Grade the News

Knight-Ridder Buyout Fears

The sale of the Knight Ridder newspaper chain over the weekend, to a company that plans to resell three local titles, raises the possibility of an unprecedented concentration of ownership in the San Francisco Bay Area.

MediaNews, which has a reputation for operating thinly staffed and minimally compensated news rooms, could come to dominate newspaper circulation in the region if allowed to add the San Jose Mercury News, Contra Costa Times, Monterey Herald, Palo Alto Daily News and its sibling papers, plus the weekly Silicon Valley Community Newspapers to its growing archipelago of dailies.

That possibility so concerns employees of the papers that a counterproposal by the union, once considered a long shot, is now garnering a second look.

The announcement Sunday that competitor McClatchy would buy Knight Ridder for $4.5 billion, plus $2 billion in debt, sent a short-lived wave of relief through the newsroom of the Mercury News, journalists there said. McClatchy, the parent of the Sacramento Bee and other papers, has grown steadily for 20 years, earned 13 Pulitzer Prizes and avoided major labor strife.

But when McClatchy said it intended to sell off 12 of Knight Ridder's daily papers around the country to reduce its debt, employees said their jobs and the papers' public-service mission was again at great risk.

"I went to bed last night pretty encouraged by this," Joe Livernois, a reporter at the Monterey Herald and the paper's unit chair of the Newspaper Guild, said Monday. "McClatchy had a pretty good reputation for community coverage. Now everything's in flux again."

William Dean Singleton's MediaNews chain would virtually ring the bay if it acquired the three papers. By one way of counting separate newspaper titles, the company operates eight in the Bay Area, including five under the Alameda Newspaper Group (ANG). The group's flagship paper is the Oakland Tribune.

Some journalists said they feared Mr. Singleton would gut the newsrooms of the Knight Ridder papers in order to boost profitability. ANG has consolidated some business functions and shares news articles regionally, allowing it to cover the region with fewer staff than separate papers would.

The prospect that the same thing could happen to the Mercury News and the other two papers has refocused the attention of workers on a proposal by the union to aid in the purchase by a new "worker-friendly" company, whose investors include a Southern California former grocery magnate and a fund the union could assemble from employees' retirement savings.

"I would have said two weeks ago that it was pie in the sky," said Dennis Uyeno, a classified advertising representative and the unit chair of the Newspaper Guild at the Mercury News. "I wouldn't say it's 50-50 yet, but it's a lot more likely."

After Knight Ridder originally put itself up for sale in November at the behest of a Florida institutional investor seeking to boost the share price, guild representatives responded by creating a company called Value Plus Media to bid on the company's nine union-represented papers. Part of the money would come from an unusual arrangement called an employee stock ownership plan, which allows employees to invest their retirement funds and gives them voice in management.

Knight Ridder said before the sale to McClatchy that it was only interested in bids for the entire company. But now some version of the union proposal might work.

"It's a whole new ballgame," said Luther Jackson, chief executive of the Guild's San Jose office. "We're excited to have a chance to compete.

"Our backer, Yucaipa Companies, has a great record of being worker-friendly," Mr. Jackson said. "Their investment philosophy is that they invest for the long term. We think this is much more conducive to quality journalism. Having good wages, benefits and working conditions also plays into good public service. If people can't afford to live here and have good benefits, it makes it hard to retain an excellent staff."

By contrast, several journalists said they feared that Mr. Singleton would battle with unions, cut staff and salaries, and combine operations in ways that increase profitability but hurt coverage. MediaNews operates the Tribune, the Marin Independent Journal, the San Mateo County Times and other Bay Area papers.

"ANG is a bare-bones operation," said Robert Gammon, who recently left the Tribune for the weekly East Bay Express. "Staff are paid at the lowest levels in the Bay Area, and the results are predictable. ANG has produced good stories over the years, but overall I don't think you could compare the quality to either that of the Contra Costa Times or the Mercury News."

A call to Singleton was not returned. Kevin Keane, editor of ANG, said he preferred not to comment. One Tribune journalist, who spoke on the condition of anonymity, said both Singleton's poor reputation as an owner and Knight Ridder's good reputation may no longer apply.

"MediaNews is trying to live down a reputation that was poor a few years ago," the journalist said. "I think Dean Singleton realized that and is working hard to rehabilitate his reputation, and has been successful to some degree."

David Satterfield, managing editor of the Mercury News, said "the jury's still out" on the effect a purchase by Singleton would bring. Both he and Gammon said Singleton's ownership of the Denver Post shows that he has some record of investing well in a paper and allowing it to do quality journalism. "I think people are afraid of the unknown," Satterfield said.

He added that the prospect of more concentration in newspaper ownership could be a problem: "I think the more concentrated you get, the more worrisome it is, just because you want to have a lot of voices out there. But with the growth of the internet and television, you've got a lot of voices out there. The concentration of ownership in newspapers is a lot less important than it was 20 years ago."

The loss of competition under a sale of the three papers to MediaNews likely would not be challenged on legal grounds.

"Virtually no newspaper merger raises an antitrust issue anymore, especially in a market that large," said Stephen Barnett, a law professor at the University of California at Berkeley who follows the newspaper industry. "That's what's so unfortunate about the present situation. There's virtually no competitive cities left. It takes away different points of view and sources of information. The monopoly daily paper becomes virtually the only source of news on local issues."

Singleton was reported to have been in talks with Gannett, the nation's largest newspaper chain, to bid jointly for Knight Ridder. Subsequent reports indicated that the two companies dropped out of the running before McClatchy clinched the deal.

McClatchy says it hopes to sell the 12 papers by the time its purchase of Knight Ridder is consummated in the summer. Though the field of potential buyers is now wide open, Mr. Singleton is among the most prominent suitors.

The Alameda Newspaper Group and its other Bay Area papers last year had a combined daily circulation of nearly 300,000 papers, according to the MediaNews website. Adding the Mercury News, Contra Costa Times, Monterey Herald and Daily News could raise the company's regional daily circulation to more than 800,000.

Dan Breeden, a spokesman for the Mercury News, said it was his understanding that the Daily News and Silicon Valley Community Newspapers would be bundled with the Mercury News.

The only remaining major daily paper not part of the company's Alameda Newspaper Group archipelago would be the San Francisco Chronicle, with a circulation of about 400,000; the San Francisco Examiner, which last fall was claiming 166,000; and the Santa Rosa Press Democrat at about 90,000.

There was rampant speculation on Monday that Tony Ridder, the CEO of Knight Ridder, might want to buy back some of the papers himself. Mr. Livernois said Mr. Ridder showed up unannounced in the newsroom of the Monterey Herald and told staff there that he hadn't anticipated that McClatchy would turn around and sell the paper. The Herald's union is still bitter over Knight Ridder's decision, when it purchased the paper in 1997, to fire all staff members and require them to reapply for their jobs.

"When we heard Knight Ridder took over in 1997, we were jumping for joy, and it turned out to be a freakin' nightmare," Livernois said. He added that the staff is wary that something like that might happen again with the paper's next buyer.

Many Knight Ridder employees expressed frustration that McClatchy, with a reputation for quality journalism and respect for workers, was now out of the picture.

"The attitude generally has been anybody but Gannet or Singleton," said Mercury News reporter Becky Bartindale, who is president of the San Jose Newspaper Guild.

The team of financial consultants working with the guild to assemble a worker-friendly deal met most recently on March 2 with Mercury News staff. The guild's Jackson said he anticipated much closer scrutiny of the plan now.

Mike Antonucci, a reporter who has worked for the Mercury News for 29 years, said the revelation that McClatchy wanted to flip his paper was a "letdown."

But he said there are too many unknowns at this point to determine what option would most benefit Bay Area readers: "Speaking hypothetically, the best result is a buyer that has three principal qualities: one, an understanding of good journalism; two, a specific commitment to the South Bay and the community; and three, the assets, the wherewithal to not feel some immediate pressure to overhaul what has been a very good newspaper."

No Business Like News Business

The Wall Street Journal reported last week that executives at Knight Ridder Inc. have laid before potential purchasers a rosy scenario for boosting profits another 20 percent by cutting more journalists and news pages. Here's the talk Tony Ridder should have given his fellow moguls:

Now that I'm 65, I've come to believe that there's more to life than earning more money than you can possibly spend. (My neighbor, Larry Ellison, may disagree.) So I'm going to level with you.

You're familiar with the trends in newspapers -- falling circulation and ad revenue, increasing paper and fuel costs. But you may not be familiar with just how different a business news is from anything else you've run.

If your goal is to make as much money as you possibly can, take a pass on news.

Morgan Stanley estimates that Knight Ridder newspapers spend $350 million a year they don't have to. But the consultants don't understand journalism. That "surplus" spending is what it takes to produce the kind of journalism that has made America strong and rich. It's the reason Knight Ridder has won 84 Pulitzers over the years and Gannett -- which cuts $350 million worth of corners -- has won 45.

Here's what separates news from other businesses you've run. In every business but journalism, the customer is always right. The firm that best satisfies the customer wins the day. But journalism's codes of ethics require news media to disappoint their most important customers -- advertisers. You all know that advertisers provide more than 80 percent of our revenues. You may not know that most retailers want the news tailored to the ad -- to create interest in what's for sale. But news media that take the advertiser's point of view, and not the public's, violate ethical standards. If you uphold those standards, I guarantee that will lose you some advertising dollars.

Not only that, advertisers seek readers with good customer potential. They'll pay more for young people who are establishing homes and buying lots of stuff than for older folks at the end of their buying years.

If you want as many ad dollars as possible, you'll ignore the less affluent and older people in the community. But journalism has an obligation to serve everyone, not just the upscale.

Journalists are also required sometimes to disappoint their other essential customers -- readers. We've pledged in our codes of ethics to tell people what they need to know in order to be effective citizens. Yet on any given day, we could attract a larger audience with stories that merely amuse our readers.

Hell, we'll even disappoint your investors: Often, what readers need to know is hidden by the powerful. Exposing corruption costs much more -- in staff size, expertise and time -- than rewriting press releases and the police blotter.

I don't know if you read any newspapers other than the Wall Street Journal. But last week our San Jose Mercury News provided a terrific example of why journalism isn't a great business. We assigned one of our best-paid reporters, Fredric Tulsky, to do almost nothing else for three years but study the criminal court system in Santa Clara County. Mr. Tulsky tells me his series cost the paper $400,000.

It was the least cost-effective thing we could have done. Yet those stories may free a man improperly convicted and showed flaws in our criminal justice system that affect thousands of local people. Another example. To save money we could close our bureaus in Washington and elsewhere. Why not rely on the Associated Press or the New York Times?

Here's why not. The vaunted New York Times got one of the most important stories of our time wrong. They lost their skepticism and helped sell the Bush administration's casus belli -- that Iraq had weapons of mass destruction.

Our bureau got it right, reporting that the U.S. intelligence community had strong doubts about the administration's view.

In most businesses, duplicated effort is waste. In journalism it can be the difference between truth and falsity, or war and peace.

What's that? You say the public won't know the difference if journalism's ideals are violated? People just want to be entertained?

With all due respect, sir, think how venal you'd sound if you were addressing another profession. Would you suggest that standards don't matter in medicine, engineering or law? Let me answer your question two ways:

A business answer first: The more you entertain rather than inform the public, the more you enter a marketplace crowded with every form of diversion from soap operas, sports, recreation, movies, prime-time television, video games, MySpace and other web delights. Do you really want to abandon the market niche we dominate -- local news -- for a more competitive one? Second, I'll confess that news has become more confused with entertainment. God knows, I've fostered some of that myself! And maybe most people haven't caught on to it -- that we're displacing the costly news they need with the inexpensive news they want.

But as sure as a hangover follows a binge, reality will crash the party. It always does.

Eventually people will recognize when political leaders have led them astray and squandered their human and monetary resources and their government's moral authority. As that day dawns, they will turn on those news media who played them for suckers.

So my friends, you may succeed in cashing out the Knight Ridder brand. But not for long.

Let me leave you with a warning: If you do "harvest" the qualities we've worked so hard to cultivate at Knight Ridder, be sure you make enough money to isolate yourself and your children in private schools and gated communities. The loss of social cohesion when news is treated like any other business won't be pretty.

In a global economy America can survive the decline of almost any business. But take a lesson from James Madison: America will not survive broad public ignorance. Good night and good luck!

Liquidating the News

It's come to this: A single wealthy investor is able to threaten the civic vitality of 32 American metropolitan areas by forcing the sale of their newspapers to new owners in order to satisfy his demand for larger profits.

Because those higher returns almost certainly will come at the expense of investigative reporting, independence from advertisers and adequately staffed and skilled newsrooms, the readers of Knight Ridder newspapers ought to rise up in opposition to the planned sale or dismemberment of the company.

After a decade of shrinking its news staffs, the nation's second-largest newspaper company no longer commands the respect it earned winning 84 Pulitzer Prizes in 79 years. But papers such as the Philadelphia Inquirer, Miami Herald, Charlotte Observer, Fort Worth Star-Telegram, Kansas City Star, St. Paul Pioneer Press and San Jose Mercury News are still too essential to the civic life of their cities to be auctioned off like so many pork bellies.

Not just Knight Ridder's problem

Bruce S. Sherman, CEO and chief investment officer of Private Capital Management (PCM) catalyzed this threat to the public-service ethic of journalism without concern for the communities affected. And if he succeeds, he will not stop with Knight Ridder. PCM is the largest shareholder in six other large newspaper companies and owns a major stake in two more.

Because Mr. Sherman is focused on making money for his clients and gaining a personal payday that the Wall Street Journal estimates in the hundreds of millions of dollars, only a bottom-line argument might persuade him to back off. With more than 90% of Knight Ridder stock controlled by institutional investors pledged to maximize return to shareholders, there is only one force that can stand up to Mr. Sherman -- the company's customers. And then only if they act in concert.

Readers dismayed at the prospect of denatured local news should write letters to Mr. Sherman promising a boycott of the new owners of their paper -- if they fire journalists or slash their compensation in order to meet PCM's price.

As a carrot, readers should also agree that if Mr. Sherman abandons his power play, they will try to convince at least one other person to subscribe to the newspaper. A rise in circulation would boost shareholder value the right way.

Newspapers are still essential

Whether you subscribe or not, the newspaper is an essential democratic institution, affecting everyone in the region. Newspapers empower civic participation. They set the public agenda by digging up much of the content seen on local TV news, radio, cable and the Web.

News has the power to define reality. It is unlike any other product traded on Wall Street.

In recent years Knight Ridder, like other news companies beholden to the stock market, shed hundreds of journalists and adulterated its news with inexpensively produced sensationalism to please investors. It has also retreated from its commitment to ethnic diversity in its newsrooms and jettisoned important weekly ethnic papers.

But Mr. Sherman and PCM are not satisfied with the sacrifices Knight Ridder has already laid at their feet. News could be squeezed for still greater returns. Just as ClearChannel found a way to make radio more profitable at the public's expense, new ownership could dismantle the many remaining qualities of Knight Ridder, whose skeptical reporting of the White House case for the Iraq war was a standout example of public-service journalism. John McManus

Tony Ridder as Katharine Graham

Although he's been widely criticized, Knight Ridder CEO Tony Ridder may come to seem almost as beneficent as the Washington Post's legendary Katharine Graham compared with the new ownership PCM and its allies would force upon these communities.

There is the outside possibility a buyer concerned with journalism integrity might be found, perhaps a cash-laden technology firm. But Google and Yahoo are reportedly not interested. If speculation on Wall Street sheds any light, the most likely purchaser would be an investment firm specializing in turnarounds after severe cost cutting.

Any new owner will have to incur massive debt to meet Mr. Sherman's desired share price. In an industry with declining advertising and circulation revenues, it's difficult to foresee how such debt might be paid off without further cuts of bone and muscle in the newsroom. As Newsweek business columnist Allan Sloan put it: "New owners will almost certainly depopulate newsrooms even more than Knight Ridder already has, accelerating the decline of its papers."

If enough customers speak up, however, PCM won't find any buyers; it will be peddling devalued properties.

Even a chain paying sweatshop wages like Dean Singleton's MediaNews would refuse to offer a premium price per share if as few as 5% of the customers promised to cancel their subscriptions. Each letter would signal the displeasure of many others who didn't bother to write. Fewer readers mean lower ad rates.

Is a boycott threat realistic?

Is it realistic to think that communities such as San Jose, Charlotte, Philadelphia, Miami, Kansas City and more than two dozen others might stand up to Wall Street for the sake of their newspapers?

Once it might have seemed unlikely. But using the power of the Internet, journalists, educators, community and government leaders, and citizens who recognize that newspapers form the spinal cord of participatory government now have the power to generate a massive protest. The supposedly apathetic public forcefully changed the debate two years ago when the FCC tried to allow greater media concentration, and later when congressional Republicans tried to cut the public broadcasting budget.

How new owners might treat news

The stakes in this fight are just as important. If boosting return to Wall Street became the only concern of editors, the quality of journalism as a resource for citizens would decline in predictable ways:

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