Independent's Day   

One by one, family-owned newspapers have been gobbled up by chains. But Frank Blethen is determined to maintain family control of the Seattle Times. Can he pull it off?

RARELY HAS A MEETING OF THE KNIGHT-RIDDER BOARD concluded without some discussion of "the Seattle Times problem." Talk turned to action three years ago when Knight-Ridder launched a hostile bid for the paper, seeking to wrest it from the family that has controlled it for four generations.

In an era when family-owned metropolitan newspapers are an endangered species, gobbled up one after another by corporate chains, it might seem easy for a $2 billion publicly traded media giant like Knight-Ridder to take over a 236,000 daily circulation paper like the Seattle Times.

But it hasn't happened. Knight-Ridder, the nation's second largest newspaper group, has been defeated more than once by Chairman, Publisher and CEO Frank A. Blethen, the scion of the family that two months ago celebrated its centennial year of Seattle Times control. Blethen's defiance leaves Knight-Ridder in a predicament. Knight-Ridder owns 49 percent of the Times stock, but has no control over its finances. Selling its shares is out of the question, says Knight-Ridder Chairman and CEO P. Anthony Ridder, a descendant of the Ridder newspaper family. "We're not interested in selling," he says. "We're interested in buying."

Ironically, the Times has successfully outflanked Knight-Ridder by adopting many of the methods of corporate journalism. It was among the first papers to advocate advanced business degrees for its editors. The paper has introduced bold, colorful graphics, used readership surveys to help shape news coverage, welcomed public journalism and news-you-can-use service pieces, mobilized reporters to the suburbs and encouraged employees to embrace Stephen R. Covey's leadership philosophy, "The Seven Habits of Highly Effective People."

Journalistically, the Times, an afternoon paper, has been called an underachiever by former reporters and editors, who describe a newsroom culture unaccustomed to the self-criticism necessary to make a good paper great. Some staffers decry the absence of more forceful newsroom leadership.

But Times Executive Editor Michael Fancher disagrees. He says he and Blethen intend to make the Times one of the nation's best regional newspapers. Fancher says, "The staff ought to say: 'As good as we think we are, we either stay this good or get better.' "

Overwhelmingly though, reporters and editors seem to prefer Blethen family ownership to a large chain. Why? Many say it's because, whatever its shortcomings, the Times remains committed to spending money on journalism. Though the paper has trimmed its news staff through attrition and reduced newsgathering budgets in the last few years, at no time in recent memory has it endured the newsroom layoffs and budget cutbacks experienced recently at chains like Times Mirror, precisely because "we're independent," Blethen says. "We're committed to the long term. Our overall management philosophy is to avoid layoffs when we can."

If Blethen succeeds in defying the trend toward concentration of ownership, he will do so against tremendous odds. Greed, family squabbling, taxes and the threat of new technology have persuaded many of America's great family-owned newspapers to sell out to closely held chains or publicly traded corporations.

One by one, owners of independent newspapers in Louisville, Detroit, Boston, Raleigh and Pittsfield, Massachusetts, to name a few, have given up the fight. The Milwaukee Journal Sentinel, owned by its employees, is fending off unwelcome suitors in a public battle for control. Even at publicly traded companies controlled by families--the New York Times Co. and Times Mirror, for instance--conflicts over succession and power have surfaced.

Frank Blethen has watched each carefully and has vowed to avoid making the same mistakes. Hiring a host of lawyers and accountants, he put in place measures to protect the business from Wall Street brokers who look for chinks in family armor, often unhappy offspring willing to sell stock to outsiders. As a consequence, Blethen, a man so liked at the Times that even its unions speak well of him, calls the paper a "model of family ownership," devoted to the long term success of the family's core values: perpetuating Blethen ownership, serving the community through quality journalism, keeping employees happy.

He may have embraced some Wall Street business practices to keep the sharks at bay, he says, but he will never change his family's approach to please shareholders who demand a higher short term return. That demand virtually assures that chain newspapers will remain, he says, "mired in mediocrity."

"That's hogwash," replies Bob Singleton, former Knight-Ridder chief financial officer and past member of the company's board of directors. Singleton retired the year Knight-Ridder made its last run at the Times, but he continues to believe the Blethen family is "denying Knight-Ridder shareholders a decent return on their investment."

After three years of stalemate, "it's time to play hardball," Singleton says, "to knock it off dead center," either by selling to a third party who will do what it takes legally to gain control of the Times, or do whatever is possible to "attract greed in [the] shareholders." Does Knight-Ridder have the nerve to go for the jugular? "Oh, they have the nerve," Singleton says. "Tony has the nerve. Don't stare him down. You won't win."

Ridder has no comment on his plans for the Times. Will the status quo continue for long? "We'll have to see," he replies carefully. Blethen feels confident his family will stand strong against invaders; but others have voiced similar confidence and have been unpleasantly surprised. Few family businesses endure to the fourth generation in America, says Howard Muson, publisher of Family Business Magazine.

On Wall Street, an eventual Knight-Ridder takeover of the Times is an expected non-event, says financial analyst Kenneth T. Berents. "Wall Street figures it'll happen sooner or later," he says. "Typically minority owners hold on because they want to eventually own the majority shares."

ONE HUNDRED YEARS AGO, WHEN BLETHEN'S GREAT GRANDFATHER Alden J. Blethen bought the Seattle Times to "raise hell and sell newspapers," according to a history of the Times published to celebrate the first century of Blethen control, family ownership of American newspapers was near-universal. Alden Blethen couldn't write, couldn't spell, never had any original ideas, was coarse, intemperate, harsh, hasty and unreliable, the history recalled, but was nonetheless "a great newspaperman."

During the Depression, the near-bankruptcy of Alden's son, C.B., allowed the Ridder family to acquire 49 percent of Times stock. In 1946, the Blethen family prevailed in court after Ridder Brothers Inc. tried to persuade a dissident Blethen to participate in a hostile takeover. In subsequent decades, the afternoon Times continued to position itself "as a working man's alternative" to the more successful morning Post-Intelligencer, according to the Puget Sound Business Journal.

By 1983, the competition had taken a toll on both papers: The Times' profit margins were between 4 and 6 percent, Blethen says, and the family was holding back on making much-needed improvements. Meanwhile, the Hearst-owned Post-Intelligencer had lost millions of dollars, enough to qualify as a failing newspaper.

The two papers sought and received permission to operate jointly under the Newspaper Preservation Act. Under the joint operating agreement, the Times and PI maintain separate, competing newsrooms but share business and production staffs. Two-thirds of the profits go to the Times, one-third to Hearst. The Times must remain an afternoon paper, and the two publish a joint 500,000-circulation Sunday edition.

While Blethen says he doesn't like what he calls the agreement's inefficiencies, he readily concedes that at the time "it was a marvelous business decision for the Times and the Blethen family." The windfall from the JOA "allowed us to have unprecedented investment."

Throughout the '80s, the Blethens invested in new buildings and computers, zoned suburban editions, higher salaries, bigger newsroom budgets. (Both the Seattle Times Co. and Hearst are privately held, and both declined to provide specific financial information.) The Times Co. invested "more in plant, equipment and technology than in the previous 90 years," says Blethen. It purchased a 35,000-circulation daily in Yakima, Washington, three smaller papers and a rotary offset press, expanding its publishing empire and paying a price: The debt-free Times had to borrow money to cover its ever-growing expenses.

After a decade of prosperity, the good times ended abruptly. In the early '90s the newspaper industry plunged into one of its worst recessions since World War II. Between April 1992 and April 1993, the Times lost $2 million in advertising, and the paper's profits were lower than they had been in years. By '93, the Times reported three straight years of declining advertising revenue, while simultaneously experiencing a decline in circulation.

At meetings of the Seattle Times Co. board--made up of four representatives from Knight-Ridder, four Blethen family members and four outside directors appointed by the family--some members suggested company-wide cuts. "We said we're not going to do it," Blethen recalls.

Meanwhile, at Knight-Ridder profit margins were lagging. Like executives at other publicly traded newspaper companies, Tony Ridder, then president of the news division, was charged with cutting costs chain-wide. At meetings of the Seattle Times board, Ridder and his representatives "used to always tell us we were not fulfilling our fiduciary responsibility to them," Blethen told employees in a company newsletter.

In April 1993, former Times Publisher Jack Blethen, a significant stockholder, died. According to Frank Blethen, Knight-Ridder had "a false expectation that when the third generation gave up control, there'd be an opportunity to acquire the paper. When the realization came to them that it wasn't going to happen, it was clear they became more antagonistic and aggressive."

It was against this backdrop that Blethen received a letter three years ago from Knight-Ridder accusing the Times of financial mismanagement. At the same time, Knight-Ridder did an end run around Blethen, sending letters directly to shareholding family members offering to buy them out. (Ridder has confirmed that letters were sent to Blethen family members, but has declined to comment on the Times' finances.) Says Blethen of his reaction, "You're pretty resentful. This is a family legacy, it's very values-based. And here are people telling you that those values aren't important, that you're running the business into the ground, when you believe you're running it well."

The publisher hired a passel of high-priced lawyers and accountants to review the Times' books; they declared it financially healthy. Then he flew to Knight-Ridder headquarters in Miami and offered to buy back Knight-Ridder's Times stock. Ridder refused to sell. The meeting ended at an impasse, Blethen remembers, and he and two associates were left in the lobby calling a cab. A year ago, Blethen reminded Ridder of the stalemate. "That's when he told me he had no interest in selling their shares, and that Knight-Ridder was still interested in acquiring our shares," Blethen says, a fact Ridder has confirmed. Both say the subject has yet to resurface and that relations between the two are cordial and professional.

KNIGHT-RIDDER IS IN A BUYING MODE. The company is among those chains whose acquisition of independent dailies has contributed to a reduction in their numbers to about 20 percent of the 1,500 daily newspapers operating nationwide, according to Washington State University Professor Demers. Last year, Knight-Ridder paid $360 million for the Lesher newspapers in northern California, helping to make 1995 "one of the busiest and most lucrative for newspaper sales since the buying wave of 10 years previous," according to the New York investment bank Veronis, Suhler & Associates Inc. Throughout the country, only a few choice properties are left, driving up prices and making it a seller's market.

Today's buyers are closely held or publicly traded mega-media groups, attracted by operating profit margins twice the Fortune 500 average or higher. Not a year goes by that Blethen doesn't "receive serious offers from every major media company out there," he says.

Greed, taxes and internecine struggles among dozens of stockholding heirs have helped speed the dissolution of family-owned papers, says John Ward, an expert in family business at Loyola University in Chicago. But economics also have persuaded families to sell: declining circulation, rising newsprint prices, the movement of businesses and readers from downtowns to suburbs, competition from new technology and global media chains, and buyers willing to pay more for a newspaper than it may be worth.

An advocate of family-owned newspapers, Ward would "rather have a large publicly traded chain than inept local ownership." But, he adds, "the research has shown that family run businesses are more long term oriented, much more invested in the community and, on average, put out a better quality product with higher values. Most family newspaper people tell me, 'We're not in it for the money.' "

Within the newspaper industry, though, support for family ownership has diminished. Blethen says he dropped his membership in the Newspaper Association of America in January because the group "represents the chain and corporate interests." In the old days, the association "used to talk about the First Amendment and journalism," he says. "Now they talk about ad revenue."

Blethen refuses to divulge the details of how the company is structured financially to fend off unwelcome attacks, but he says precautions have been taken. Officials analyze business operations as carefully as a publicly traded company would, he says, and they continue to make hefty capital investments. Perhaps most important is the time Blethen says he spends preventing family discord, bait that attracts Wall Street sharks.

"You work hard to make sure it never becomes an issue," he says. "You do everything to prevent it." All five members of the fourth generation have been involved in the newspaper, as are those old enough from the fifth generation. Those familiar with the ways of Wall Street insist Blethen's sense of security is simply false hope. "Ultimately, economics will control," says Singleton. "Dangle enough money, somebody'll get greedy, and the Blethen family will cave."

Blethen remains serene. "What holds a family business together is shared values and commitments," he says. "You can create corporate structures, classes of stock, trusts and arrangements, a framework to perpetuate family ownership. But in the end, there has to be family harmony so that when you get an attack like Knight-Ridder's it doesn't go anywhere." On July 17 the Seattle Times board convened, with Ridder and Blethen present. The meeting was friendly and polite, Blethen says. Lively discussions took place on circulation pricing, ad volumes and new media ventures.

"It's good for us to have [Knight-Ridder's] input," Blethen says. "Does that change my mind about not wanting them involved? No. But I don't want to leave the impression that there are no benefits to their involvement. Because there certainly are." For its part, Knight-Ridder remains committed to the Times in its own way. "When we bought the Seattle Times shares...it had always been our hope that we'd own it," Ridder said recently. "That's still our hope."