Private owners tout future of newspapers

PHILADELPHIA (AFX) - Brian Tierney just bought a business with rapidly dwindling profits in an industry undergoing a wrenching transformation. Negotiations with several unions are just getting under way, and the lobby of the building hasn't been painted in years. 

So how is he feeling about running The Philadelphia Inquirer and Philadelphia Daily News, which he bought for $515 million? "I'm having a blast," he said, not missing a beat. Tierney, a hard-charging entrepreneur and native Philadelphian who made millions in the advertising business, is at the center of the debate over whether newspapers do better under private owners or public companies.

Under their previous owners, the publicly traded company Knight Ridder Inc., the Philadelphia papers won acclaim and prizes but also came under pressure to cut costs as the advertising climate soured.

Tierney said he and his partners can take a longer-term view and invest for the future, without pressure from stock fluctuations. Private owners say they are free to be more responsive to the needs of their communities and their papers.

However, the new owners still face the same challenges dogging newspaper publishers everywhere, including the loss of younger readers and competition from other media like the Internet. And they still have bills and debts to pay -- sometimes big debts.

Tierney is betting the ranch that he can make the turnaround work, and plans to invest an additional $60 million over the next three years in various improvements including more color printing, online features, marketing programs and implementing more creative ways of selling and printing ads. He's also hiring two senior executives charged with marketing efforts and shaping the papers' look and feel.

The papers still have a tough road to slog, and Tierney acknowledged that they're "economically struggling," without giving exact details, other than to say profits are "way off" in the last three years. The papers were among 12 that Knight Ridder's new owner, McClatchy Co., didn't want, saying they didn't fit its criteria of being located in rapidly growing markets.

The newsroom staff have warmed to Tierney. "This place had been beaten down, and to have someone come in and say, 'We care about this place and we're going to make it better,' was a welcome message," said Ken Dilanian, an investigative reporter.

Staffers seem reassured by Tierney's pledge -- which he forced his fellow investors to put in writing -- not to interfere with editorial decisions.

That doesn't mean the owners won't have a hand in strategic choices such as what areas of coverage to build up or trim away. One partner, Bruce Toll, co-founder of the luxury home builder Toll Brothers Inc., caused a bit of a stir recently when he suggested the paper should have a society page.

Tierney's entrepeneurial bent is also having an effect. Amanda Bennett, the Inquirer's editor, said she was able to implement a recent proposal for an online project relatively quickly. Under corporate ownership, she said, "there were many more constituencies to take into account, which slowed things down."

All 12 of the papers sold by McClatchy went to private owners, reversing a trend toward consolidation into publicly held companies. The debate over private versus public ownership was heightened by the fact that Knight Ridder was forced into a sale by disgruntled stockholders.

While Tierney says he and his partners are willing to be patient -- none can sell their stake for five years, and even then under certain limitations -- the papers still have to show better results eventually.

"People get that here. This is not a charity," Tierney said.

William Dean Singleton, the CEO of MediaNews Group Inc., a private publisher that bought four Knight Ridder papers, said there's a common misperception that private owners have an easier time.

"In a public company, a CEO and its board answers to its public shareholders. In a private company, we answer to our lenders," said Singleton, who was recently named chairman-elect of The Associated Press. "People who think that private companies get off easy just don't understand -- we've got the same pressures."

David Black, who just bought the Akron Beacon Journal, another one of the 12 papers sold by McClatchy, recently told staff he would have to make job cuts across the board as profits rapidly shrink.

Even though Black's Vancouver-based company, Black Press Ltd., is privately held, he said the cuts were unavoidable if the business was to satisfy its lenders, make a reasonable return and invest in necessary upgrades like equipment and software. Profits last year were down 50 percent from five years ago, and are shaping up to be down 50 percent this year from last year: "A fairly grim situation," he said.

David Giffels, a longtime metro columnist in Akron, said the newsroom took the announcements of the cutbacks in stride.

"At least there's a sense that there will be more personal handling of distasteful events than when you're in a huge corporate structure," he said.

Black, who mainly owns community newspapers in Canada and the Northwest, has received acclaim for turning around the Honolulu Star-Bulletin. Giffels said colleagues who checked up on their new owner found he had a reputation there as a "fair dealer."

Frank Bridgewater, the editor of the Star-Bulletin, said it's easier for the newsroom to operate under Black than it was under its former owner, Gannett Co. Even though there are still bottom-line pressures, "there's more flexibility in terms of how we handle and change the budget," he said.

For now, private investors are still willing to pay higher prices for newspapers than those seen on the stock market, where newspaper stocks have slumped badly over the past year or so. That could put more pressure on newspaper owners to seek private buyers. Several wealthy Los Angeles figures, including music mogul David Geffen, have expressed interest in buying the Los Angeles Times, but Tribune Co. has said it's not for sale.

Phil Murray, a newspaper broker with Dirks, Van Essen & Murray, who worked on several of Knight Ridder deals, said the gap between private and public valuations of newspapers is "as great as we've seen it in a long time."

A prominent Wall Street analyst, Merrill Lynch's Lauren Rich Fine, took some in the industry by surprise by publicly suggesting that if the stock prices are so undervalued, publicly held newspaper companies could consider going private.

One new owner, longtime newspaper executive Richard Connor, said more private ownership would help both newspapers and the communities they serve. Consolidation has caused some papers to lose touch with their communities, said Connor, who paid $65 million for The Times Leader in Wilkes-Barre, Pa., another paper sold by McClatchy.

"If people want to call the newspaper and question what we do or people internally want to know what we do," he said, "they just have to make one call -- to me." Copyright 2006 Associated Press. All rights reserved. This material may not be

Copyright 2006 AFX News Limited. All Rights Reserved.