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 AJR  Columns :    THE NEWSPAPER BUSINESS    

From AJR,   August/September 2006  issue

Private Moment   

Twelve daily newspapers made the trek from public to private ownership as a result of the Knight Ridder breakup. Is this a trend that will continue?


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.     

One significant byproduct of the ownership turmoil involving newspapers at the former Knight Ridder and at Tribune Co. is the return to private ownership of a dozen dailies and the possibility of more to come.

To one weary of the restraints public ownership places on newspaper journalism, owing to Wall Street's incessant demands for ever-higher earnings and share prices, this has been a salutary development.

So far, though, not too much should be made of this. Publicly traded companies still own about 46 percent of the nation's daily circulation, including many of the most prominent newspapers.

Still, it is a start, made even more tantalizing when the Chandler family representatives on Tribune Co.'s board of directors urged the company in June to sell off some or all of its newspapers and television stations. The Chandlers were reacting in opposition to Tribune's decision to buy back up to 25 percent of the company's stock, borrowing up to $2 billion to do so.

Tribune's stock had dropped 34 percent in the year and a half before it announced its plans, which when completed will increase per-share earnings (by spreading earnings over fewer shares) and presumably its trading price. That and the added debt will make the company a less attractive takeover target.

The Chandlers apparently prefer Tribune to be a more, rather than less, attractive takeover prospect, since that would offer them maximum value for the 36.3 million shares they got, along with three seats on the board, when Tribune Co. acquired the Chandlers' Times Mirror Co. in 2000.

The prospect that at least some of Tribune's 2.7 million daily circulation might fall into private hands is intriguing, but it seems unlikely. The Chandlers did not appear to draw allies from Tribune's institutional investors, which might have given their demands some traction.

The other eight directors are a rather Chicago-centric bunch who so far have been resolute in backing management's plans, which include, in fine Wall Street fashion, a pledge to cut costs by $200 million and to sell off "non-core" assets worth $500 million.

The 12 Knight Ridder dailies that did fall into private hands include notable ones in San Jose, St. Paul, Akron, Ft. Wayne, and Philadelphia. The Philadelphia Inquirer and Daily News, along with Pennsylvania's Wilkes-Barre Times Leader, wound up not only with private ownership but local ownership as well. (See "Life with Brian".)

Of course private ownership, even local ownership, is not a guarantee of good journalism. Local ownership especially has hazards. Some of the most biased, sacred-cow-observing dailies I have ever read were locally owned, back before most of them were bought up by chains.

Moreover, private ownership brings its own restraints, though nothing so onerous as what Wall Street imposes. When private companies need money for improvements or expansion, they go to the bond markets or banks. This inevitably requires maintaining minimum cash flow and other financial parameters, but generally the lenders' perspective is more long-term and negotiable than the insistent pressure applied to public companies by daily stock prices.

Some of the largest and most successful newspaper companies in the nation are privately held, including MediaNews, Newhouse, Hearst and Cox, the fourth, sixth, ninth and 11th in total daily circulation size. These companies down through the decades have been able to expand and improve without resorting to the public stock markets.

It has helped that each of them is controlled by a reasonably cohesive, non-fractious family. The same is true, of course, for several publicly owned companies, notably Belo, Dow Jones, Lee Enterprises, McClatchy, Media General, the New York Times Co., E.W. Scripps and the Washington Post Co.

Unlike Tribune, Gannett and, lamentably, the late Knight Ridder, these companies are protected from unfriendly takeovers because family and management maintain control through non-trading voting stock. Presumably these protected companies could operate as though they were immune to the demands of Wall Street, but in practice they engage in much of the same earnings-driven penny-pinching that so bedeviled Knight Ridder's newspapers in the final years.

The nightmare that sometimes awakes me is rooted in the faltering state of so much newspaper journalism and what it portends for the future of public discourse and the quality of the nation's democracy. Part of this is the fear that, through technology, many people will choose only the news they like, the news that makes them feel comfortable.

The dream that does not jolt me awake is that some of the publicly owned companies will find the will and the wherewithal to buy back all of their shares and operate as private companies determined to publish the best newspapers they can.

This would come at a personal cost, since much of what I know about the newspaper business stems from perusing the data revealed by public companies. But I'd give this up in a second.