Eager Buyers For...Newspapers?

The rich, connected, and ambitious see a future in fast-growing Web ad sales

When Philadelphia adman Brian P. Tierney announced at a press conference in late May that his group of local investors had bought the city's two big newspapers, The Philadelphia Inquirer and Philadelphia Daily News, from McClatchy Co. (MNI ), he did so with all the panache of Orson Welles in Citizen Kane. Tierney, 49, pretended to have a heart attack at the mention of the $562 million price tag. He kidded that he should be standing to the left of former Republican Governor Mark S. Schweiker, who was there to represent the chamber of commerce -- an inside joke since Tierney is a conservative, too. He also sweepingly declared: "The next great era of Philadelphia journalism begins today."

Could it be fun to own a newspaper again? For the past six years the business has been one sorry headline after another: falling circulation, ads lost to the Internet, higher newsprint prices. Fed-up investors forced the sale of Knight Ridder Inc. (KRI ) earlier this year. Now it's Tribune Co.'s (TRB ) turn as the company's second-largest shareholder, Los Angeles' Chandler family, pushes for a breakup.

The big story used to be the sale of old family-run newspapers to big national chains. But now the door is open to a new generation of dreamers with money, connections, and ambition galore. Several local billionaires are eyeing Tribune's Los Angeles Times, including Hollywood dealmaker David Geffen and entrepreneur Eli Broad. Both men are big-time philanthropists and would likely relish the civic leadership role that owning a newspaper would bring. Onetime supermarket magnate Ronald W. Burkle, who has allied himself with the newspaper unions, made a run for some of the old Knight Ridder properties and is still in the market. His endgame: to show he can both save jobs and make money.

The interest in newspapers goes beyond civic pride. Although circulation for the industry's 1,500 dailies peaked in the early 1980s, today's 54 million subscribers still make newsprint a powerful tool for advertisers. And, despite the gloom-and-doom headlines, the business is very profitable. Big newspaper companies generated operating profit of 20% on sales of $52 billion last year, says stock market researcher Value Line Publishing Inc. Tribune's newspaper operations earned $760 million last year on sales of $4.1 billion. In spite of the pressure from the Chandlers, Tribune says the Los Angeles Times is not for sale.


Newspapers also have strong brand names that translate well online. William Dean Singleton, CEO of the MediaNews Group Inc. chain, with 49 dailies, says online advertising at newspaper-affiliated Web sites is beginning to provide a greater boost to bottom lines. Because the sites don't require printing and distribution, they're potentially much more profitable. Singleton says online revenues made up about 6% of his company's $1.1 billion in sales last year but generated 15% of profits. He recently agreed to buy four former Knight Ridder papers in partnership with Hearst Corp.

Without pressure from Wall Street, private owners can accept lower margins and returns. "We don't assume we're smarter than the people we're buying the property from," says Todd Schurz, president of Schurz Communications Inc. in South Bend, Ind., which recently agreed to buy South Dakota's Aberdeen American News from McClatchy. "We have a different time horizon." Schurz, a fifth-generation member of his family to run the company, says he doesn't plan to fire staff. "We don't think in terms of quarters -- we think in terms of generations."

The horizon may be distant, but individual owners can move quickly when necessary. Canadian David Black, who recently agreed to buy Akron Beacon Journal from McClatchy, acquired the all-but-dead Honolulu Star-Bulletin at a fire-sale price of $10,000 in 2001. He snapped up a successful weekly paper for its presses, brought in local investors to win community support, and created a Sunday edition. Black now claims to have a significant chunk of print advertising on Oahu.

Still, the track record for outsiders isn't great, says industry consultant John Morton, citing the cases of real estate developer Peter S. Kalikow's failed tenure at the New York Post and industrialist Joseph E. Cole at the now defunct Cleveland Press. Mortimer B. Zuckerman, the real estate mogul who rescued the New York Daily News in '92, says dealing with shrinking revenues and higher printing costs is a constant struggle. "We've been bloodied," he says.

New owners face many of the same challenges as their predecessors, plus an added hurdle: They're deeper in debt. Tierney and his team, for example, are borrowing heavily from Wachovia Corp. (WB ) and Royal Bank of Scotland. "It's possible banks will put on the same kind of pressure as Wall Street if revenues don't go up," says Gene Forman, an ex-Inquirer editor who now teaches at Penn State.

In Philadelphia, Tierney & Co. will have to deal with 12 separate unions, whose contracts all come up on Aug. 30. So the honeymoon could be short. "The idea of local ownership is exciting," says Joseph Lyons, president of the Philadelphia Council of Newspaper Unions. But, he cautions: "We'll probably get into some serious bargaining" with a new boss who has never worked with unions. One likely issue: the two papers' separate sets of delivery-truck drivers. Combining them would probably save money but cost jobs.

A Philly native, Tierney founded an ad and PR agency, now part of Interpublic Group of Cos. (IPG ), that he built up to $260 million in revenues before leaving in 2003. While there, critics say, Tierney strong-armed editors in defense of his clients. Tierney says he made his new investors sign pledges saying they won't meddle in news coverage. "The publisher makes the decision. I won't attempt to interfere," he says. "I don't know what more I can do."

By Christopher Palmeri

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