Knight Ridder: Running Hard, But Staying In Place
Knight-Ridder Chief Executive P. Anthony Ridder fancies himself a man of action and more important, speed. His friends and colleagues say he drives fast, skis fast, and even golfs fast. But the activity that Ridder is pursuing the most frenetically these days is the rejiggering of his $2.8 billion newspaper and information company.
Ridder has held the top job at the company founded by his great-grandfather for only 11 months. In that short time, he has engineered a flurry of cost-cutting measures and asset sales and has nearly completed a transformation of the company back to its newspaper roots. But while the cost-cutting pleases investors, Ridder has yet to come up with an answer to the knotty problem the company has long faced: how to find growth in the mature newspaper business.
NO FIT. At cost-cutting, at least, Ridder has proved to be a pro. Last March, he sold the Journal of Commerce for $115 million, arguing that its focus on international trade and transportation didn't fit with the company's core regional-newspaper business. In August, he pulled the plug on a design lab that had been developing a futuristic flat-panel news "tablet" that would have delivered newspaper content to consumers electronically. Last month, Ridder put Knight-Ridder Financial on the block after it failed to make headway against rivals Bloomberg, Dow Jones Telerate, and Reuters. And Ridder's tough stance in the seven-month-old strike at Detroit Newspapers Inc., which publishes Knight-Ridder's Detroit Free Press and Gannett Co.'s The Detroit News, proves he is willing to stomach substantial losses now in exchange for lower labor costs in the future.
The moves have drawn plaudits from analysts and shareholders. Knight-Ridder had been experiencing some "stagnation and lack of focus. Ridder brings vitality and a sense of urgency," says Henry Berghoef of Harris Associates, which holds more than 5% of the company's stock. Other shareholders are happy, too. In the past six months, the company's long-lackluster stock rose 18%, to about 67.
After all the cost-cutting, though, Knight-Ridder still finds itself in much the same position it held in the 1980s, when it embarked on a string of ventures aimed at reducing reliance on slow-growth newspapers. Most of those ventures have since been closed or sold (table). The company still derives more than 85% of its revenues from 31 dailies in such cities as Philadelphia, San Jose, Calif., and its home base of Miami. And its operating margins on those newspapers are dispiritingly slim, at 12.5%, says analyst John Morton, while the industry averages 14%. Margins at rivals Tribune Co. and Gannett routinely hit 20% or more.
BRISTLING. Ridder needs to find new and better sources of revenue, and that's not easy in the newspaper business. Some wonder if Ridder, 55, is up to the task. "There are no growth prospects and no model in his head as to where [growth] is going to come from," says one former executive. Ridder rejects that notion. "I bristle when people say we're only cost-cutting, because we're trying to build revenue," says Ridder, who has worked for the company his entire career.
Ridder's most aggressive move on that score was to spend $360 million in June for four small newspapers in California's fast-growing Contra Costa County. He sees the acquisitions as a pricey but strategic complement to the company's neighboring San Jose paper. But the purchase only heightens the company's reliance on its newspaper business.
Otherwise, Ridder is trying to squeeze more from what he has. He's demanding better operating margins from his dailies, particularly The Philadelphia Inquirer and The Miami Herald, which have cut employees and publication of some zoned editions. And he raised the stakes for all Knight-Ridder publishers last year by tying a substantial portion of their bonuses to getting 3% of new revenue from new ventures such as special sections, guides, and audio-text services. That effort generated more than $50 million in new revenue last year, which constituted half the companywide revenue gain of 3.9%, to $2.8 billion.
As modest as that initiative sounds, it's the clear winner among Ridder's grab bag of growth schemes. Other ventures tried over the past few years have met with little or modest success. For example, most of Knight-Ridder's newspapers have tried capitalizing on their expensive distribution systems by delivering magazines, but logistical and advertising problems have largely crippled the plan. Other efforts to offer a package of options to advertisers beyond the traditional newspaper, such as sponsoring women's conferences and holiday shows, issuing niche publications, and dabbling in database marketing, haven't yet amounted to much.
BACK ONLINE. Ridder hints that the company may soon reenter the television business, perhaps in a joint venture with a national broadcaster that will build on the company's newspaper markets and provide new opportunities for revenue. Knight-Ridder got out of television in 1989, when it sold its eight-station group to help finance the $353 million acquisition of Dialog, an information retrieval service used mostly by librarians.
Ridder is also putting Knight-Ridder back online. In the 1980s, its Viewtron online service was a pioneer on the Information Superhighway until Knight-Ridder scuttled the effort in 1986. Now, Ridder plans to have all of Knight-Ridder's papers online, via America Online or the Internet, by early 1997. But this time around, Knight-Ridder will be producing only the content and won't be making another costly investment in creating an electronic distribution network. Until any substantial new revenues from the electronic age take hold, Knight-Ridder remains squarely in the same old newspaper business. And Ridder finds himself running faster just to keep pace.