Content Bridges

10 Questions: Knight Ridder Sale

1. Why Knight Ridder*, why Tony Ridder, given other newspaper companies' performance were as as poor or worse?

2. What will we learn about how Wall Street really values the newspapers' online businesses?

3.  Is this the beginning of the end of the decades-long experiment in taking newspaper companies public?

4.  Is private ownership, or the NYT/ WSJ/ WashPost structure of two-tier ownership, the only way to preserve journalism in a market economy bent on replacing advertising as we've known it with a pay-for-performance world?

5. What will become of the newspaper industry's best shot at an online network/efficiency structure, the fragile T (Tribune)/K (Knight Ridder)/G (Gannett) partnership, which has brought some united purpose and cost-sharing to the digital classified business?

6. What did Susan Goldberg mean when she said, about the Mercury News' cutback of 44 jobs: 
"I don't think it will affect the quality of the reporting we do. There are going to be some things we're not going to do, but we're going to focus just as deeply on technology coverage and telling the story of this diverse community."

7. What message does it send that the buyout packages at the Philadelphia Inquirer were oversubscribed, meaning more people volunteered to leave than were needed to achieve the 75 full-time cutbacks?

8. How'd you like to be in the printing press business?

9. How much are younger print journalists rethinking their futures?

10. What is Jim Batten thinking?

*Disclosure: Ken Doctor is a retired Knight Ridder journalist and retains financial holdings in the company.

 

Newspaper Costs: Will the Guild Contracts Be Challenged?

Why has Wall Street loss faith in the newspaper industry? Lots of reasons, but one subterranean one is that it costs too much money to produce papers. Much cost of course is in those presses and distribution systems, but another one is that it costs lots of money to pay professional journalists -- especially those who are represented by the Newspaper Guild union. This problem sounds familiar. Consider the airlines and how their ability or inability to "partner" with multiple unions has either given them new (if maybe temporary) life or spelled doom.

Now the Guild is readying itself for a KR dissolution, as this Grade the News-published Guild memo points out -- http://www.gradethenews.org/2005/mnguild.htm

If KR -- or other -- newspaper companies sell off assets -- rather than the company(ies) wholly, new owners may try to break union contracts.

As the Guild points out, KR did exactly that in its 1997 Monterey Herald purchase. Buying assets and breaking contracts has not been a standard way of operating, but economic pressures may change that tradition. As would-be acquirers pencil out a KR acquisition, that's gotta to be part of the modeling.

Market CAPITALIZATION!

As Knight Ridder spins in play, it's worth remembering some breathtaking numbers that show the relevant market standing of old media vs new media. Yes, apples, oranges and pommelos, but dollars ultimately, may decide what we do -- and don't -- read in this country. Check out the most recent valuations of five top media companies -- Gannett, Tribune, Knight Ridder, the NY Times and Dow Jones, in order -- as toted up Monday by Barrons. TOTAL MARKET CAP: $37 BILLION

What Barron's left out is worth pondering:

Google market cap: $114 BILLION
Yahoo market cap: $53 BILLION

And you can start see the problem in another light.

Paper route to GooglePlex 2014?

Knight Ridder, the U.S.’s 2^nd largest newspaper company and the only large “newspaper pure play”, has done everything it could think of over the past year to satisfy Wall Street and its largest shareholders. Cutting cost, including significant newsroom cutbacks. Selling off its interest in the underperforming Detroit Free Press. Swapping papers with Gannett to increase regional clustering efficiency. Increasing its dividend to the highest among its peers. Stepping up its stock buyback program.

The response has been increasingly negative, as KR has led newspaper stocks to 52-week lows and beyond. Today, a big vote of no-confidence has shaken the San Jose-based KR boardroom and sent reverberations throughout the tightly wound and tightly knit newspaper world.

Private Capital Management told (http://www.editorandpublisher.com/eandp/news/article_display.jsp?vnu_content_id=1001393853

) KR: at best, sell, or alternatively, find new management who will quickly blaze a new plan for the company. PCM, a Naples, Fla., investment company, wields a large stick, holding 19% of KR stock. You can expect that PCM’s been in touch with KR’s next two largest shareholders (who own another 17% between them), and that today’s announcement just gets the press running on determining KR’s future. Though Tony Ridder’s name is on the on the San Jose HQ building, on Page One of all the papers, and on the CEO’s door, he owns only 1.9% of the company, with family and employees collectively owning less than 5%. Unlike Dow Jones, the New York Times and the Washington Post, KR does not enjoy the protection of a two-tier shareholder structure, with family able to mitigate the aims of shorter-term investors.

You can almost feel PCM’s pain. KR isn’t the only newspaper shares weighing them down. As of June 20, 2005, PCM had about 14% of its portfolio invested in newspaper stocks, according to Goldman Sachs, The estimate of its relevant holdings:  37% of McClatchy, 25 % of Belo, 22% of Lee Enterprises, 18% of Media General, 14% of The New York Times Co., 12% of Journal Register, 6% of Gannett, and less than 1% of Tribune. All challenged, all swept up in the revised view that newspaper companies are the odd-men-out in the age of online media and the booming pay-for-performance advertising revolution.

It also raises the big questions with renewed urgency:

· What’s the current value of newspaper readers, online newspaper users and advertiser contracts and relationships?

· Have they dropped substantially in a world romanced by Googlers, or does the value just have to be harvested by people who get it?

· And, of course, what would tectonic movement in the newspaper industry portend for the democracy, dependent on a free flow of investigation, analysis, news and information?

So will PCM’s push force KR to sell? Are there one or more buyers who will pay a satisfactory price? The stock was closing at $59 today, up from its low of $42+. Value estimates range from as little as $66 to close to $100 if KR gets the multiple that Pulitzer got from Lee last year.

Early analyst views  http://www.mediainfo.com/eandp/departments/business/article_display.jsp?vnu_content_id=1001432433 are all over the board, from the outright naysayers to the interesting view of Merrill Lynch: "Arguably, if a strong case could be made that the market has overblown the secular concerns, a strategic buyer could have a once in a lifetime opportunity, but we could not condone that point of view."

Here are three potential scenarios:

• ·Sale to newspaper company(ies): Here’s where the skepticism of readiness-to-buy comes in. Look first to KR’s online partners, Gannett and Tribune first. TKG has invested heavily in creating digital classified products, “Shop Local” and Topix. Given that digital revenue should be the future growth engine of news companies, either or both could put together the pieces toward a truly national digital news/ad play. But, the market has sucked the vitality from all the newspaper companies. Gannett, the #1 newspaper com may not have the appetite to digest all of KR. Tribune is reeling from the Times Mirror purchase, its indigestion reducing Wall Street’s appetite for Tribune purchases. McClatchy, once thought of as a potential seller to KR, may be a possibility. More likely, consider a break-up in pieces, following the regional clustering trend. McClatchy could go for the California, Minnesota and Carolina pieces to bolster its presence in all three places. Lee, recently acquisitive, could take other pieces. The New York Times could conceivably bolster its Northeast dominance, adding the Philadelphia Inquirer to its NY-Boston (Globe) holdings. And Gannett could pick up other small- and medium-sized markets.

· 

• Sale to financial companies: Both Leonard Green and Blackstone Media are in the media space already and may have the want and smarts to make more of the assets than newspaper operators. Could the media companies, like Viacom, News Corp or a Comcast, see the value of a content pipeline as they build out the info businesses of the new century?

• · Buy time: Will the KR board, “friendly” to management, further act on its Sarbanes-Oxley-influenced independence. Last year, the board told Tony Ridder that his designated successor Steve Rossi wouldn’t do. Rossi was shuttled into the CFO slot, and two co-would-be-successors named.  The board could persuade Tony Ridder to retire, though with less grace than he could of last week. Then, it could move to name either Hilary Schneider, former KR Digital head, or Art Brisbane, former KC Star publisher, as it evaluates options. Of course, it might just take a defiant stand, but that does seem to fly in the face of maximizing shareholder value. 

How much of this will be turn out to be a mere referendum on Tony Ridder’s decade-long leadership of the company or how much it portends centennial change in the only industry mentioned in the First Amendment – a paper route to GooglePlex 2014? -- will become the key factor to watch.

In the meantime, consider this opening salvo from the hyperactive Jim Cramer (from his subscription “Real Money” site): This is no Dow Jones, there are not two classes of stock, and it is run by a total mercenary -- what are labels among friends? -- Tony Ridder, who is all about profits, not Pulitzers."