How Did Newspapers Land in This Mess?
POOR FitzSimons — he’s got it coming at him from all directions,” Scott N. Flanders was telling me the other day. “There is zero amount of money that would have me trade places with him, not even for Eric Schmidt’s compensation package at Google.”
Mr. Flanders is chief executive of Freedom Communications, the nation’s 11th-largest newspaper company; its better-known properties include The Orange County Register in California.
He was referring to Dennis J. FitzSimons, chairman and chief executive of the Tribune Company, owner of The Chicago Tribune, The Los Angeles Times and plenty of television and other newspaper properties.
The difference in their situations, in the simplest terms, is that Mr. FitzSimons presides over a public company with no controlling shareholder. Mr. Flanders runs a private company. In theory, both answer to demanding owners. But what has gone on lately at Tribune — particularly because it closely follows the rapid disappearance of Knight Ridder as the second-biggest newspaper chain — raises questions about the fraught relationship between Wall Street and the newspaper industry. It’s tempting to paint Wall Street as the bad guy in this, but the relatively brief history of the Street and the press is more complicated.
The distinction between public and private — and private equity for that matter — is relevant because Tribune has said that it has capitulated to the demands of its biggest shareholder, the Chandler family, amid a sagging stock price and worry over the growth potential of the businesses it owns.
In other words, Mr. FitzSimons announced on Sept. 21 that a committee of independent directors would explore all options for breaking up, selling or otherwise reshaping Tribune. It may even go private. Although Tribune has no majority shareholder, Mr. FitzSimons is now tacitly acknowledging that the company, as configured, no longer works.
The underlying theme in Tribune’s unraveling is that in a time of technological transition, the two publics that are served by many of the nation’s newspapers are no longer getting along so well. One is the public market — that is, Wall Street — which cares only about an attractive return on its investment. The other is the so-called public good that newspapers serve by professionally gathering and reporting news for their communities.
If there is a germ of a trend here, it is that, for now at least, being a widely held media company dependent on newspapers is probably no longer tenable. That said, a list of other newspaper companies that are publicly traded and have no controlling shareholders is awfully short. Indeed, the biggest one that leaps to mind is also the nation’s biggest newspaper company, Gannett.
The shares of Gannett, like those of many other newspaper companies, have been deflated more than 25 percent over the last three years. Gannett’s advantage over Tribune — or Knight Ridder, for that matter — is its relatively stronger profit margins. Across the industry, profits are actually better than the bad headlines suggest. But revenue growth is difficult to come by amid a bumpy transition to the Internet, where there are myriad rivals for the information and advertising that were once chiefly the purview of print newspapers.
Newspaper ownership in America exists under a wide range of structures. There are still plenty of private newspaper owners, from Cox Communications (The Atlanta Journal-Constitution) to Mortimer B. Zuckerman (The Daily News in New York). A nonprofit group owns The St. Petersburg Times in Florida.
But many of the country’s best-known newspaper groups went public in the 1960’s and early 70’s, including Times-Mirror, which previously owned The Los Angeles Times; Media General, which owns The Tampa Tribune; Gannett, publisher of USA Today; The Washington Post Company; and The New York Times Company.
The Tribune Company joined the club in 1983, ending 136 years of private ownership. Like others, Tribune tapped into Wall Street to upgrade, diversify or expand. Wall Street gave Tribune the means to acquire Times-Mirror in 2000 — a move that both sides would probably take back if they could.
Another relatively recent convert to public ownership, class of 1988, is the McClatchy Corporation — publisher of The Sacramento Bee — which almost certainly would not have been able to swallow Knight Ridder and succeed it as the nation’s second-biggest daily publisher without access to public capital.
For many newspaper companies, going public was not just a way to finance growth but also a device for family members and other longtime shareholders to cash out and diversify their portfolios. Using a technique common across the media landscape — and recently emulated by Google in its I.P.O. — many of these businesses, including The New York Times Company, issued two classes of stock.
This was done to ensure that founding families maintained control over their businesses with multiple-voting shares even as their percentage of the company’s overall equity shrank. The rationale is that this would give the businesses stability and shelter them from unwelcome influences and intrusions on their public-service mission. One big question of the day is this: If stock prices keep falling, will family shareholders be compelled to cash out — the public trust notwithstanding? And is private ownership — either by rich individuals or by private-equity investors — the answer? A few wealthy Californians have put their hands up as potential buyers of The Los Angeles Times should the Tribune Company choose to sell it. One, Eli Broad, has even proposed that a coalition of nonprofit groups assume control of the paper, in the way the Poynter Institute owns The St. Petersburg Times.
Many people also talk about another alternative: private equity. Steven Rattner, a principal of the Quadrangle Group, a private-equity firm specializing in media companies, contends that firms like his are no less demanding of results then public shareholders are. And private ownership, he said, “is a mixed bag” — just look at the continuing upheaval at The Santa Barbara News-Press in California, where journalists have been at odds with the newspaper’s owner, Wendy P. McCaw.
“You substitute the demands and discipline of the public marketplace for one individual who may be wonderfully benevolent or may turn out to be pretty destructive,” Mr. Rattner told me.
I rang up Mr. Flanders at Freedom, hoping that he would put some gloss on the merits of running a family-controlled media company or one that is backed by private-equity money. Freedom happens to be both, having brought in private-equity partners a couple of years ago when some itchy family members opted to cash out.
Before taking over as Freedom’s chief this year, he was an outside board member and ran Columbia House, the music and video club business that was sold by its private-equity owners to Bertelsmann in 2005.
MR. FLANDERS was, not surprisingly, quite buoyant about private ownership. He noted, for example, that with business flat at The Orange County Register, his company opted not to revamp it but to start a breezy new tabloid called O.C. Report aimed at people who say they are too busy to read The Register. And he has some time to make it work. “We’re going to be $20 million in the hole before we’re even close to breaking even,” he said.
That said, Wall Street has served its purpose for the newspaper industry before, and it could again someday. After all, private-equity firms own assets for only a few years before they sell them and move on.
At Freedom, the plan is to generate enough profit over the next few years to buy out the private-equity backers at a premium — eventually restoring the business to family control. Failing that, it could all come full circle. Mr. Flanders also said going public is an option — though it is not currently being contemplated.
Who knows? The interests of the two publics may one day be aligned again.