Two words: Clustering. Network.
Those are two words of the moment in the newspaper industry.
Clustering is, and has been, the strategy of the last decade. It's the notion of owning multiple properties within a region. Certainly the major daily, and then suburban dailies, thrice-weeklies and even weeklies. It affords newspaper companies the chance to achieve certain efficiencies. Efficiencies like centralized printing plants, single prepress facilities, less redundancy in finance and sometimes in circulation. Sometimes the opportunity for editorial efficiencies, depending on much circulation territories overlap.
In a couple of words: cost savings. In a business of eroding margins, clustering is a good idea. We can see that notion playing out as McClatchy sells off 12 lower-margin, lower-growth, largely unionized properties it won in the Knight Ridder purchase. Media News seeks the Mercury News and Contra Costa Times, to complement its San Francisco East Bay holdings in its Alameda Newspaper Group. Lee may be seeking several small Knight Ridder dailies in the Dakotas and Minnesota, and maybe Saint Paul's Pioneer Press, to sit side-by-side Bismarck and Rapid City. Gannett may have the appetite for the Philadelphia Inquirer to augment the regional reach of its Cherry Hill (NJ) and Wilmington (Del.) dailies.
Cost savings, though, aren't enough to save a news industry, rapidly losing readers to online sites, where they contribute little is any revenue to news companies. Pew's new study, released last week, throws still more evidence on the newspaper pyre that young news readers are reading lots of news -- online.
What news companies need, in addition, is growth. In the digital world, scale is everything and the network is the key to user satisfaction and building big business models. Which brings us back -- all recent roads seem to start from here lately -- to the McClatchy deal.
Gary Pruitt made a sound business decision in deciding to jettison the Philadelphia papers, the Pioneer Press, the Akron Beacon Journal and, perhaps, the Mercury News and Contra Costa Times in the Bay Area. Reasonable, if he wants to meet the acquisition goals he'd set out for McClatchy the last couple of years.
In addition to those goals of owning properties in higher population growth areas, though, Pruitt has got to stake out a new plan for transforming his business. It's the same challenge all news companies have -- transforming themselves from print ad companies to Internet ad companies quickly -- but one that just got huge for Pruitt. McClatchy, after all, is becoming the second biggest newspaper company, even after its divestment of the 12 properties.
Pruitt has pledged to sell off the 12 in the best interests of the McClatchy shareholders. (Some of those shareholders may well raise the question of why he apparently limited first-round bidding only to newspaper companies, reducing the chances of a successful bid by the Ron Burkle/Yucaipa-backed Value Plus group, a group that has deep pockets.)
Certainly McClatchy wants to defray as much of its $4.5B KR sales price, hoping to fetch somewhere between $1.4-2B for the 12. But Pruitt shouldn't miss another opportunity: a chance to take a leadership role in new network building in the news industry.
The news industry has long been picked apart and picked off by aggregators like AOL, Google, Yahoo and MSN. Not that you can blame those companies. It hasn't been so much as divide-and-conquer as victory-by-one-offs. News companies, with the ghost of the their fledgling network New Century Network long forgotten, have failed to come together and negotiate jointly and effectively with the big boys.
Now Pruitt has a couple of those network pieces in place. Consider these expanded potentials that McClatchy's sale of 12 papers could either energize or further splinter:
- Real Cities Network: Owned and run by Knight Ridder, this network of more than 100 papers acts as a sometimes-effective national ad sales network. It could be a lot more, offering synergies and efficiencies in ad sales, negotiations with the aggregators especially on paid search, creation of a single cost-efficient platform, etc. Or it can stay on the sidelines of the battle.
- Career Builder, Classified Ventures: Knight Ridder owns a third of Career Builder (recruitment) and a smaller percentage of Classified Ventures (auto, real estate). McClatchy is buying those shares, but partners Tribune and Gannett can "buy out" McClatchy's Career Builder shares if they wish. Pruitt has said he wants to keep the shares, but the outcome is uncertain. CB and CV are at a crossroads. McClatchy can assume KR's role in both and bring in more paper partners (if they have aggressive sales teams), or it can be bought out in CB and see a product fighting for market share against numerous competitors weakened.
- KR Washington Bureau, Knight Ridder Tribune Wire Service: In an era in which the NYT faltered in its Iraq coverage, many point to the leading work of the KR Washington Bureau in incisive, original reporting. With the sale of of papers, and key staff positions, in Philly and San Jose, the talent level and staffing of the WashBuro are lessened. KRT has done an impressive job of acting as a clearinghouse for top features, photos and graphics. Owned 50/50 by Tribune and Knight Ridder, McClatchy will have to sort out its role here as well. Again, these services can be strengthened or weakened, depending on McClatchy's moves.
What does this mean to the moment? In selling the 12 properties, McClatchy should look both to its new national leadership role and its need to transform its business. In addition to the fetching the highest bid per property, it can add sales requirements that buyers also "buy into" these networks, in serious, meaningful ways. Certainly Gannett can take a push as it works through the TKG unrolling. Media News can join a grander coalition. Lee can see how it can benefit from collective organization. Indeed, the other potential buyers, including Yucaipa, can be told that joining the network(s) is part of the admission price.
One more notion for our times. Dan Gillmor has raised the question, "Saving the Mercury News: Can Yahoo Help?" Good question, but apparently Terry Semel hasn't warmed to the idea. But Gary Pruitt could take the idea and run with it, enlisting Yahoo as a strategic partner, helping to solve the business riddles of print/online bundling and news user interaction. Maybe as a McClatchy minority partner or ?
Strange times can indeed make strange bedfellows.