Can Anyone Really Say Anything Positive About Their Print Operations As Newspaper Week Gets Underway In New York? Maybe The Real Story Is Who’s Not There -- Tribune. Think Back A Year And The Non-Show Was Knight-Ridder. Spot A Trend?

Philip M. Stone December 4, 2006

Newspaper week kicks off Monday in New York but who speaking at the conferences can have anything good to say about their newspaper business. They can say their web sites are doing great; they can say their cable TV operations are doing very well; they can say that broadcasting – with all that political advertising – is looking strong, but newspapers – it’s just not there and the likelihood is that many could say, if they don’t avoid the issue, that they don’t see any improvement for next year, either.
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If it wasn’t for the betting laws, a bookmaker could make out well in the hallways offering odds on which company (companies?) won’t show up at next year’s events. If that had been the case last year those betting on Tribune would have made it big-time. For the first time since it turned public in 1983 Tribune is not presenting at this year’s events – it’s in play. It was to have announced by the end of the year whether the company is going to be sold — it wants to sell it whole but has plenty of offers for piecemeal – and Tribune just announced it has extended its decision deadline until Q1 2007.

ftm predicted long ago that as long as Tribune’s share price languished in the mid to upper $20s it would be the next to go. There were many at the time who told us they thought we were off-base -- it couldn’t happen to Tribune – but Dennis FitzSimons and the Tribune board seemed to also believe they were vulnerable which is why they put the company into serious debt by buying back 15% of its shares. That got the share price up above $30, but it didn’t solve the problem – indeed it caused many more – and the question is by this time next year how much of Tribune, if any, is still around.

So, let’s get into the spirit of who may not show up next year: There’s no question that the New York Times Company is under pressure with Morgan Stanley Management Group that has been buying up shares and seeking to change the dual share system that gives control to the Ochs-Sulzberger family. But that very dual share system insulates the family from any real shareholder pressure and if anything happens the most likely scenario is that Publisher Arthur “Pinch” Sulzberger takes the company private. Now would be as good as time as any if he really was thinking that way – the company’s capitalization is around $3.5 billion, nearly half of what it was five years ago, although the prognosis is that it will fall some more, so maybe he’ll wait a bit longer.

But if not NYT, then who? What about Gannett, the country’s largest newspaper publisher? A recent Merrill Lynch report noted, “Investors continue to speculate that Gannett is the next company under pressure to surface value; will they raise the dividend? Increase share buybacks?” Gannett’s stock closed Friday at $59.84, about midway between its 52-week high and low giving it a market capitalization of some $14 billion. With Merrill Lynch rating it a buy maybe some investors are already taking their chances something big will happen next year, but don’t forget the company has been sniffing around Tribune, too.

And they should introduce a new award at this week’s event: Gutsiest Play of the Year. No question the winner would be Gary B. Pruitt, CEO at McClatchy.

Look back on what he did – he was the only one who had the guts to buy the entire Knight-Ridder operation for really no premium above market valuation, he knew there were some real dogs in there that could pull his whole company down, but he gambled he could dump those 12 newspapers he didn’t want and even though the tax consequences were higher doing it this way he could still make out like a bandit. And he pulled it off.

And take a look at what’s happening in San Jose and Philadelphia, home to three of the newspapers that McClatchy dumped.

MediaNews bought the San Jose Mercury-News, Knight-Ridder’s hometown newspaper, and owner Dean Singleton marched through the newsroom at the time saying everything was great, staffing levels would remain as they were and basically happy days are here again.  And yet editorial staff have been told to stay home Tuesday from between 8 a.m. and 10 a.m. for a phone call telling them whether they still have a job or they are fired. If they’re gone, they’ll be told they cannot come back to their office until an agreed time over the weekend so they can clear out their desks. Passwords on their computers will already have been changed.

Has the newspaper industry really come down to this? Sadly in San Jose it has. Advertising revenues took a real dive after the sale and there are other complications as MediaNews tries to rationalize (share) responsibilities throughout its Bay Area newspapers, but to tell employees to stand by the phone to see if they still have a job is about as heartless as it gets. Management has issued layoff-warning notices to 446 employees and by the Tuesday noon the newspaper says that it will have fired 40 editorial workers and another 61 employees in other departments.

And then there is Philadelphia. Was it only August when there was absolute euphoria as local businessmen paid $562 million to take control of the two Philadelphia newspapers? Since then the rug has fallen out under advertising and the owners prime concern has become  how to service its $350 million loan.

Their answer is to cut staffing numbers and mess with pensions and it is the Newspaper Guild more than any other union that is threatening a strike. If that happens by the time everything is over one of those newspapers could disappear.  The publishers are looking for around 190 layoffs, not necessarily according to seniority, with around 150 newsroom jobs at the Inquirer in jeopardy, which is why the Guild is so militant.

A federal mediator is helping, strike deadlines have been extended, but no matter how one looks at Philadelphia, it’s a mess and Mr. Pruitt is no doubt extremely happy that he and his team aren’t dealing with the problems.

So, look for newspaper companies this week to say how strong their digital operations are, and even though broadcasting is doing okay, some may take a page from the New York Times Company (the entire TV division is up for sale) or Tribune (it has sold three stations to help pay down that buyout debt) and sell TV properties to invest – not in print but in digital.

Wall Street’s analysts still don’t have much good to say about newspapers.  Citigroup analyst William Bird says, “We believe industry operating profits could decline for about five years, until newspapers’ online scale offsets the degradation in print.” Merrill Lynch analyst Lauren Rich Fine says that for the newspaper groups she covers she expects to see a 3% to 4% drop in Q4 ad revenue.

It is newspapers’ own trade organization that really brings to earth the real problem. The Newspaper Association of America says that less than 50% of US adults are now reading a daily newspaper. Back some 40 years ago it was 81%.

The big question that publishers should be answering this week in New York is whether they are going to give up on getting that print readership back, or whether they have decided on giving a whole new definition to the word newspaper: “print and other multimedia methods of providing news and information”.

Count on the latter.

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Tribune’s Board To Meet At The Weekend To Discuss Offers For the Company - January 19, 2007

The bidding for Tribune is over and from all reports the company doesn’t really have much to show for the process. It has an offer from the Chandler Trusts to buy the company at $31.70 a share (less than the $32.50 the company paid to buy back 15% of its shares last summer) and the bid involves spinning off the broadcast and entertainment side of the business.

It also has an odd bid from Los Angeles billionaires Ronald Burkle and Eli Broad who are said to have made a complicated offer that basically would see them buying 31% of the company for  $500 million and also offering to pay a special $27 dividend per share – taking on some £11 billion in debt to do so.

Notably absent were bids by private equity firms. In a way that’s a compliment to Tribune’s management because the equity firms must have discovered there is very little fat, if any, on the Tribune bone these days so they can’t follow their usual business practice of buying something, cutting out a bunch of waste, and then selling again for a far higher price. Here, there is practically no more waste to be cut.

Wall Street analysts expect the special board committee set up to evaluate bids will reject both offers and there is a good chance, instead, that the board will choose to spin –off the broadcast division.