McClatchy Co. Buys Knight Ridder Inc.
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JEFFREY BROWN: After months on the auction block, the Knight Ridder newspaper chain was sold today to a smaller rival publisher, the McClatchy Company, in a cash and stock deal worth $4.5 billion. Additionally, McClatchy will assume $2 billion in Knight Ridder debt.
The deal is a quantum leap for the 150-year-old Sacramento-based McClatchy, which presently runs 12 regional papers, including The Sacramento Bee, The Minneapolis Star-Tribune, and The Raleigh News & Observer.
McClatchy is acquiring Knight Ridder’s 32 newspapers, including The Miami Herald and The Charlotte Observer. But McClatchy also announced today it would sell 12 Knight Ridder papers, among them, The Philadelphia Inquirer and The Philadelphia Daily News, The San Jose Mercury News, and The Grand Forks Herald in North Dakota, a Pulitzer-winning paper that had suffered severe cutbacks in recent years.
WOMAN: What company is it for?
JEFFREY BROWN: The deal will also expand McClatchy’s Internet presence, adding careerbuilder.com and other Knight Ridder Web properties.
Two venerated names in American journalism, Knight and Ridder, which merged 32 years ago, will now be retired. For its part, McClatchy will become the second largest U.S. newspaper publisher, with 32 papers, behind only Gannett.
Also today, the Project for Excellence in Journalism released a report titled “The State of the News Media 2006,” which includes a detailed look at the health of newspaper journalism.
Tom Rosenstiel is director of the Project and principal author of that report. Also with us is John Morton, a media analyst and financial consultant to newspapers.
And welcome to both of you.
TOM ROSENSTIEL, Director, Project for Excellence in Journalism: Good to be here.
John Morton, starting with you, people are paying attention to this deal because they saw it as a kind of bellwether. What do you read out of the amount of the sale and the buyer?
JOHN MORTON, Newspaper Industry Analyst: Well, out of the amount — basically, it totals about $6.5 billion — does show that there is, in some places, at least, confidence in the future of the newspaper business.
There was a lot of wondering about that leading up to this. And I think it was — it’s well-placed confidence, because, as Gary Pruitt, who is the chief executive of McClatchy, said, you know, a lot of people just don’t understand the newspaper business, how it’s — what it’s doing, and what its future is. And they’re very confident of what they have done and what the future of the newspaper business is.
JEFFREY BROWN: Well, explain it to us, as — a newspaper as a financial asset. What — what exactly determines the stock price, i.e., the value — the value?
JOHN MORTON: Well, the value — the stock price only determines the value of some companies, because not all of them are publicly owned…
JEFFREY BROWN: Right.
JOHN MORTON: … thank heavens.
But a newspaper has — what — people look at a newspaper, they see circulation. And they see that circulation has been in decline for — since the late 1980s. That’s true. What they don’t recognize is that it’s not just circulation that determines whether a newspaper is financially successful.
For example, there’s a — most of the doom and gloom is because of the Internet. People say, people are flocking to the Internet and leaving newspapers behind. Well, where are they going on the Internet? Most of them are going to newspaper Web sites. You go to almost any town, and the second largest audience delivered to advertisers in — in almost any city is the newspaper’s Web site, second only to the newspaper.
JEFFREY BROWN: Now, tell us about the buyer, McClatchy. Why did they make — why did it make sense as the buyer in this case?
JOHN MORTON: Well, if you look at the papers that they’re keeping and the one they’re discarding, if you just look at the financials of the papers they’re keeping, they’re almost a mirror image of the papers that McClatchy already owns.
They have almost the same cash flow, profit margins. They have the same — basically, the same market growth. So, they’re basically buying, you know, the Knight Ridder properties that are most like the properties they already own. So, for them, it’s just a way to expand what — what they’re already doing.
JEFFREY BROWN: In a statement, they wrote that the ones they’re selling off — quote — “do not fit the company’s longstanding acquisition criteria, chiefly involving growing markets.”
JOHN MORTON: That’s true.
I mean, the way — I mean, people asked me today, frequently, well, what’s the difference between McClatchy and Knight Ridder?
Well, McClatchy, when they started to acquire newspapers, were very particular. Only newspapers in growing markets, would they acquire. Knight Ridder has — has a long history of owning a lot of newspapers, some in growth markets, some not, some with a lot of problems, and some not.
So, they are different companies. And it is reflected, by the way, in their bottom line and in their stock prices.
JEFFREY BROWN: Tom, what do you see in this deal? What happens, in particular, to these papers? Does it mean that there will be further cutbacks, job losses? What?
TOM ROSENSTIEL: Well, McClatchy really stands in contrast to the way Knight Ridder has operated.
Even in its growth markets, Knight Ridder was very tight-fisted and was trying to keep its stock price up and fend off potential, you know, buyers to the company by being very efficient, in other words, being — controlling costs everywhere it could.
McClatchy operates in a very different way. They — they say they’re mission-driven, that good journalism comes first, and good business will follow from that and, if we invest more, we can build circulation.
Knight Ridder has not built circulation, not grown the circulation of its newspapers. McClatchy has grown the circulation of its newspapers for 20 out of the last 21 years, this year being the first time it didn’t happen.
So, I think what you’re going to see, quite likely, at the papers that they’re keeping is, they’re looking for opportunities where they can build circulation in the communities where they could do more and — and do better journalism.
In the papers where — where — what — that they’re selling, it’s all going to depend on who the buyer is. If the buyer is somebody who operates — who is buying these things and wants to run them in a traditional way, there’s going to be even more cuts. If the buyer turns out to be a local interest that is doing this for civic reasons, or even a newspaper guild, which is going to be — which has — has an interest in some of these, and is — they’re going to be interested in protecting jobs, and they will operate it in a very different way.
So, I — I think it’s going to be hard to generalize at this point. But I’m — I think it’s quite likely that some of these papers, like Philadelphia and — and some of the other older cities, the papers are going to — are going to be facing some very difficult times, and probably some union-busting and — and, you know, really tough battles.
JEFFREY BROWN: Now, by chance, you put out your report today, the same day.
And here’s what you said about the newspaper industry in 2005: “Every indicator, including the number of new staff members that the nation’s best metro papers field every day, was on a steep downward path” — pretty gloomy look at the industry as a whole.
So, how do you fit this, what you see with Knight Ridder, today into that picture?
TOM ROSENSTIEL: Well, newspaper circulation has been declining, as John said, since the late 1980s.
And, you know, it’s down about eight million readers since — since then, about 12 percent daily. It — that appeared to have stabilized a couple of years ago. And circulation was no longer dropping.
But, in the last year, 2005, it has dropped 3 percent. And the reason is, as John said, not a cyclical problem with the economy, but fundamentals in the newspaper industry. People are leaving the print product and moving online. And the problem with that is that a newspaper makes — for every dollar that it makes in a — with a print reader, it’s making only about $.30 from that online reader in ad revenue.
It’s just not a very good ad delivery system at this point. That may change. The economics of the business may change. They may be able to start charging subscribers for online content, something the industry is not able to do right now.
But you have a problem with advertisers who are disappearing, classified advertising, which is going away from the newspaper business, and then the migration of readers online to a less profitable delivery platform.
JEFFREY BROWN: We just — we just have a minute.
(CROSSTALK) JEFFREY BROWN: OK. Go ahead.
JOHN MORTON: Well, I — I want to add that, actually, some of the online advertising revenues can be very profitable, I mean, because there’s no infrastructure, like printing presses and delivery trucks.
And some studies have indicated that 40 cents — not 30 cents, but 40 cents — of advertising revenue on the — on a Web site for a newspaper can be more profitable, actually, than $1 on the newsprint side.
So, I mean, the future is not completely bleak, because you don’t need to have as much revenue.
JEFFREY BROWN: And, in the meantime, Tom, our viewers at home are in some of these cities where their papers are affected. Does it matter to them, should it matter to them who owns their paper, which chain in this case?
TOM ROSENSTIEL: Yes.
If a newspaper decides that it’s going to cut back on resources, deploy fewer reporters in the field, what that means is that more of your community is going to be in the shadows. You’re going to know less about what’s going on. It’s more likely that government will do things in secret.
And maybe, you know, there will be more fraud and abuse. The reason we have a First Amendment is — is so that, you know, more of our — our society is in sunshine. If journalism shrinks, because it can’t — it doesn’t have the economic engine behind it, then, what we know about ourselves is going to shrink.
JEFFREY BROWN: All right, Tom Rosenstiel, John Morton, thanks, both, very much.
TOM ROSENSTIEL: My pleasure.
JOHN MORTON: My pleasure.