April 4, 2006

The Knight Ridder Sale and the Outlook for Newspapers

The enduring cynicism over the Knight Ridder sale has a hollow sound. The events set in motion by the McClatchy Company’s purchase can spark a chain reaction (so to speak) that would bring something close to the new economic model journalists have been wishing for.

What an irony that would be. The clamor for liberation from the clutches of insatiable Wall Street’s what-have-you-done-for-me-today demands reached a crescendo when Knight Ridder went on the block at the suggestion of institutional investors. The very idea that the nation’s second largest newspaper group would go on sale, without an ounce of resistance, underscored the precarious position of publicly held news organizations.

Plenty of journalists (me included) saw dark motivation in Private Capital Management’s activism and Knight Ridder’s see-how-fast-I-can-jump response, typical of KR’s subservience to Wall Street during Tony Ridder’s reign. Ridder did not shrug and say, “If you don’t like the stock, sell it,” as MediaNews Group owner Dean Singleton suggested. Ridder did not invite his newspapers to rally their communities against PCM, making the prospect of such new ownership untenable – a tactic that companies like Goodyear and the St. Petersburg Times used to fight off hostile suitors.

It should have been bright news when Knight Ridder sold to McClatchy rather than a faceless investment firm. Instead, the cynics had new material. The $6.5 billion sale price – what McClatchy CEO Gary Pruitt called an “unimaginable bargain” – would vastly increase McClatchy’s debt and triple its newspaper holdings. “Proof” of the burden: McClatchy would rapidly re-sell the 12 least-efficient KR papers it just bought, leaving those dozen vulnerable once more to predators. Investors downgraded McClatchy’s stock and bond status. Journalists speculated about debt-reducing job cuts and bad outcomes after the re-sale of newspapers in such prominent places as Philadelphia , San Jose , St. Paul and Akron .

Add concern over the continuing trend of more news organizations owned by fewer corporations. Consequences to date include too-frequent turnover in the publisher and editor offices and more central control, leading to remote decision-making and conflicts of interest.

Uncertainty guarantees worry, but for once in newsrooms, optimism should trump skepticism. The upside potential of this deal is greater than the downside risk.

For starters, McClatchy has swiftly navigated such rivers of doubt before.

Nearly a decade ago, when McClatchy bought Cowles Media (essentially the StarTribune in Minneapolis ) for more than $1 billion, industry and Wall Street analysts said it was a stretch. McClatchy’s stock price took a beating, while newspaper executives questioned whether the California company with the low-key corporate staff was up to managing a newspaper much larger and much more editorially ambitious than any other McClatchy had ever run.

Instead, the big move to Minneapolis only made McClatchy stronger. As had McClatchy’s purchases of newspapers in Raleigh and Anchorage . Most encouraging, McClatchy did it while re-investing in news gathering – increasing demand for journalism. That’s a faith in readers, news and newspapers seldom seen at Knight Ridder and too many other places the past decade or more.

A second reason for optimism: Pruitt is confident about this deal. When someone is right as often as Pruitt has been, he gets the benefit of the doubt. In an interview with The Washington Post after the Knight Ridder deal was announced, he shrugged off the immediate decline in McClatchy’s stock price. Invoking the memory of the Cowles purchase, he said, “When we announced those deals, the market went down, and in the next year, we roared back. I’ll take long-term gain over short-term decline.”

And a third: “[Pruitt] talks about values in ways that are deeper and more meaningful than many other leaders in the industry,” The Poynter Institute’s Bob Steele was quoted in a March 27 article in the StarTribune. “He has a genuine interest in the role of newspapers in the United States . He sincerely believes that newspapers play a unique role in democracies.”

Contrast that with Knight Ridder, where, in the late 1990’s a KR corporate vice-president told a conclave of the company’s editors that they should all but abandon scrutinizing government. “Nobody wants to read that,” the VP said. A couple of years later, Tony Ridder added this: “The only reason people read newspapers is for the ads.”

Maybe this sequence can get the rest of us to share Pruitt’s confidence:

  • McClatchy’s “unimaginable bargain” permits, as Pruitt has forecast, the new owner to break the chain of layoffs and buyouts that had become Tony Ridder’s hallmark.
  • After selling 12 KR papers, likely for more than $1 billion, the bargain is magnified, allowing McClatchy to replicate its formula for success: Improve the bottom line not by cost-cutting, but by increasing demand for newspapers through new investment in strong local and regional journalism. Knight Ridder’s fine Washington Bureau strengthens McClatchy’s ability to do this company wide. The effort revives the spirited investigative journalism, column-writing and general enterprise that had been the signature of Knight Ridder newspapers until the acid effect of relentless cost-cutting had dissolved flesh and bone.
  • At least some of the 12 KR newspapers that McClatchy sells end up in privately held companies. All of them are sold to buyers who actually want them.
  • Oft-quoted industry analyst John Morton proves prescient after his March 2006 comment to The Washington Post: “ I don’t think the gloom and doom is at all justified. Five years from now, this will look like a great deal for McClatchy.”
  • With McClatchy, the nation’s new second-largest newspaper group, achieving uncommon success and setting the tone, other newspaper owners adopt a strategy common to dominant companies in other fields (Microsoft, Disney and more): Innovate. Bring marketable (visible and valuable) new products and services to customers every year – without fail. This sharply reduces circulation churn. It keeps marketing messages fresh to attract new readers and advertisers. It allows news organizations to recruit the best and brightest again.

Even with only coin-flip odds of all this happening, that is 100 percent better odds than if all the KR papers remained on the course set by Tony Ridder, a supposed numbers man who, it turned out, knew only how to subtract. (Although this sale will multiply his personal take compared to what he would have earned by retiring at the end of this year.)

Ridder’s “Darth Ridder” reputation is unfair. He is not evil. He is a pleasant companion at dinner or a ball game. One on one, he is likely to be open, candid and caring. But he lacks affection for newspapers and the talent to lead their people. Aware of both, he is ultra-sensitive to criticism – insecure to the point where he neither welcomes nor tolerates informed dissent. That has been the most defining culture change in Knight Ridder during Tony Ridder’s influence the past two decades. Stronger corporate control, usually misguided, was new under Ridder. But creative editors could work around that annoyance to serve their communities. The layoffs were new and injurious to all, but cost-cutting did not begin with Ridder.

The most debilitating change at KR in the Tony Ridder years was the climate that stifled debate. Deprived of comment at odds with Ridder’s pre-conceived notions, KR corporate made inadequately informed decisions, and then acted befuddled when the results came up short. Like other poorly led people, KR corporate execs were quick to blame, slow to look in the mirror. “Editors” became a pejorative on the corporate floor, where most execs almost never read the KR papers that weren’t in Miami or San Jose . Publishers struggling with KR’s primary strategic goal – unrealistic profit-margin growth (sometimes calling for 20 percent or more in one year in a market with a flat economy) – were made to feel worthless.

The climate changed can-do men and women who would have preferred to spend the rest of their careers with Knight Ridder into troubled souls whose consciences would not let them continue accepting KR paychecks. Publishers took early retirement or resigned outright after long careers of mostly striking success. At one point, the top editors in Boston , Baltimore , Tampa , Cleveland , Austin , Denver and Los Angeles were all former Knight Ridder editors. And that’s only the top editors. The exodus included many more managing editors, Washington Bureau chiefs and university journalism faculty.

Hearing only their own voices, and practiced in denial, few KR corporate execs had the sense to lament the loss of talent.

Much of that re-located talent laments the loss of the Knight Ridder it once treasured. But that has been true for years. Today, a McClatchy determined to invest in the future of superior journalism is the rightful heir to the Knight Ridder of Jack and Jim Knight.

Glenn Guzzo’s 37-year journalism career includes 18 with Knight Ridder: 14 as an editor at The Philadelphia Inquirer and Akron Beacon Journal and four as a member of the Knight Ridder corporate staff.