ShareThisBy DALE KASLER
Thursday, November 09, 2006
The stock market has been setting records lately, but some newspaper publishers and other big media companies want no part of Wall Street.
Saddled with sluggish profits and stock prices, facing an uncertain future as they try to compete against the Internet for consumers and advertisers, mainstream media titans such as Tribune Co. and radio giant Clear Channel Communications Inc. may sell to private investors or take themselves private, removing themselves from the ranks of publicly traded corporations. Tribune's efforts gained momentum Wednesday when Los Angeles investors Eli Broad and Ron Burkle reportedly bid for the company.
Feeding the trend: A profound shift in how people get news and entertainment, "the biggest restructuring of the media since television came along in the late '40s," said Stephen Lacy, a media economist at Michigan State University.
Just as TV scrambled everything else _ from movie production to newspaper publishing and beyond _ the Internet is forcing the mainstream media to create entirely new business models, Lacy said. Going private, the theory goes, insulates them from Wall Street's quarter-to-quarter profit pressure and gives them time to sort out their strategies.
But it's no cure-all. The private-equity firms and investor groups swirling around Tribune and other public companies have revenue expectations, too, and may lose patience if profits dwindle. Newspapers in some cities, including Philadelphia, are being purchased by high-minded local investors, but difficult business conditions are beginning to overwhelm civic virtue.
Still, there is an obvious allure to taking a troubled company private.
"You're seeing traditional media in a place where they have to modify their business model," said Chris Watters, an analyst at Ariel Capital Management, a major shareholder in media companies. "Sometimes that transition can be kind of messy. It would be a pretty rough process to do that as a public company."
One company that won't go private any time soon is McClatchy, which borrowed about $3 billion to buy Knight Ridder Inc. earlier this year; borrowing billions more to buy out its shareholders isn't a realistic option, said Chairman and Chief Executive Gary Pruitt.
Pruitt said going private could happen some day. "In the future, if we felt that (it was) the best way to preserve the quality and independence of the company ... we certainly would consider that option," he said.
McClatchy has a two-tier stock structure that puts the McClatchy family firmly in control and provides additional buffer against Wall Street.
The Chicago-based Tribune has no such defense. It has struggled in recent years and agreed to put itself up for sale following a public feud with its second-largest shareholder, the Chandler family, former owners of the Los Angeles Times. The company's holdings include the Times, the Chicago Tribune, the Chicago Cubs and 25 TV stations, including the Fox affiliate in Sacramento.
The only bidders in the first round were private-equity firms, outfits known for buying public companies, fixing their problems and then reselling them. When those bids came in lower than Tribune expected, Tribune quietly sent word that it would entertain offers for parts of the company. But in the latest twist, the Times reported on its Web site Wednesday that Broad and Burkle, two prominent Los Angeles businessmen, had submitted a bid for the entire company.
In any event, whether in pieces or as one big chunk, it's likely Tribune will wind up leaving Wall Street.
The sale of Tribune is the latest centerpiece in the debate over the future of newspapers. Other media companies may join Tribune in going private. Mega-broadcaster Clear Channel has received one takeover bid from a private-equity firm and is expected to receive others. The family behind Cablevision Systems Corp., a New York-based cable TV operator, has offered to buy out its public shareholders.
The Internet is at the root of much of this. While these big companies have their own Web operations, they aren't growing quickly enough to make up for the slowdown in their core businesses. Meanwhile, Wall Street won't wait for them to figure out their future.
Newspapers are a particularly vivid example of the squeeze under way. They're still among the most profitable businesses on Wall Street _ margins are about 18 percent this year, nearly twice as much as the average Fortune 500 company, according to independent analyst John Morton.
Just a couple of years ago, though, the margins were well over 20 percent. "It's not that newspapers are terrible performers, but they do pretty well," said Michigan State's Lacy. "(But) they don't meet expectations."
Going private doesn't guarantee success. Private-equity firms may have longer-term perspectives than Wall Street, but aren't softies, either.
Take the 12 papers McClatchy inherited from Knight Ridder but immediately spun off because, McClatchy said, their profits were too low and their markets were growing too slowly. All 12 wound up in private hands, and some of the new owners have wasted little time pruning costs.
Canadian publisher Black Press Ltd. laid off one-fourth of the newsroom at the Akron (Ohio) Beacon Journal. MediaNews Group Inc., in contract negotiations with the San Jose Mercury News, has threatened layoffs and proposed cutting pay by 30 percent for new reporters.
"Private ownership vs. public may not make that much of a difference in some markets if the advertising's disappearing," Lacy said. "If you're private, you can choose to be less greedy, but you do have to recognize that if you don't turn a profit, you won't survive."
