@msn.com), a former newspaper reporter, is president of a consulting firm that analyzes newspapers and other media properties.     

MediaNews Group and Donrey Media recently broke the traditional mold of newspaper ownership by becoming partners in California, a move that could presage similar collaborations between companies across the country.

If other companies embrace the idea, and there may be compelling reasons for some to want to, the basic structure of small-town newspaper ownership would change dramatically. Most notably, it would accelerate the concentration of ownership in the newspaper business that has been underway for the last half century.

Most newspaper companies now recognize the considerable benefits arising from owning clusters of newspapers in reasonable geographic proximity. Consolidating administrative functions and in some cases production can bring significant cost savings.

Even more important is the ability to sell a cluster's total circulation, usually much larger than a stand-alone newspaper's, to the regional and national chains that control most local retail advertising.

Of course, problems arise when one company's clustering ambitions literally bump up against another's. What the Media- News-Donrey deal suggests is a way to combine the ambitions of two companies into a partnership that would create a cluster much larger than either company could have achieved alone. The larger the cluster, the greater the benefit.

Under the MediaNews-Donrey agreement reached in January, which I estimate involves newspapers worth about $300 million, MediaNews contributes 10 of its California dailies (but not its Long Beach Press-Telegram and Los Angeles Daily News) and numerous weeklies. Donrey contributes its 10 California dailies and two weeklies. The partnership will be managed by MediaNews; two-thirds will be owned by MediaNews and one-third by Donrey. The partners will have total California circulation of 531,000 weekdays and 493,000 Sundays.

The most significant benefit of the deal occurs in the greater Los Angeles market: MediaNews' cluster of dailies in the northeast, which totals 116,000 in circulation, will get a big boost from Donrey's 68,000-circulation daily in nearby Ontario. The other Donrey dailies in Southern California pulled into the partnership are farther away from greater Los Angeles, in Hemet and Redlands near San Bernardino and in Lompoc, above Santa Barbara.

The pact will boost MediaNews' total circulation in Southern California--including the Long Beach Press-Telegram and the Los Angeles Daily News--to 515,000 from 422,000. Most importantly, MediaNews' circulation in Los Angeles County and Ontario, just across the county line in San Bernardino County, will increase to 72 percent of the Los Angeles Times', MediaNews' main competitor.

Elsewhere in California, the deal adds a Donrey daily in Vallejo to MediaNews' five dailies in the San Francisco Bay area, increasing that cluster's circulation to 235,000 from 215,000. Farther north, MediaNews will gain control of four Donrey dailies in the Sacramento valley, from Woodland just northwest of Sacramento and north through Oroville, Chico and Red Bluff. Total circulation is 50,000.

Another of the Donrey dailies in the deal is Ukiah, on the coastal side of the mountains about 100 miles north of San Francisco. MediaNews already owns a daily far up the coast, in Eureka.

MediaNews newspapers in California--those in and outside the partnership--will have a combined circulation of about 830,000.

Dean Singleton, chief executive of MediaNews, said the partnership will seek additional acquisitions to further expand the California ownership clusters. Having Donrey as a partner will be a considerable asset in this strategy, since that company is owned by the Stephens Group Inc. of Little Rock, Arkansas, a huge investment firm.

The old image of the locally owned newspaper has, of course, been shattered in recent decades by the relentless acquisitions by large companies. I can easily imagine a time in the future when almost all small newspapers in a state will either be owned by one company or controlled by partnerships of companies.

Already in most states, especially in the more densely populated ones in the Midwest, East and South, a majority of small dailies is owned by two or three groups.

An obvious question arises over the effect these partnerships will have on the quality and independence of small-town journalism. There could be advantages, including the sharing of news resources and the generation of higher profits to fund news operations.

But how this plays out will depend on the will of the owners.