Knight Ridder And New Media: If You Can't Beat 'Em...

The newspaper publisher goes high-tech to fend off online rivals

Tony Ridder had not been back in San Jose, Calif., two weeks when he was honored at an August gala marking the opening of the city's computer museum, The Tech. More than a decade earlier, as publisher of the San Jose Mercury News, Ridder had been an original booster of the project. Now, as chief executive of Knight Ridder, he was transplanting the newspaper giant's head office from Miami to his old stomping grounds.

But the great-grandson of one of Knight Ridder's founders insists he didn't drag his top executives clear across the country on a self-serving quest. Rather, relocating to Silicon Valley, he says, is part of a determined effort to fend off powerful foes, such as Yahoo! Inc. and Microsoft Corp., that are trying to lure advertising from newspapers to such fast-growing Internet services as CarPoint and Yahoo!Classifieds. In a kind of "if you can't beat 'em, join 'em" approach, Ridder is pushing hard on a Web assault of his own.

The centerpiece is Knight Ridder Real Cities, a network of 40 Web sites. They include online versions of the chain's 31 dailies; regional portals, such as, built around them; and services such as, a Web-only supplement produced by the Detroit Free Press. To bolster Real Cities, its Knight Ridder New Media unit has forged alliances with and made minority investments in close to a dozen Internet-related ventures, all aimed at wooing readers and advertisers online. The company is looking to invest more (table). "The dumbest thing we could do," says Ridder, "is sit back and wait for competitors to figure out the revenue streams online."

LOOKING AHEAD. Other publishers, such as Tribune Co. and New York Times Co., have bold Web strategies. But few have as much to lose as Knight Ridder. Ridder shed the company of nonprint assets and in 1997 anted up $1.65 billion for four newspapers, including the Kansas City Star and Fort Worth Star-Telegram, adding them to a stable that includes the Miami Herald and Philadelphia Inquirer. "As the newspaper industry's biggest pure play, they've got more at risk than anybody," says Forrester Research Inc.'s new-media analyst Bill Bass.

Ridder says Internet competitors have not yet hurt business, but no one expects that to last. Forrester estimates classified advertisers will increase their Web spending more than tenfold from 1998 to 2003, to $2.9 billion--and a good chunk of that increase will come out of newspapers. Knight Ridder derives one-third of its $3 billion in revenues from classifieds, and losing even a fraction of that would eat into margins. Equally daunting is the potential impact of electronic commerce on retail advertising, which represents a further $1.1 billion of the company's revenues. "The thing that I worry about," says newspaper analyst John Morton of Morton Research Inc., "is the extent to which Internet shopping might start to hurt the local commerce that newspapers depend on."

It's no wonder, then, that Knight Ridder is committed to spending on the Web, even as its own online business lost $23 million in 1998, on revenues of $20 million. It's expected to lose as much again this year but to come close to breakeven in 2000. That conflicts with Ridder's other top goal: boosting Knight Ridder's long-lagging profit margins. Having made progress since becoming CEO in 1995, Ridder is now close to his target of 20% profit margins by the year 2000. But slowing advertising growth has dampened the outlook and kept the stock relatively flat.

STILL INVESTING. Ridder and his team of Net-savvy executives figure they have little choice but to invest in any venture that might protect business or build revenues. Says Knight Ridder New Media President Bob Ingle: "I live in terror that some big thing's going to happen that I don't see coming." So Ridder has allocated $25 million a year to invest in online stakes, most of which are under 20%. In its latest deal--yet to be announced--Knight Ridder is paying an undisclosed sum for just under 10% of SaveSmart Inc., a Mountain View (Calif.) company that runs an online promotions service for merchants. Save-Smart acts like a paperless coupon service that gives Web surfers discounts in real-world stores that advertise online.

Analysts applaud Knight Ridder's strategy, but some wonder if its network of local sites will ever gel, and they figure Real Cities will someday have to be merged into a bigger entity. What's more, the company has had its share of high-tech fumbles: In the mid-1980s, it shelved Viewtron--a teletext product that was the precursor to such services as America Online Inc. More recently, Ridder canceled development of a handheld electronic newspaper. And Knight Ridder was part of New Century Networks, an online newspaper consortium that flamed out in March. "Historically, Knight Ridder has been a pioneer," says Martin A. Nisenholtz, president of New York Times Electronic Media Co. "The question has always been: Do they have the strategic fortitude to stick to it for the long term?"

Tony Ridder insists he does and that his company's track record shows just how willing it is to take chances. He also knows that if his Silicon Valley move doesn't work out, the industry's biggest pure play may have no place else to go.

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