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Owners of Philadelphia Newspapers Struggle to Reverse Declining Profits

July 13, 2006 at 6:30 PM EDT
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NEWSPAPER EMPLOYEE: You’re fixing the sign when it comes off? That’s good.

NEWSPAPER EMPLOYEE: We’ve got to get you ready.

JEFFREY BROWN: In Philadelphia, the new newspaper boss is Brian Tierney…

BRIAN TIERNEY, CEO, Philadelphia Media Holdings: I’m Brian. Good to see you.

JEFFREY BROWN: … head of a group of investors, Philadelphia Media Holdings, which has just bought the Inquirer and the Daily News, as well as the Philly.com Web site.

Well-known locally as head of an advertising and public relations firm, Tierney now has an all-together different product to sell.

BRIAN TIERNEY: And I really do believe, from the bottom of my heart, that the next great era of Philadelphia journalism begins today right here in this room.

JEFFREY BROWN: The two newspapers he’s buying are literally and figuratively upstairs-downstairs. The venerable Inquirer upstairs…

INQUIRER REPORTER: One of the things we have to do is get some reaction from the governor’s office.

JEFFREY BROWN: … it’s the third-oldest daily in the country and winner of 18 Pulitzers.

The street-wise, 81-year-old, Daily News downstairs, known as “the people paper”…

DAILY NEWS REPORTER: If somehow this northeast murder gets to be a really juicy story, we can hold this, right?

JEFFREY BROWN: … loved locally for its coverage of crime, sports and politics. But like papers everywhere, both have struggled in recent years, with big drops in circulation and major newsroom layoffs, captured in some colorful gallows humor around the newsrooms.

A closely-watched experiment

Now, the new owners are trying to restore Philadelphia's historic press powerhouse. It's being called the Philadelphia experiment, troubled newspapers moving from being owned by large publicly held national chains back to private, local ownership. It's a move that raises many questions for an industry that is besieged across the country and a model that will be closely watched.

AMANDA BENNETT, Editor, The Philadelphia Inquirer: The Philadelphia Inquirer has for many years been at the cutting edge of the kinds of issues that newspapers are facing.

JEFFREY BROWN: Amanda Bennett is the Inquirer's editor.

AMANDA BENNETT: We came into many of these problems sooner, grappled with them more intensely. And now I believe we're also at the cutting edge of perhaps a move away from corporate ownership and back towards a more decentralized ownership.

JEFFREY BROWN: The two newspapers were, in fact, once owned by a prominent local family, the Annenbergs. In 1969, Walter Annenberg sold them to the Knight Newspaper chain, which became Knight-Ridder, one of the leading newspaper companies in the nation.

For decades now, it's been widely thought that only national chains have the economies of scale to allow papers to thrive, but the chains are subject to the demands of Wall Street. And in recent years, even though its newspapers continued to turn healthy profits, Knight-Ridder came under financial pressure from investors demanding even more.

Earlier this year, it sold all of its 32 papers to another chain, McClatchy. McClatchy, in turn, decided to sell off several of those, including the two Philly papers.

Enter Brian Tierney and a group of local investors, who beat out five other bidders, none of them local.

BRIAN TIERNEY: First and foremost, I looked at it as a business opportunity. And I just thought, if you could maybe, you know, reconnect advertisers, reconnect readers, perhaps also internally get people excited about what it is that they're doing, you could take the game up a few notches. And I attracted other investors in that vision, and here we are.

JEFFREY BROWN: To say there's interest in his plans is an understatement. Even as we talked to Tierney, an Inquirer photographer and reporter covered it for a story of their own.

On May 24th, the two papers trumpeted the $550 million cash sale, their different personalities on display. And their staffs quickly realized that local ownership can have a downside.

A conflict of interests

AMANDA BENNETT: Local owners have the benefit of being intimately involved in the community; they have the downside of being intimately involved in the community.

JEFFREY BROWN: In fact, Brian Tierney, a former GOP operative and donor, and other investors, including Bruce Toll, a major local developer, are well-known to many Philadelphia reporters, either as frequent subjects of news stories or for their work on behalf of those subjects.

Tierney, for example, represented the Catholic Church when the papers were raising questions about spending by the archdiocese. He was known for playing tough with reporters. Some say they were berated. And in the archdiocese spending case, Tierney called the reporters' editors to complain.

Kitty Caparella, a 34-year veteran Daily News crime reporter, and Monica Yant Kinney, an Inquirer columnist, saw this type of pressure up close.

MONICA YANT KINNEY, The Philadelphia Inquirer: I mean, I am one of the few people at the paper who actually has had a one-on-one personal experience, and it didn't go very well.

JEFFREY BROWN: Kinney wrote a column the day after the sale was announced describing a lunch with Tierney in 2002, after she'd written a piece about Vernon Hill, a friend of Tierney's.

"The job of shutting me up," she wrote, "fell to Brian Tierney, the local ad man and public relations wiz, who happens to be one of Hill's dear friends. At lunch, Tierney made it clear he wasn't paid to bully me; this one he was doing for free."

MONICA YANT KINNEY: These guys have a lot of connections with a lot of important people in town that we need to write about. And I think it's -- after my experience, I am concerned about that.

JEFFREY BROWN: Is it inevitable in Philadelphia that you'll bump up against these people, the new investors?

KITTY CAPARELLA, Philadelphia Daily News: Absolutely. I mean, we cover them. You know, and it's not just in their work. It's in their charitable giving; it's in their support of other kinds of events. You know, it's a small -- I mean, it's a big town but it's a small town.

JEFFREY BROWN: It was much noted and written about that you had a reputation as being a bit of a rough guy on reporters in the past.

BRIAN TIERNEY: I believe that's an unfair reputation, if that's the extent. I don't think it's a widespread reputation.

I've had the benefit of having hundreds of contacts with reporters in this building over the course of the last 20 years, if not a thousand contacts, and there's only a handful of situations where, you know, things became a little bit more heated.

The writing's on the wall

JEFFREY BROWN: But Tierney did understand the problem he faced and got his investors to sign an unusual non-interference pledge. He read it off his BlackBerry at the press conference announcing the sale.

BRIAN TIERNEY: "The editorial function of the business shall at all times remain independent of the ownership and control of the company." That's Philadelphia Media Holdings. "And no member shall attempt to influence or interfere with the editorial policies or the decisions of the publisher."

JEFFREY BROWN: So if one of the partners has a problem, one of your friends has a problem with a story, calls you up and says, "Brian, I don't like this"?

BRIAN TIERNEY: You know, it was funny. When we were raising the money, I said to people, "You're excited now, but there's going to come a time" -- this was before we actually had the pledge signed -- "there's going to come a time, even though you're so excited about it and we're talking about editorial independence, when you're going to be upset about something that's written about your company, or your charity, or your industry. And I want you to remember this moment, because when you call me up, I'm going to tell you there's not a darn thing I can do for you."

JEFFREY BROWN: The Inquirer put the pledge front and center on page one.

AMANDA BENNETT: We put it right there in the middle...

JEFFREY BROWN: And editor Bennett is giving framed copies to investors and placing one prominently in her newsroom.

NEWSPAPER REPORTER: It's in reference to Bruce Toll.

JEFFREY BROWN: She's also created a watchdog group to allow the paper's staff to bring concerns about coverage that may bump up against the new owners' business interests.

Daily News editor Mike Days had a different response.

MICHAEL DAYS, Editor, Philadelphia Daily News: I'm a Philly guy. It's in writing that the board says they're not going to interfere on the editorial product. I've got a handshake with Brian that he's not going to interfere in the editorial product. I believe him.

If readers, if people feel like that their product has been tampered with, they don't want it. They wouldn't want it.

JEFFREY BROWN: For Mike Days and his staff, in fact, the ownership issue had stark implications, since several of the potential bidders were thought to be planning to shut down the Daily News altogether.

MICHAEL DAYS: What the industry needs now is certainly what we need in Philadelphia, people who will make a long-term commitment to the paper, to the papers.

Riding the sales pitch

JEFFREY BROWN: And that, in the end, is why the Philadelphia experiment will be much-watched.

Like papers everywhere, the Inquirer and Daily News face growing competition online. They also have to compete with extensive suburban competition, with 11 papers in the greater Philadelphia area pulling readers away by covering local news in fine detail.

VENDOR: Get your Metro!

JEFFREY BROWN: Freebies, freely distributed papers that have proliferated, are also eating into paid readership. All that means that even those with reservations want this to succeed.

MONICA YANT KINNEY: What we've heard so far is really encouraging. I mean, Brian Tierney is a show man in the best sense of the word. I mean, he is excited about this paper...

JEFFREY BROWN: Besides, says Kitty Caparella, there might be one more advantage to local owners.

KITTY CAPARELLA: The other thing is, is that we wouldn't mind if they gave us a tip on stories, only if they gave it to the Daily News, though.

JEFFREY BROWN: So this rivalry lives?

MONICA YANT KINNEY: I mean, that's why it's so great.

JEFFREY BROWN: In the meantime, Brian Tierney is talking up his new products to anyone who'll listen.

BRIAN TIERNEY: When you get down to it fundamentally, for 50 cents or 60 cents for the Daily News, what a terrific bargain.

JEFFREY BROWN: It's clear now that, in Philadelphia and beyond, a great deal is riding on that sales pitch.