In the out-of-the-box solution proposed by Paul Ginocchio of Deutsche Bank, Tribune would raise approximately $6 billion to buy Knight Ridder by divesting a couple dozen TV stations and disposing of such non-publishing assets as the Chicago Cubs.
The resulting entity would have total daily circulation of 6.3 million, making it second only to Gannett's 7.6 million subscribers. The jumbo combo, says Paul, would create a “synthetic” national newspaper with titles in 15 of the top 31 markets, reaching 11% of U.S. households daily and 14% on Sunday.
Each paper presumably would keep its unique title and format, but advertising would be sold not only on a per-title basis but also in group-wide or regional buys. If it worked, says Paul, there might be sufficient “critical mass to coax other large-market newspapers into joining," thus providing advertisers with a far-reaching, one-stop shopping solution.
“We’d much rather own small-market papers, which we think have a good chance of continuing to dominate the local advertising arena,” says Paul. “Nonetheless, the best chance for a large-market operator to thrive is to be able to capture a growing share of national advertising. Despite a slowdown in the last year and a half, national advertising over the last decade has outgrown retail and classified as a category.”
Creating a lean, mean national advertising machine is a good idea, but it’s not novel. National ad-rep firms already offer the opportunity to buy all papers -- or just some of them -- with one order and one bill. While national advertising did increase in the last decade, it is a vulnerable category, as discussed further below.
Paul is quick to add that he doesn’t expect his idea to be embraced any time soon. Further, he acknowledges that it could be scuttled by antitrust issues or the spirited bidding that would erupt if the formidable assets of two of America's leading publishing companies suddenly went into play.
Paul's idea, though, represents the kind of innovative thinking that will be necessary, if publishers are going to adapt successfully to the challenges posed by both low-cost print competitors and the interactive media.
As discussed here previously, the industry has begun taking baby steps toward strategically restructuring its assets. But Paul’s idea, which is a giant leap, is a bit like jumping out of the frying pan and into the fire. Here’s why:
With national, retail and classified advertising shrinking all at once, it admittedly is tough owning newspapers these days in places like the Tribune's Chicago, Baltimore and Los Angeles and K-R's Philadelphia, Miami and San Jose. But a publisher's weak hand isn't strengthened when it doubles down its bets by buying a similar collection of struggling properties from someone else.
Each of the primary metro advertising categories -- national, retail and classified -- is contracting, for a variety of secular, not cyclical, reasons.
:: National advertising recently has been reduced by the telescoping of four aggressively marketed cellular phone companies into two (ATT/Cingular and Nextel/Sprint). Financial and tech advertising has been limp since the Bubble. Most airline ad budgets have been trimmed by bankruptcy or the fear of it. Movie ads have been crimped by a year-long sag in ticket sales. Because national ads are purchased by large, sophisticated companies, their marketers may be among the first to diversify into competing broadcast and interactive media.
:: Always sensitive to the ups and down in the economy, retail advertising certainly has had its share of ups and downs of late. Beyond the ordinary fluctuations, the total available ad dollars are likely to shrink as Federated buys May, Kmart swallows Sears and so forth. Consolidation leads to the closing of stores and/or the retirement of beloved brands like Marshall Field's in Chicago, which Macy's plans to dump.
:: Classified advertising has been plundered by Craig’s List, Monster, eBay and the rest of the usual suspects.
So, you have to ask: How much would Tribune gain by shouldering K-R’s burdens?
Rather than grubbing for larger shares of shrinking advertising markets, metro newspapers would be wiser to develop their interactive businesses and build or buy efficiently produced micro-local print products to serve the individual communities in the markets they dominate.
The appeal of one-size-fits-all mass media is declining rapidly in an era when new technologies enable the instant and individual consumption of content.
Smart media companies will focus on architecting new paradigms for the future, not bundling together yesterday's problems like so many recycled papers.