Newspaper 'Cold War' Ends in Carolina After McClatchy Deal

By: Jennifer Saba For more than a century, two North Carolina newspapers -- The News & Observer in Raleigh and The Charlotte Observer -- have dominated their respective regions. These two old lions had marked their territories, and were not above a good scratching match.

But that all changed in March 2006, following the announcement of McClatchy's industry-shifting acquisition of Knight Ridder. In that transaction, McClatchy's News & Observer was suddenly thrown into the company of its sometime competitor, the former Knight Ridder-owned Charlotte Observer. Now executives at both papers are working together to achieve that much-loved Wall Street buzzword: efficiency.

Charlotte and Raleigh, along with McClatchy's five South Carolina papers, are tasked with identifying overlaps in every aspect of their business, from circulation and advertising to news coverage and distribution. "We really see this as a way to improve both papers," says Lynn Dickerson, McClatchy's vice president of operations who oversees the company's southeast properties.

It's in the newsrooms where the partnering has accelerated the quickest. Reporters once pitted against each other now share stories and ideas. "It's the North Carolina journalism equivalent of life immediately after the cold war," says Mark Johnson, a Charlotte Observer reporter who covers government from the Raleigh bureau.

"It's strange," agrees Bill Krueger, state capital editor at the News & Observer. "It goes against some of your basic wirings. Part of what drives you is competition, and part of that is competition with the Observer."

Rick Thames, the Charlotte Observer's editor, readily admits that making nice with Raleigh after a century of competition hasn't always been easy, but adds, "I think it's ended up being a good move in an era of strained resources."

Along with Raleigh and Charlotte, McClatchy also owns five dailies in South Carolina: The State in Columbia; The Herald in Rock Hill; The Island Packet in Hilton Head; The Sun News in Myrtle Beach; and The Beaufort Gazette. All are involved in the ongoing effort to achieve corporate "efficiency," but Charlotte and Raleigh deal primarily with each other since they are the largest papers in the group.

One new relationship crosses state borders, however. Terry Plumb, the former editor at the Herald in Rock Hill, a stone's throw from Charlotte, describes the paper's current attitude toward the Observer: "You have defined someone as your enemy for years, and now you're kissing cousins."

Collectively, the Carolina papers do their share of heavy cash-lifting for the company. The Charlotte Observer and News & Observer are the company's fifth and sixth largest papers, respectively, in terms of revenue. In 2006, McClatchy reported the Charlotte Observer's pro forma total revenue as $176 million, while the N&O's total revenue was $136 million.

Dickerson says the southeast, which includes some papers outside the Carolinas, represents 24.7% of the company's total revenue. So the deal McClatchy made for Knight Ridder did not just change the face and size of the company -- it also gave it a strategic advantage in a lucrative market area. Rick Edmonds, media business analyst with the Poynter Institute, tells E&P, "I would say close observers of McClatchy have felt all along that part of the appeal of the whole deal is the notion that McClatchy would own the Carolinas."

McClatchy CEO Gary Pruitt has said the timing of the Knight Ridder takeover was lousy -- since last March, newspaper advertising revenue has taken a nosedive -- but that the company still believes very much in its strategy of investing in growing markets. Still, there is a lot of pressure on McClatchy, perhaps much more than its industry peers, to cut costs in order to pay back the $3.75 billion debt Pruitt & co. used to finance the deal.

According to News & Observer Publisher Orage Quarles III, any roadblocks he encounters -- including a temporary hold on constructing a new headquarters building -- are a reflection of the industry's turbulence, and nothing more. "I have been doing this a long time," he says, "and the challenge for all of us is the economy."

The kibosh on the building "doesn't have to do with the Knight Ridder acquisition, which would be an easy assumption," says McClatchy's Dickerson. "We didn't think it was prudent [to build] until business picks up a little bit."

Philip Meyer, a Knight professor at the University of North Carolina in Chapel Hill, believes that the Knight Ridder papers, including his old stomping grounds in Charlotte, are not going to be stripped for parts under McClatchy's leadership even as it hunts for savings. He recalls noticing the Charlotte Observer getting thin over the last several years. "I can remember when I was at Knight Ridder, the Observer had a real high profit margin -- better than 30%. It's hard to imagine giving that up," he says. "Management would rather harvest than invest in them. McClatchy is more attuned to the investment strategy."

Ann Caulkins, the Charlotte Observer's publisher, attests to that thinking, stating, "I feel like [McClatchy] has been generous with resources." Caulkins was named publisher in Charlotte two months before Knight Ridder put itself up for sale in November of 2005; she didn't officially take the job until McClatchy acquired the company.

"Part of what we suffered from in Knight Ridder was having a single tier of stock, which made us vulnerable to Wall Street," she adds. "We were just so tight. I don't feel that tightness at McClatchy."

Re-examining relationships

The News & Observer and the Charlotte Observer are both strong newspapers, but neither dominates the state. Since Charlotte is about 175 miles west of Raleigh, both dailies cut a wide swath of their own, and are not altogether different in size (Charlotte's Monday-Friday circulation is 206,497, while Raleigh's is 165,483). In the past, both papers could be found statewide, but distribution has gradually diminished over the years, a phenomenon affecting many metros as publishers increasingly think locally.

The papers' strong points are unique to their areas. Seated in the capital and surrounded by universities in the area known as the "research triangle," the News & Observer is aggressive in its coverage of state government and college basketball. The Charlotte paper devotes plenty of coverage to the banking industry -- Bank of America is headquartered in the city -- and pro sports subjects popular with readers, including NASCAR and the Carolina Panthers.

Says McClatchy's Dickerson, "The area in which we have seen the most synergy would be on the news side. Obviously we have shared ideas on the advertising side." She adds there is very little circ duplication between Charlotte and Raleigh.

According to recent audit reports from the Audit Bureau of Circulations, Charlotte and Raleigh circulate in five of the same counties; the Charlotte Observer's distribution typically represents less than 2% in the counties with Raleigh circulation.

Jim Lamm, the Charlotte Observer's vice president of circulation, says they are turning the screws on distribution. "Right now, we are looking at all alternatives to get expense savings from trucking."

Charlotte is re-examining all counties with 1% or less of circulation against the cost of delivering. Lamm says the paper eats money when making deliveries to those types of areas.

The Charlotte Observer cut its circulation in Asheville, N.C., Greenville, S.C., and, more troubling, in Raleigh. Lamm explains, "We were [in Raleigh] because it was the state capital. How do I feel about it? I have to look at the expense to deliver 135 papers to multiple locations. Is this the best use of my resources? No. We have to redirect to a geography that is much more important to advertising and readers." Charlotte actually sees more circ duplication with the 30,053-circ Herald in Rock Hill -- a McClatchy legacy paper and another enemy-turned-friend -- about 25 miles south of Charlotte. "We have now become big brother/little brother rather than competitors," says Lamm. "We're looking at ways to help each other grow in the same market. We really are in the early stages."

Plumb, the Herald's former editor who was with the paper for 20 years, recalls that Charlotte started honing in on the Herald's territory after the paper switched to morning distribution in 1988. A newspaper war broke out when Charlotte took its three-day-a-week zoned insert from a tab to a broadsheet and moved a bureau to Rock Hill. "We went at them tooth and nail," he says. "As good as we think we were, and as good as the Observer was, we were the best fit for the readers at the time."

Charlotte eventually retreated, but another shift was taking place: Interstate 77 between Charlotte and Rock Hill expanded to eight lanes. Charlotte mushroomed so much that the northern parts of Rock Hill, with its good schools and lower South Carolina taxes, became a nice alternative, a suburb of sorts. People started taking the Charlotte Observer again because that is their mindset, says Plumb: "Now they are doing a whole lot of coverage in our area. It's still something our people are learning to adjust to."

The Herald's publisher, Valerie Canepa, says the papers still compete but that they are finding ways to work together that make sense, including distribution. In York county, where Rock Hill is located, the Herald has more than twice the paid circulation of the Charlotte Observer. Still, the two papers are working together to share carriers. She says they go head-to-head with breaking news and advertising because South Carolina and North Carolina, while they may be Southern neighbors, are very different. "Will we ever become a suburban bureau of Charlotte? No. That didn't work with their own paper," Canepa says about Charlotte's earlier strategy to move into Rock Hill's territory.

Dickerson says that McClatchy has no plans to find commonalities in the news or advertising departments of Rock Hill and Charlotte, but rather in distribution and in sharing some space in the news bureaus. McClatchy executives are also determining if it makes sense to build a plant that would serve both Rock Hill and Charlotte, but so far there are no concrete plans. She admits the company "would love" to build a printing facility between Charlotte and Raleigh, but for now that remains a pipe dream, given the paper's deadlines and distance.

Any circulation benefits springing out of Charlotte and Raleigh revolve around sharing good local practices. News & Observer Vice President/Circulation Jim Puryear relishes the fact he can now call on his colleagues to bat around ideas: "What works in Raleigh will work in Charlotte, while it won't work in Sacramento," he says. "We have already met one time and we communicate regularly -- and even try to share talent."

Hunting together for survival

On the advertising front, Raleigh and Charlotte don't really have much in common, to hear each paper's ad VP tell it. In fact, all the Carolina papers under McClatchy see a bigger opportunity by building out a regional network in some specific categories. "We have looked at categories that would make sense, like national travel," says Al Autry, the News & Observer's senior vice president/advertising.

Additionally, both papers' advertising departments are exploring common marketing materials, specs, and billing systems, and perhaps establishing one point of contact for potential advertisers so an account won't get bombarded by too many sales reps pitching the same line.

"From an advertising perspective, it's certainly too early, we are just getting to know each other," says Liz Irwin, VP/advertising at the Charlotte Observer. "It's been very positive." Raleigh can draw upon Charlotte's extensive magazine publishing experience; the News & Observer plans to carry its former competitor's Carolina Brides title.

Hard-hit categories like automotive require so much heft to get revenue flowing that McClatchy's Carolina region partnered with papers outside the company in Durham and Fayetteville to lure auto advertisers back in. "We may have looked at it competitively before," says Autry, "but now we have said, 'Let's collectively go after it.'"

There's always the notion that since McClatchy operates so many papers in the region, they can strong-arm advertisers with higher rates. But realistically, newspaper muscle has atrophied as more competition moves in. "It really has to do with the alternatives," explains Bob Shamberg, CEO of Newspaper Services of America. "As there are fewer papers, it tends to create less competition -- but many of our advertisers, as circulation declines, look into other media."

For Shamberg, the one-bill/one contact strategy doesn't do much for NSA, since the company buys ZIP code by ZIP code. He says, "It might make more sense for people not as invested in the newspaper buy."

Sales reps with the Charlotte Observer and News & Observer didn't talk smack about one another when they were competitors, recalls Bryan Jackson, director of newspaper investment at the advertising agency OMD in Atlanta. "I think both those papers understand what our clients try and do as retailers."

He's also open to a regional network, as long as the agency can cherry-pick the newspapers it desires. "[We] don't like to be in a position to be forced to buy papers we don't need," he says, adding the network should be flexible.

The 'Brady Bunch' factor

Meanwhile, the effect of the acquisition has been felt in the Charlotte Observer and News & Observer newsrooms. "We found we were able to help each other to combine our strengths, and that has been good," says Thames, editor of the Charlotte Observer. His paper, for example, runs some state government stories taken straight from the News & Observer. Conversely, the News & Observer runs NASCAR coverage from Charlotte.

Thames says the competitive spirit between the two papers is strong, but it makes more sense to join forces to fend off other local competition: "We are focusing on how we as an industry can meet the challenges of other competitors out there." He's sensing that for the first time, newspapers across North Carolina -- not just Raleigh and Charlotte -- realize they need to work together.

Aside from the awkwardness of cozying up to a longtime competitor, many reporters expressed mixed feelings about this new era of openness. "There's a bit of a 'Brady Bunch' factor here -- two families that have joined together in a way that would not have happened naturally," observes Ryan Teague Beckwith, the News & Observer's newly appointed political blogger. Though he's generally gung-ho on the new mission -- and his position -- Beckwith points out the real danger of cooperation: "I do have a fear that with fewer people poking around at stuff, there's more of a chance it might be missed."

Thames and his counterpart in Raleigh insist their corporate parent has not put any direct pressure on them. Thames says, "This has been more about the seven papers in the Carolinas working things out together to their mutual benefit. There is a spirit of collaboration from each of these papers."

In November 2006, the former competitors produced a 16-page special report on the racial fallout from race riots in Wilmington, N.C., in 1898. Thames says the project took shape over the papers' role during the period which helped usher in the Jim Crow era. At the time, the papers' owners each supported the white supremacy movement. The special report was a way to admit past failings and move forward.

The Raleigh newsroom is going through adjustments of its own, not unlike those felt in newsrooms across the country -- reshuffling editors and coverage, and breaking news more often on the Internet. Its sports section has shrunk by six pages a week, and more than five years ago, it abandoned two sections with limitless appeal to southerners: faith and food.

The paper is expanding its coverage of Wake County, where Raleigh is located, by throwing more reporters at local stories. News & Observer Executive Editor Melanie Sill says she assigned one reporter to the immigration and demographics beat and one to a growth beat, vacancies she had long wanted to fill.

News & Observer Managing Editor John Drescher is eager to further integrate the newsroom with online operations. "We have a very strong TV news Web site competitor, WRAL.com," he says, adding that the News & Observer's own site was most vulnerable during the early morning hours. So Drescher says the paper had reporters start posting online in shifts starting at 6:30 a.m.

Drescher recalls, ruefully, that at first go, all the papers in the region shared story budgets, which he describes as "an administrative nightmare" since there was no central silo, and instead everyone relied on e-mail. Now the papers share more information, including projects and news stories still in nascent form.

For the most part, he says, that has gone well, although some kinks remain because of different deadline times (Raleigh's is later than Charlotte's) and general communication issues: "No ill will is involved. That stuff happens in a newsroom with people who sit 20 feet away from each other."

At the same time, Sill is meeting with Thames to find ways to share content, freeing up reporters to work on other projects. "We immediately saw a lot of things possible about working together," she says. "The overlap in coverage went away." It's not exactly second nature, she notes: "It's something five years ago none of us would have stomached."

Will political coverage suffer?

One key area in which the two papers naturally benefit is state government. The News & Observer has more reporters -- five covering the Statehouse -- since the governor's office and legislature is located in its backyard. Charlotte has two reporters that work a hometown angle. Both Charlotte and Raleigh have other reporters who check in from time to time with the capital bureau chiefs, depending on the nature of the story. Raleigh runs a political column five days a week; Charlotte runs its column once a week.

While the idea is to eliminate any overlaps the two papers might have, in order to free up reporters to work on other projects, this too brings a fresh set of worries.

"Part of me is troubled," says News & Observer capital editor Krueger. "With some things in government, say a state budget, it's helpful to have multiple and competing journalists looking at it from different vantage points. I suspect we will still have that, but probably not to the same degree."

Government officials were kept on their toes, mostly because one paper in the region didn't eclipse the others. The area was well-covered, from a variety of angles. "North Carolina was long regarded as a competitive newspaper state," says Rob Christensen, the News & Observer's political writer and columnist. "We didn't have one large newspaper that dominated the state. We had four medium-sized papers" -- including the much smaller Winston-Salem Journal and the News & Record in Greensboro. "The statehouse beat was a very competitive beat, historically. It meant that no one could sit on a story." Now, both papers have to reprogram reporters from cutthroat to cooperative.

That coordination can work, Krueger says. He cites one example before Charlotte came into the fold, about the trial of the state's former lottery commissioner: For the bulk of the hearings, each paper had two reporters covering the trial for a month. Krueger notes that if he was faced with a similar situation again, he could free up at least one, if not two, of those staffers.

The Charlotte Observer's Johnson testifies, "There have been no real big bumps of any kind," but he says it wasn't helpful when his paper cut its distribution in Raleigh. "Part of your currency as a reporter is the impact you have," he says. "If people can't see your paper, that impact is diminished." Johnson was on a team to help cover a tornado that tore through the eastern part of the state -- Raleigh territory. But on that story, he says the News & Observer and Charlotte reporters worked well together.

Christensen is still weary about the glasnost effect of sharing story ideas: "We start telling [the Charlotte Observer] we are working on such and such a story, and they come out with the same idea -- were they working on that all along?"

'Less' might not be more

Once the knots are untangled, it could be beneficial for journalism, contends UNC professor Meyer. "All statehouses are woefully under-covered, and state governments are generally corrupt. There's a wonderful opportunity to increase coverage and do more investigative reporting," he says.

Krueger and his counterpart at the Charlotte Observer, Government Editor Nancy Stancill, both say they can pursue any story no matter what the other paper is doing. "The fact there is freedom to make decisions on the best stories helps a lot," Stancill says. "We have chosen to do our own stories when we both have special interests in the topic."

Gene Gibbons, executive editor of Stateline.org, a project funded by Pew Charitable Trusts that covers statehouse news, says he's leery of that school of thought: "I think in general that 'less-is-more' is specious. The activities of state legislators and government are quite complicated. When you have fewer people covering them, less attention is given to them." (McClatchy Newswires has an agreement with Stateline to carry its content.)

Of course, there's also the danger that McClatchy could look at the number of reporters covering state government for both papers and decide that combined, there are too many. "So far, our editors here at the Observer have been very firm at looking at state issues from a Charlotte-centric standpoint," Stancill says. "I don't think that will change."

Besides, in troubling times in the newspaper industry, it's best to have as many allies as possible. The News & Observer's Drescher says upon further reflection, "When we were thinking about who our competition was, we realized it really wasn't Charlotte. The nature of media today, our real competition is everything else that is out there -- WRAL.com, the local business journal and its Web site, the local sports Web sites. That is our real competition."