THE YEAR 2000 IN REVIEW

By: Mark Fitzgerald

Biggest Newspaper Deal . . . And Many Small Ones Too

Think back to Jan. 10. After weeks of tension, Y2K had passed without a peep. Newsroom PCs clattered without a hiccup, pagination systems clicked-and-dragged with only their usual glitches, and presses rolled smoothly. For all its hype, the new year looked just like the old one.

Then America Online Inc. ? a 15-year-old Internet company that only a few years ago was more famous for its busy signals than its content ? announced it was “merging” with Time Warner Inc., one of the Old Economy’s most gilt-edged media firms.

“It’s the new world swallowing the old,” Peter Schwartz, chairman of the Global Business Network, declared in an interview with the San Jose (Calif.) Mercury News. “It’s an early signal of the radical changes that we’ll be seeing in all media.”

Suddenly, the big players in the newspaper industry felt not just vulnerable ? an old feeling that dates back before even the invention of radio ? but acted as if they had to decide all over again what they were going to be when they grew up.

The result was a year in which some of the biggest chains left the newspaper business entirely, some left it mostly ? and those who stayed around eyed each other as lustfully or nervously as if it were a Sadie Hawkins Dance in Darwin’s Thunderdome.

“This is a whole new world now,” Edward J. Atorino of the investment banking firm Wasserstein Perella Securities Inc. told E&P right after the AOL Time Warner announcement, “but I don’t think anybody has a clue what it means yet.”

While everyone was waiting for the next shoe to drop, a few top executives at Tribune Co. knew the Chicago-based newspaper, information, and entertainment company was already trying a big one on for size. David Hiller, then senior vice president/development and now president of Tribune Interactive, dropped a hint when the company’s employee newsletter asked him how Tribune could compete with “such a content and online powerhouse” as a merged AOL Time Warner. “We have big plans to continue to grow our businesses,” Hiller deadpanned, “and we have to act at Internet speed to accomplish them.”

Tribune had set its sights on Times Mirror Co. It was an audacious target not only for its size but for its degree of difficulty: Almost everyone inside and out of Times Mirror believed the Chandler family trusts made acquisition by an outsider impossible. After Tribune Chairman and CEO John W. Madigan first approached CEO Mark H. Willes about an acquisition in the spring of 1999, Willes used exactly that excuse to end exploratory talks in the summer.

What Willes did not fully grasp was that Otis Chandler, the former Los Angeles Times publisher who had been so outspoken during the 1999 Staples Center controversy, was not the only Chandler who had grown disenchanted with the performance of Willes, the former cereal maker. The Chandlers were interested in a deal. By early January, just as AOL and Time Warner were shaking up the media with their merger, members of the family trust were listening to Tribune’s pitch in the Gothic-style tower that Col. Robert R. McCormick built on Michigan Avenue.

Tribune could respond on two fronts. To allay the fears of journalists at such storied Times Mirror newspapers as H.L. Mencken’s Baltimore Sun or The Hartford (Conn.) Courant ? which made headlines in 2000 by apologizing for 19th-century slavery ads ? Tribune could dispatch its Pulitzer Prize-winning President Jack Fuller, the author of a book entitled “News Values,” no less. And Tribune had proven itself in New Media as well, burning through an average $30 million annually for the previous three years.

“Size and scale is what’s driving the media today,” is how Madigan put it after the sale. The Times Mirror deal, announced March 13, had both size and scale: The $8-billion acquisition was by far the biggest deal ever pulled off by any company with roots in newspapers. It dwarfed McClatchy Co.’s $1.2-billion 1998 purchase of the Minneapolis Star Tribune or New York Times Co.’s $1.1-billion deal for The Boston Globe.

Deals on wheels

“Media companies either get larger or they get eaten,” was the blunt assessment Robert McChesney, a University of Illinois communications professor, gave to Washington Post business writer Sharon Walsh.

Two once-acquisitive big chains, however, decided in 2000 that getting bigger in media meant getting out of newspapers.

A month before Tribune nailed down the Times Mirror deal, Thomson Corp. had its own shock for the industry: It put up for sale all of its 130 U.S. and Canadian daily and weekly newspapers except The Globe and Mail in Toronto. By June, the 49 U.S. dailies went for a total of $2.44 billion.

The other big seller was Hollinger International Inc. When it was still known as American Publishing back in the early 1990s, Hollinger ran an ad every week in E&P looking for new properties. But with its stock price languishing, Hollinger in April decided to hold a clearance sale on the papers it did not shed in the huge garage sale it held for its smaller papers in 1999. Hollinger put 77 dailies and 302 community papers on the auction block, with boss Conrad Black even offering a half-interest in his beloved National Post in Canada.

Back when the Montreal-born Black was acquiring newspapers, another Canadian,
Israel Asper, was building a TV network with interests in cable, radio, interactive media, and film and TV production. What he was missing, Asper apparently decided last summer, was newspaper properties.

In November, after some eleventh-hour wrangling, Asper’s CanWest Global Communications Inc. bought most of Hollinger’s Canadian newspapers and the interest in the National Post for $2.4 billion (U.S dollars).

Hollinger sold all of its remaining U.S. papers ? except for the Chicago Sun-Times and its regional cluster of dailies and weeklies ? to four groups, including the very active Birmingham, Ala.-based Community Newspaper Holdings Inc., which also slapped down $455 million to buy 17 Thomson dailies in Georgia, Indiana, and West Virginia.

Herd on the Street

Other newspaper companies unloaded papers, too, though not in such radical numbers. The New York Times Co. in February put 22 of its smaller papers on the block. The Journal Register Co. pared its properties to concentrate on Internet development and its East Coast newspaper clusters.

By May, at least 72 U.S. dailies valued at nearly $4 billion were up for sale, according to the Santa Fe, N.M.-based newspaper broker involved in many of them, Dirks, Van Essen & Murray. The flood of properties was not depressing the prices of dailies, which according to AdMedia Partners were holding at multiples of 10 to 14 times cash flow ? up from 9 to 10 times cash flow in 1997.

Wall Street, for the most part, loved the sell-newspaper strategy.

When, for example, Central Newspapers Inc. announced June 7 it was looking for a buyer or partner, Wall Street pushed its price up 65% the next day.

So who was buying? In a word: Gannett.

Gannett Co. Inc. bought big, and it bought small. In one frenzied 23-day period in June, it signed purchase agreements totaling $4.53 billion to buy the British newspaper chain Newscom for $800 million; 21 dailies from Thomson Newspapers for $1.13 billion; and The Arizona Republic in Phoenix, The Indianapolis Star and the rest of Central Newspapers for $2.6 billion. By the year’s end, Gannett was the owner of 99 U.S. dailies.

Hold the apocalypse

The increasing consolidation of daily newspaper ownership moved MediaNews Group Inc. President and CEO William Dean Singleton, who bought Thomson’s flagship Connecticut Post in Bridgeport, to tell publishers at the Newspaper Association of America’s convention, “Ten years from now, when the NAA has its annual convention in New York, there won’t be very many of us. But that’s not the end of the world.”

In Utah, where apocalyptic thinking has deep historical roots, some journalists did think it was the end of the world when Singleton offered $200 million to buy The Salt Lake Tribune. Managers of the Tribune, partner in a 48-year-old joint operating agreement (JOA) with the Mormon Church-owned Deseret News, claimed they had the first right to buy the paper from its accidental owner, AT&T Corp., which bought it as part of a cable TV purchase. Singleton laughed off claims by the Tribune executives that he was a “front” for church forces who have resented the newspaper’s secular orientation. Last month, a federal judge refused to block the sale.

Singleton was also involved in the revival of something that looked to be on its way out in 2000 ? JOAs.

After what it said was $123 million in losses ? most of it in depreciation ? keeping the Denver Rocky Mountain News competitive in the nation’s most brutal newspaper war, E.W. Scripps Co. was so anxious to get hitched with Singleton’s Denver Post that it committed May 11 to paying MediaNews what amounted to a $60-million dowry.

Denver’s JOA application proceeded remarkably smoothly, largely because Scripps and MediaNews assiduously lobbied the key groups that could stop it. Newspaper unions ? which delayed JOAs for months in Cincinnati, Seattle, and Detroit ? announced their support in July after winning seven-year contract extensions and other concessions. Advertisers ? who can expect big rate increases ? made only muted protests.

On Sept. 9, the U.S. Justice Department’s antitrust division gave the Denver proposal its green light, virtually ensuring its passage.

Certainly both papers began acting that way: In October, the Post doubled its home-delivery subscription price, signaling the end of the penny-a-day offers both papers used to pump up their circulation numbers; and in December, the News eliminated the corps of street hawkers who helped shore up single-copy sales figures.

Earlier, in April, Pulitzer Inc. paid the Newhouse family’s Advance Publications a one-time payment of $306 million to break up the JOA that since 1984 allowed Newhouse to share in the profits of the city’s only remaining daily, the St. Louis Post-Dispatch. Even so, Newhouse is going away slowly: It will continue to have a 5% share in the paper until the agreement terminates in 2015.

The San Francisco beat

In July, U.S. District Judge Vaughn Walker finally allowed Hearst Corp. to end a 35-year-old JOA in San Francisco by buying the San Francisco Chronicle for $660 million and paying local community-paper publisher Ted Fang $66 million to take its San Francisco Examiner.

Walker’s ruling, in a lawsuit filed by civic gadfly Clint Reilly, came on the heels of a trial that was a disaster for Hearst. In a moment of what he later said was exhaustion, Examiner Editor and Publisher Timothy White testified he offered San Francisco Mayor Willie Brown favorable editorial coverage in exchange for support of the Chronicle sale. Walker let the sale proceed ? but not before letting everyone involved know exactly what he thought of them. Testimony by top Hearst executives George B. Irish and Frank A. Bennack Jr. was “not credible, and the court does not believe them,” said the judge, who added that a Fang-owned Examiner will be a “sure loser” without the JOA and the JOA itself was “not worth saving.”

In November, Fang began publishing a poorly printed, typo-ridden shadow of the old Examiner.

Earlier, after months of trying to wriggle out of their unhappy Honolulu JOA ? and pressured by antitrust lawsuits filed not only by the usual suspects (i.e., a newspaper union and a “readers” group) but also by the state of Hawaii ? Gannett and Liberty Newspapers agreed to put Liberty’s Star-Bulletin up for sale. In the fall, a judge cleared the way for Canadian newspaper operator David Black, who is not related to Conrad Black, to take over the 118-year-old afternoon daily.

State of the unions

Unions of the labor kind were also back in the news in 2000.

Five-and-a-half-years after 2,500 workers from six unions walked off their jobs, Detroit’s epic newspaper labor dispute ended Dec. 17 with the last two unions ratifying contracts giving them 2% pay raises on wages that had been cut by as much as 50%, and replacing mandatory union membership for blue-collar workers with an “open shop” of voluntary membership.

Undeterred by that bitter history, some 1,000 editorial, circulation, and advertising employees represented by The Newspaper Guild struck The Seattle Times and the Seattle Post-Intelligencer Nov. 21.

The remnant of the once-mighty wire service known as United Press International (UPI) was bought May 15 by News World Communications Inc., a company founded by the Unification Church’s leader, the Rev. Sun Myung Moon. White House correspondent Helen Thomas, probably UPI’s best-known asset, quit the next day.

That wasn’t the newspaper industry’s only disappointment out of Washington. In a predictably slow presidential election year, the Federal Communications Commission retained its ban on cross-ownership of newspaper and broadcast properties in the same market; Congress failed to override President Clinton’s veto of a bill eliminating the estate tax; and the Occupational Safety and Health Agency issued ergonomic standards that would affect most newspapers.

With President-elect Bush and his administration waiting in the wings, however, there is a perception that change on any one ? or all ? of these points is only a lobbying call away. Which means the titans of the newspaper trade may have real cause for celebration at the birth of this new millennium.


Mark Fitzgerald (mfitzgerald@editorandpublisher.com) is editor at large for E&P.

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