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Wednesday, January 11, 2006

Get Wall Street out of the picture

I’m on a bit of roll today, finally getting caught up on some reading. Columbia Journalism Review is one of those pubs I inhale from front to back. I don’t always agree with their articles, but enjoy the industry perspective. Picking up on my last point in the previous post…

Can’t recall who first came up with this idea, but with all the brouhaha of Knight-Ridder possibly going up for sale and Wall Street crying, “we want more!” someone had logically suggested that K-R papers be offered for sale in each of the communities it serves.

That sounds so logical as to surely be viewed as ludicrous by the moneymen. But in theory it means that a civically minded investor in the Akron area could potentially buy the Akron Beacon Journal and save it from imploding and thereby disgracing a terrific community and multiple Pulitzer Prize-winning paper.

So I read with great interest this article by contributing editor Douglas McCollam. In it he asks the question on the lips of many who love their newspapers: “Is there any good reason for newspapers to remain publicly traded companies?”

Aside from Donald Graham, the late Katharine Graham’s son and chairman and largest individual shareholder of The Washington Post Company, who thinks going public was good for the company ("Our focus is not on the stock price, but on the value of the company,” he says.), the conclusion is that the industry needs to separate from Wall Street, which cares only about growth.

Here’s McCollam on why publicly owned newspapers, which generally have profit margins of about 20 percent, “extraordinary when compared to almost any other business sector,” don't work:

It hasn’t worked precisely because the real appetite of shareholders is for greater short-term profitability, not long-term strategic investment.

Why is this relevant? Because newspapers are stumbling in their attempts to be relevant in the 21st century and among younger readers. Giving ownership back to the individual communities gives them the power to meet changing needs. There is no cookie-cutter solution that will work for all newspapers. Changes in content and delivery have to respond to the local community’s needs.

But to get there, first you have to get Wall Street out of the picture.

Private equity investors may not be the silver bullet solution, but it will be better than the dog-and-pony show we’ve got now between owners and investors.

Dean Singleton, head of Media News Group, which invests in media properties is not alone his observation that: “newspapers are ideal candidates for leveraged buyouts because they have such high operating margins, meaning they can service a lot of debt without drowning in it.”

McCollam writes: “…at the very least (private investors) will get the newspapers off the quarterly earnings treadmill that currently drives so much decision-making in the industry.” And that breathing room could provide the “potential to give newspapers desperately needed space to plan and invest in long-term strategies, on both the business and editorial sides.”

Like all seemingly rational plans that shakeup the group psyche, this idea involves adjusting people’s expectations, according to James Rutherfurd, a managing director of Veronis Suhler Stevenson, a merchant bank that focuses on media properties.

“You can streamline the production and delivery, but if you don’t have a good product no one will buy it. To do that on a daily basis takes good reporters and editors and some vision of what people want,” says Rutherford.

And here’s what McCollam concludes:

What newspapers really need, above all else, is ownership that values journalism and understands that the work of gathering, writing, and publishing the news is an inherently inefficient business that is in a period of profound transition. The private press baron of the past might have been a blowhard propagandist with the ethics of a wharf rat, but at least he loved the trade. Compared with the lineup of bloodless managers and mandarins currently squeezing the life out of journalism, Charles Foster Kane looks pretty damn good. So while there is no guarantee that the private ownership of today would recognize the value of journalism, it has already been established that Wall Street does not. Maybe it’s time we took our chances.

I’ll drink to that! (clink)

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