Whither Knight-Ridder?   

It was considered something special, a large newspaper chain that put quality journalism first. Now it is cutting back in an effort to increase profits in the face of pressure from Wall Street. But at what cost?

Some of the newspaper business' leading figures were among the hundreds who solemnly filed into the First United Methodist Church in Coral Gables on a warm Florida day last June, gathered to mourn the untimely death of James K. Batten. Batten was "a rare type of newspaper business executive," the New York Times eulogized, "one with roots in the company's newsroom."

Batten rose from reporter and editor of a Southern daily to become chairman and chief executive officer of Knight-Ridder Inc., the country's second largest newspaper company and one of its best, second only to the New York Times in the number of Pulitzer Prizes won by its papers. Batten was revered by Knight-Ridder's editors for his commitment to journalism, for his devotion to the press' historic mission to help preserve American democracy, for his inspirational speeches and for his genuine love of the business. He had distinguished himself in a company unlike others, a large chain that bought mediocre newspapers and made them great, steeped in the public service tradition of John S. Knight.

During his tenure, Batten began transforming the company's newspapers, reinventing the journalistic vision that had once guided them. But the change he helped bring to Knight-Ridder was accompanied by doubt and the defec- tion of some of the company's top journalists. Even before Batten's death, some reporters and editors around the country had begun questioning the direction Knight-Ridder was taking, worried by accounts of turmoil and cutbacks at its newspapers.

At the memorial service, eyes focused on P. Anthony Ridder, Batten's successor, as he stood to deliver one of the eulogies. For six years Ridder and Batten occupied adjoining offices. They talked every day, rarely disagreeing on the company's direction, according to Ridder. Only a few months earlier Ridder had replaced his dying boss in the CEO's office high above Biscayne Bay.

"We shared the triumphs and the failures," he told the mourners. "We discussed thousands of decisions about Knight-Ridder and its people. It is difficult now to believe my friend and counselor will no longer be next door."

Ridder, 55, left alone to guide Knight-Ridder and its newspapers into the 21st century, inherited a company in the midst of a profound and painful transition. Batten had correctly perceived a fundamental shift occurring, not just at Knight-Ridder, but throughout American journalism. With the 15 largest chains now controlling more than half of the nation's daily circulation, journalists no longer simply compete for readers in the marketplace of ideas; instead, huge information companies vie for market share.

As a consequence, "newspaper companies are using their creative energies and best talent and money to develop other businesses while relying on newspapers as cash cows," says James D. Squires, former editor of the Chicago Tribune and author of "Read All About It! The Corporate Takeover of American Newspapers." "They say they love newspapers but they invest in something else."

Only a decade ago the newspaper business was expanding, and Knight-Ridder and others were reinvesting large chunks of their profits in news gathering. But declining readership and increasing competition from other media have combined to make newspapers a slow, even "a no-growth business," says Frank N. Hawkins Jr., longtime head of Knight-Ridder's corporate communications and now an international consultant. "So where's the growth coming from? You're going to have to cut costs. That's the only way to keep the bottom line respectable."

A steep rise in newsprint prices, predictable but still painful, has intensified cost-cutting throughout the industry. Times Mirror, another blue chip newspaper company known as a Wall Street underachiever, closed New York Newsday and implemented deep cuts at its flagship Los Angeles Times (see "The Shrinking L.A. Times," October 1995). "If death comes to newspapers, it'll be death by suicide," says Gene Roberts, managing editor of the New York Times and former executive editor of Knight-Ridder's Philadelphia Inquirer. "It'll be because we starved ourselves to death in the name of becoming healthier companies, starved to death our newsrooms, the very thing that makes it possible for us to exist."

But managers of publicly traded newspaper companies have very little choice, given the current economic environment, says Hawkins. "Thousands of other companies are seeing their stock increase 400 percent in the last eight years and Knight-Ridder has pretty much stayed the same. For Knight-Ridder shareholders, it's very discouraging. That's the dilemma Tony Ridder has been facing. He has a job to do. And if any of those editors who are whining on your shoulder were faced with the same dilemma, they'd be doing the same thing."

At Knight-Ridder, the pain is felt most acutely in Philadelphia, where management has decreed a 50 percent increase in profit margins (from 8 to 12 percent) at the Inquirer and Daily News, and in Miami, where the Herald's reputation as the chain's largest profit maker has failed to insulate it from restructuring.

The recent announcement that the Miami paper had to increase its profit margin from 16 to 18 percent despite rising costs affected people deeply, says Political Editor Tom Fiedler, a 22-year Herald veteran. "It was the first time it became unmistakably clear that Knight-Ridder was a corporation interested in protecting profits first and a news organization interested in the ideals of journalism second," he says. "I know that sounds harsh and I don't mean it to be. A lot of people at the top care about quality journalism, Tony Ridder included. But it's as if we made a Faustian bargain when we went public. And we didn't realize the implications of that bargain until now."

Batten believed he could beat the devil. He encouraged a journalism of inclusion, called civic or public journalism, asking reporters and editors to promote civic responsibility instead of merely reporting on problems. Batten set out to redefine journalism's vision, protect its fundamental mission and, at the same time, deliver the higher profits that Wall Street demands. That ambition is Ridder's inheritance--and burden. "I think Jim Batten came as close to succeeding as anyone," says Squires. "But he was a guy standing with his finger in the dike."

Ridder disagrees with that bleak assessment. "There should be absolutely no doubt," he says, "that I am trying to improve the financial performance of the company. But that doesn't mean that the quality of journalism has to suffer. It's this simplistic notion that you can't chew gum and walk at the same time."

The changes at Knight-Ridder are perhaps most symbolic because they were least expected. "Knight-Ridder is one of the last to worry about traditional journalism," says John McMullan, former executive editor of the company's Miami Herald and a onetime Knight-Ridder executive. "It's still alive there. Wounded, but still alive."

In 1955, the year Knight Newspapers bought the Charlotte Observer, where Batten got his start in journalism, John Knight convened a meeting of the company's top editors. "We must be..dedicated to the public welfare," he told them, beholden to no special interest or political faction, including bankers and moneylenders, wrote Charles Whited, Knight's biographer. "In an era of dying newspapers," Whited wrote, "the Knight group flourished."

Knight ran the company out of his briefcase, gave editors autonomy and institutionalized a separation of powers that protected editorial decisions from business considerations. Knight's formula for success, according to Whited, was straightforward: "Heavy on community service, boosterism and society interest and mindful of the city's pecking order in civic and social affairs."

But Knight also allowed for each editor's vision. During World War II's newsprint shortages, Miami Herald Editor Lee Hills, one of Batten's mentors, stripped the paper of ads, leaving more space for news. Public approval soared and the competing Miami News never regained its circulation lead. In Charlotte, North Carolina, during the civil rights struggle, Editor Pete McKnight, another Batten mentor, vigorously defended the rights of blacks, provoking sharp criticism in his community and from James Knight, Jack Knight's younger brother. Even so, the elder Knight defended McKnight, "and James Knight made no attempt to tie McKnight's hands," Whited wrote.

As the company grew larger, Jack Knight was warned to adopt more formal business practices or risk losing out to competitors. "It's a new ball game," Eddie Thomas, chairman of Goodyear Tire and one of Knight's most trusted friends, presciently told him in 1966. "You seem to have the attitude that people have got to read your newspapers. Well, they don't have to."

In 1974, after Knight merged with Ridder Publications Inc., a chain as well known for making money as Knight was for quality, the company ushered in a golden era of journalism and financial growth. Knight-Ridder was "a place that honored editors, made editors a key part of what made the company function," says Larry Jinks, formerly the company's senior vice president for news. "It was possible for editors to really grow and still hold on to their value system."

Ever-increasing revenues allowed corporate executives to drastically improve the Ridder papers, putting Publisher Tony Ridder in charge of what became a dazzling success story in the booming market of San Jose, California. In Philadelphia, Gene Roberts was building a dynasty of his own, financed by the chain's ever-growing profits. He took one of America's worst urban newspapers--the Inquirer--and turned it into one of the best, winning 17 Pulitzer Prizes during his 18 years at the helm, creating a standard of journalism admired throughout the industry.

Joel N. Shurkin, formerly a science writer at the Inquirer and now a freelancer, remembers fondly the paper's devotion to journalism at all costs. After the paper won a Pulitzer for its reporting on the Three Mile Island nuclear accident, Shurkin asked Metro Editor John Carroll (now editor of Baltimore's Sun) how much the coverage cost. "And he said the one sentence I had always longed to hear," Shurkin says. " 'I don't care.' "

That attitude changed over time. In the late '80s, with Batten as CEO and Ridder as president, articles in the financial press began complaining that Knight-Ridder was too dependent on newspapers for revenues, that it had lost its edge financially.

"Knight-Ridder has for years run good newspapers but turned in a mediocre financial performance," Forbes magazine reported in 1988. "Does Batten at the top signal a change?" A year later, Financial World magazine was asking the same question. "Can crusading ex-newsman Jim Batten revive the Knight-Ridder newspaper chain?" the headline asked. The story ended with a prediction: "Sadly, it may be the crusading journalist who oversees the downsizing of the newspaper business, not the raiders and business school types."

Batten was never one to turn down a challenge, especially if he thought he could do some good. Service and obligation informed his boyhood: As a 9-year-old, he cried inconsolably after reading Robin Hood, "unable to comprehend or accept the fact that there were actually human beings who were so poor, so hungry, so hopeless," his brother Robert recalled.

After graduating from Davidson College in North Carolina, Batten went to work at the Charlotte Observer for Editor Pete McKnight, joining the staff in 1957 "at what probably was its most exciting period," remembers celebrated newsman and former Knight-Ridder CEO Lee Hills. "The Knights completely overhauled it, transforming a mediocre paper into one of the best regional newspapers in America."

Batten moved around the company and rose quickly, winning a George Polk award for reporting on civil rights in the South, working in the Knight Washington bureau and as assistant city editor at the Detroit Free Press. Knight executives installed him as editor of the Charlotte paper in the early '70s, and then made him a tempting offer in 1975: move to corporate headquarters in Miami as a vice president charged with improving the company's medium and small newspapers, especially the newly acquired Ridder properties.

Though Lee Hills saw in Batten the makings of a corporate leader, he had one reservation. "The only question was whether he was tough enough to make the difficult decisions required of a top executive," recalls Hills. "Jim was a gentle, decent, unassuming human being with a charm that everyone loved. So far as I know, he never had an enemy."

Batten's own doubts about leaving daily journalism suggested he should turn down the job. But powerful mentors convinced him otherwise. Even before Batten was called to Miami, former Knight-Ridder executive Derick Daniels remembers urging him to move into the corporate ranks. "Batten gave the editors some confidence that their interests wouldn't be sold out to the bean counters," Daniels says. "His very presence was that important."

As Batten's power and influence spread, Knight-Ridder boomed. Revenue more than doubled, and young, talented, ambitious journalists flocked to the company, attracted by the dedication to quality journalism and public service. The Philadelphia Inquirer, though losing money through much of the 1970s, distinguished itself as one of the country's best urban papers. In Miami, the Herald, also an excellent paper, "was one of the great money machines of America, a monopoly franchise in one of the fastest-growing metropolitan areas," wrote financial reporter Martin Mayer in Forbes. By 1985, Knight-Ridder boasted 10 years of rising profits. "The company," Mayer reported, "is awash in cash."

The late '70s and '80s brought an explosion in monopoly newspaper markets; even in bad years, Batten said, newspapers outperformed other industries by three and four times; he was fond of telling the story about an acquaintance who went into newspaper publishing because he could make money "even if he was brain dead." With cash pouring in, Batten, by then president, worked with then-CEO Alvah H. Chapman Jr. to expand the company into television and new technology, building what eventually would become Business Information Services, an online database that repackages and sells information retrieved from other sources.

Then the financial press started carping.

A 1988 article in Forbes blamed Knight-Ridder executives for failing to follow other media giants--Gannett Co. and Tribune Co. among them--and diversify holdings more extensively and more rapidly. Knight-Ridder's ill-fated videotex experiment, Viewtron, cost the company a reported $50 million by the time it was shut down in 1986. Also causing the company problems were the Free Press' costly and losing attempt to bury the News in Detroit and the Herald's difficulties attracting readers in its growing Hispanic community and fending off competition from suburban dailies.

Beginning in 1988, Batten, by then CEO, began acquiring more non-newspaper properties, spending $350 million for Dialog, an electronic information company. He sold nonperforming assets--including television stations--and began trimming fat from the company's newspapers. For the latter job, he tapped Tony Ridder.

Ridder had proved his mettle in Silicon Valley, where he presided as publisher of the San Jose Mercury News from 1977 until 1986, helping to transform it into a prize-winning, 280,000-circulation daily with international bureaus. As president of Knight-Ridder's news division, Ridder implemented strategic plans and performance objectives. Publishers were given monthly revenue and expense goals, measured in benchmarks, figures showing how well each paper performed compared to others in the chain. "You could see if you were at the bottom of the list," says one former editor. "And nobody wanted to be at the bottom of the list."

While Ridder was pushing publishers to meet their benchmarks, Batten was launching another campaign: To save the future of journalism.

Just as monopoly newspapers were becoming the norm, fewer people were choosing to read papers at all, prompting Batten to rethink the attitude he and his generation of journalists had adopted toward readers. To the horror of many in journalism's old guard, Batten and other newspaper executives began calling readers "customers" and newspapers "the product."

In April 1989, Batten was invited to deliver the Press-Enterprise Lecture in Riverside, California, and he used that occasion to challenge journalism's establishment. "The days when we could do newspapering our way, and tell the world to go to hell if it didn't like the results, are gone forever," he said.

For years, he continued, "I believed that newspapers should not want to be loved, and that anything even approaching affection might be a dangerous sign of journalistic weakness. I thought that truth-telling newspapers should aspire to respect, and nothing warmer than that. I no longer feel that way."

Batten's blueprint for what Business Month later described as a corporation-wide "cultural revolution" was dubbed "customer obsession": Help advertisers sell products. Put papers on porches, not in puddles. Answer phones promptly and politely.

But selling his vision to journalists was no easy task. The organization John Knight had put into place--strong-willed editors, a hands-off corporate policy, separation of business and editorial--was a nettlesome problem for modern managers.

At Knight-Ridder, journalistic petulance was accepted, almost encouraged, recalls former Knight-Ridder editor John Carroll. When the company's chairman or president came to speak at the annual gathering of all Knight-Ridder editors, "it was almost certain that one of the heavy-hitting editors at the big city papers would take him on. There would be a lot of dissent and even ridicule."

When Batten unveiled the idea of customer obsession to the editors, "there was a mixed reaction," recalls Larry Jinks, vice president for news at the time and later publisher of the San Jose Mercury News. "Knight-Ridder always had a set of editors who are not cookie-cutter folks. Some were fairly vigorously questioning it. But there was also a lot of excitement. And not too much disagreement with the premise that we needed to know, understand and fulfill the needs of our audience better."

Some of the language, though, "really grated on people," he adds. "I knew Batten was talking about something that would take a long time and, in some ways, was going to be a hard sell."

For journalists, customer obsession meant, in part, shorter stories, livelier graphics and "news you can use," giving readers more of what they wanted and less of what editors deemed important. It also meant redefining public service journalism to embrace the nascent and controversial public journalism movement.

The decline in newspaper readership mirrored a dangerous decline in civic participation, Batten argued. To save democracy and the industry, newspapers must reconnect with readers. "If we love our newspapers, and contest judges love our newspapers, but readers and advertisers find them bland and unessential, then we have a problem," Batten told the first meeting of the company's editorial page editors in November 1989. "The balance of power has shifted from editors to readers."

More and more Knight-Ridder papers began using focus groups, polling and reader surveys to help them frame issues and coverage; many were in the forefront of public journalism. The Wichita Eagle's groundbreaking coverage of the 1990 elections--focusing on issues, downplaying the horse race and charges and countercharges--drew national attention, and the paper's editor, Davis "Buzz" Merritt, became a movement leader.

Mike Jacobs, editor of North Dakota's Grand Forks Herald, says the most important change occurring in his newsroom was "helping journalists think about the craft differently... We make clear that the rules have changed."

Knight-Ridder's smaller papers are "much farther ahead in the change process than the larger newspapers," Jacobs says. "It's much easier to turn a canoe than a cruise ship."