By: As dozens of people milled around a meeting room at the headquarters of The Philadelphia Inquirer, Brian Tierney put a hand on the arm of Publisher Joe Natoli and leaned in.
"It is done," said the cherubic-faced new chief executive of the Inquirer and the Philadelphia Daily News, with the excited air of a senior on graduation day.
"It is done," echoed Natoli, quipping, "And you're still smiling."
On Thursday, Philadelphia Media Holdings LLC ? an investment group made up of Tierney, luxury homebuilder co-founder Bruce Toll and other local investors ? closed its purchase of the two dailies, the Web site Philly.com and sister properties from The McClatchy Co. The deal is valued at $562 million, comprising $515 million in cash plus the assumption of pension liabilities.
But Natoli's quip reflects the realities of the newspaper business now thrust upon Tierney and his group: Flagging profits, dropping advertising revenue and rising costs.
The new owners said they're prepared to invest in the two papers for growth.
Tierney said the marketing budget will be $5 million a year, up from several hundred thousand dollars. They group also is willing to spend up to $10 million a year for promotions.
The Inquirer will start a two-week marketing campaign using the slogan, "Bringing Home the News." The company plans to give Philly.com better visibility on the front page and the papers will start marketing their brands through parades, show sponsorships and by giving away newspaper-branded products such as frisbees. There is also a limited time half-off offer for subscriptions.
Tierney said several local advertisers plan to significantly increase their ad spending on the papers.
Crowded around a long table, Tierney, Natoli and eight of the investors also signed a pledge not to interfere in editorial policy.
The group, at least initially, has tied itself to returns below those expected by Wall Street investment groups. Tierney said the annual return would be lower than the 30 percent expected by equity funds.
McClatchy sold the papers mainly because they are not in growing markets. The publications were divested along with 10 others that came with McClatchy's purchase of the Knight Ridder Inc. chain. The deal closed Tuesday. McClatchy is now the second-largest newspaper publisher in the country.
Investors have been bearish about the industry, selling off newspaper stocks as circulation fell.
But what Wall Street doesn't realize is that many papers have a valuable asset in that they control local news, said Jeffrey Potts, principal at JP Media Partners, a Gold River, Calif.-based mergers and acquisition intermediary for newspapers.
"These are still the leading sources of local news and information and they will continue to be so in print or online," he said.
Where newspapers have stumbled is reacting to new technology ? the Internet ? defensively at first and then wrongly applying online strategies when they've decided to accept the encroachment as inevitable, said Colby Atwood, a newspaper analyst at Borrell Associates in Portsmouth, Va.
Instead of merely offering a way for current subscribers to access the same news online, they should also go after new ? and typically younger ? readers through targeted Internet efforts, Atwood said.
He pointed to The Bakersfield Californian's Bakotopia.com, an online community that includes free classified listings. Bakotopia, which counters such sites as Craigslist.org, began last year. The paper's goal is to build an audience and eventually have the site supported by advertisers.
The Californian's strategy of creating a new brand instead of using its newspaper name is one way of attracting new users who weren't attracted to the print version, Atwood said.
"Media companies are starting to realize it can be an advantage to get away from their traditional brand name and create a new brand online," he said.
The Californian's aggressive online strategy was made possible in part because it is privately owned by the Moorhouse family, said Dan Pacheco, the paper's senior manager of digital products.
"We don't have shareholders calling, leading revolts like at poor Knight Ridder," he said.
As a known local portal, Philly.com can embark on similar ventures, Atwood said.
But while the Philadelphia papers invest in new technology, some say the new owners have to be careful about whittling away at the print side.
Knight Ridder's job cuts and closing of bureaus have taken a toll on reporters and editors, who toward the end no longer felt they were on the "same team," said Linda Foley, president of The Newspaper Guild-Communications Workers of America in Washington, D.C.
"They're willing to give the new owners the benefit of the doubt," she said. "But if they want to pick a fight, they'll get a fight."
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