A Flurry Of Deals To Create Clusters   

Newspaper chains are trying to increase geographic concentration.

Every era has its buzzword, and for the last half of the 1990s it's newspaper "clustering." This is an ownership concept that calls to mind that 1980s buzzword "synergy," which was supposed to mean that, in combining companies, two plus two could equal more than four (as it turned out, the answer often was three).

In pursuit of clustering, newspaper companies have been buying, selling and swapping properties at a dizzying rate. By my count, more than 120 dailies changed hands in 1996, and most of the deals were driven by clustering. The pace is not likely to let up this year.

What exactly is clustering, and what might it mean for newspaper people? At the simplest level, clustering means trying to achieve geographic concentration of newspaper ownerships.

For example, Media General, which owns the Richmond, Virginia, Times-Dispatch, recently acquired eight dailies in the eastern two-thirds of Virginia. Cox acquired dailies in eastern North Carolina to go with a newspaper it already owned in the same part of the state. Thomson Newspapers has reorganized its vast holdings of small dailies in a clustering strategy that so far has involved 34 dailies in selling, buying and swapping deals.

Other large newspaper companies heavily involved in clustering deals last year were Hollinger International, owner of the Chicago Sun-Times and numerous small dailies; MediaNews, owner of the Denver Post and other dailies; and Pulitzer Publishing, owner of the St. Louis Post-
Dispatch and 14 small dailies it purchased from Scripps League. Media General has already become a major deal maker in 1997, having sold off 18 of the 28 dailies it acquired from Park Communications that did not fit its clustering strategy in the Southeast, the company's preferred region of operation.

Part of the motivation behind clustering is to achieve lower operating costs. This can be as fundamental as using one newspaper production operation to print two or more papers (this requires reasonable proximity). More common is consolidating administrative functions such as accounting, benefits management and the like for several newspapers. The goal, of course, is to cut employment, and this would be the main impact on employees.

Another potential advantage of clustering is sharing news coverage and feature sections. This is not likely to save much money, but it can enhance the news product.

A third factor driving clustering is advertising revenue. It is no accident that most of the transactions recently have involved small-town newspapers, many of which have been adversely affected by fundamental changes in local retailing.

Historically, advertising from local retailers has been the revenue backbone of small-town dailies, contributing as much as two-thirds of all ad revenue. That's still largely true, but in recent years local retail advertising has been relatively weak, especially compared with classified. The reasons include heightened competition from direct mail companies and a change in the ownership of local retail stores.

At one time, small-town dailies could count on numerous locally owned stores for advertising dollars. Even local outlets of national chains like Sears or Montgomery Ward made their own spending decisions.

What has changed is that national or regional chains – after driving many locally owned stores out of business and leaving many survivors in weakened condition – now dominate local retailing, even in most small towns. The chains tend to bargain hard on rates, and spending decisions often are not made locally but at regional headquarters.

A single small-town daily, with only a small fraction of a national or regional chain's overall marketing area, is at a disadvantage in competing for business with huge direct mail operators. The problem is not critical in most places, but it is growing.

One way to counter this trend is to join other newspapers in offering advertisers a regional buy, taking advantage of the fact that ownership of many local retail establishments is the same from one town to the next. A "cluster" of newspapers, by offering a bigger circulation package, becomes a bigger player in the quest for advertising revenue than any single daily could hope to be. Even a big newspaper like the Richmond Times-Dispatch enhances its standing if it can offer advertisers not only the Richmond market but the circulation of eight other dailies in the state.

The buying, selling and swapping of newspapers as if they were of no more significance than pork bellies or wheat futures may seem crass and coldhearted, especially to those who lose their jobs as a result. But clustering simply reflects the fact that the business of small-town newspapers is changing.

The goal is to preserve newspapers and the jobs of the people who work for them.