161 days in jail - and counting

Judith Miller, who’s back in the news as a witness in the Scooter Libby trial, held the record for First Amendment martyrdom when she walked out of a federal prison in September, 2005.

But Josh Wolf, a freelance journalist from San Francisco, has quietly – and prodigiously – surpassed Miss Run Amok’s unprecedented 85-day stint behind bars. Jailed for refusing to give his video out-takes to a federal prosecutor, Josh has been in the joint for 161 days – and counting.

Just like Judy, Josh has been caught in the Catch-22 that allows the feds to jail reporters protecting their sources when they otherwise would be shielded from such prosecution by the laws of every state but Wyoming.

There is no federal law to shield journalists from being compelled by prosecutors to provide information gained from sources requesting anonymity. Failure to comply with a federal subpoena can land a journalist in jail for contempt of court for the duration of the grand jury seeking the privileged information.

Unlike Judy, who enjoyed the celebrity and support attending her former status as a big-time correspondent for the New York Times, Josh is a nobody.

A self-styled chronicler of leftist politics in his mid-20s, Josh doesn’t have the prominence, money or clout to draw attention to his unjust incarceration – much less get him sprung before July of this year, when the grand jury disbands and his sentence would end. After being jailed on Aug. 1, 2006, Josh was briefly released from custody during an unsucccesful appeal. As of today, when his most recent appeal was rejected, Josh has spent a total of 161 days behind bars.

While Judy’s case was a compelling subplot in a long-running, high-profile Washington intrigue, the case against Josh is as dull as dishwater and as flimsy as a soap bubble. His offense, if you want to call it that, was to have been running his video camera during a rinky-dink street demonstration when a policeman was injured and some kids tried to set a police car on fire.

After Josh posted an edited video of the demonstration on his web site, the U.S. Attorney in San Francisco subpoenaed his unpublished tape to see if it contained evidence (which it reportedly doesn’t) of the plot to torch the cop car. Even though you would think local officials would be handling this investigation, the feds have asserted jurisdiction because federal dollars were used to buy the police car.

Remember: California law, as tested and affirmed would have shielded Josh from prosecution in this case.

So, Josh Wolf, a little guy committed to defending a mighty big principle that benefits us all, has spent half a year of his short life in jail.

Maybe it’s time for his congresswoman, Speaker Nancy Pelosi, and his colleagues in the press to start demanding his release.

Ugly Bettys

Shockingly unbecoming pictures of Hillary Clinton and Nancy Pelosi at Time.Com raise the question of whether the magazine is trying to damage the foremost females of the Democratic Party by portraying them as hags.

I hesitate to ascribe sinister motives to the news media, because, in my experience, most companies aren’t organized well enough to pull off a successful plot. A more benign explanation might be that Time’s editors left their PhotoShop software in their other pants on the days they ran the Ugly Betty shots reproduced below.

Wondering how frequently that sort of thing happens, I spent a few hours searching Time’s site for equally unflattering pictures of George Bush and John McCain. But there were none to be found.

Quite to the contrary, great care seems to have gone into selecting dignified and appealing photos of the GOP leaders. In the case of the senator, for example, every soft-focus shot was taken from a perspective that de-emphasized his creeping comb-over.

It wouldn’t be so bad if some of John McCain’s wrinkles appeared on Time’s cover. For one thing, they signal gravitas, which is considered a good thing in a President, notwithstanding the incumbent’s lack thereof. For another, a case can be made that a rugged, craggy look is sexy in a middle-aged man. That’s the story, anyway, that I’m trying to sell my wife.

Although we have come a long way, baby, in adding more women to the top rungs of government and commerce, there unfortunately remains a double standard when it comes to physical appearance. Crinkling crow’s feet may have added avuncular warmth to Ronald Reagan’s aw-shucks grin, but they can play hell with a woman’s Q Scores or political prospects.

Even though she is running for President of the United States and not America’s Next Top Model, Hillary Clinton must pay an inordinate amount of attention to issues of hair, makeup, wardrobe and such. Male statespersons, on the other hand, can get away with choosing between a charcoal suit or a blue one.

Time Magazine knows the significance of a woman’s looks only too well. On the occasions Sen. Clinton has been on the cover of the magazine, her photo has been carefully posed, carefully lit, carefully selected and, evidently, carefully touched up. Why does she merit Top Model treatment on the cover but not elsewhere? Because covers are supposed to sell magazines, not frighten little children.

Given the rising number of women newsmakers who have attained a certain age, journalists now must consider a new dimension when choosing and processing pictures.

Just as responsible editors routinely avoid the malicious selection of embarrassing or unflattering pictures, they have an obligation to be sensitive, sensible and, yes, generous in picking shots of our senior woman leaders.

Remember, kids: You’ll get wrinkles some day, too.

‘I’m on my way’

The last of Chicago’s living Front Page newsmen died yesterday when Ed Rooney passed at the age of 82.

Edmund J. Rooney, Jr. won the Pulitzer Prize for investigative journalism in 1957, was a Neiman Fellow in 1959 and earned a PhD in 1992 at the age of 67 while teaching journalism at Loyola University. The Chicago Tribune even called him “Dr. Rooney” in his obit.

Ed Rooney did all those things and did them well. But his greatest work was as the ace “outside man” for the Chicago Daily News, where he worked from 1952 until the paper closed in 1978.

Ed seldom came to the office, because his real value was on the street, where he had phenomenally deep and wide connections among cops, firefighters, crooks, politicians, businessmen, flacks, the Catholic hierarchy and anyone else who mattered in the complex ecosystem that produced the city's news.

He’d dash off to a 5-11 fire, cover a mob hearing or pump Mayor Richard J. Daley for a quote. After lunch, he’d enthusiastically do it all over again.

When Ed did stop by the newsroom in his customary baggy brown suit, he was a mess, with his glasses sliding down his nose, his hair scrambled and bits of blood-soaked toilet paper dotting his face.

The son and grandson of Chicago cops who lived his entire life in the working-class St. Columbanus Parish on the South Side, Ed patrolled the town in a car equipped with a police scanner, a two-way radio, police riot gear, a fireman’s coat, a gas mask and a suitcase in the event of an emergency overnight assignment.

“I’m on my way,” he’d say, regardless of the difficulty of the assignment, the hour of the day or the need to forgo Thanksgiving dinner with his wife and six kids.

His overnight trips included the civil rights marches in Alabama in 1965 and Chappaquiddick Island in 1969, where a car driven by Sen. Edward M. Kennedy plunged off a bridge, resulting in the death of his woman passenger.

While Ed was in Alabama in 1965, Barry Felcher answered a call at the city desk from a long-distance operator asking if he would accept a collect call from “Ed Rooney”. “I replied yes,” recalls Barry. “Then, a male voice thanked me for taking the call. But it wasn't Ed's voice. It was the voice of Martin Luther King.... Ed had asked King to leave the march for a few minutes and stop at a roadside phone booth to call the Daily News.”

Ed's true specialty were the stories closer to home, like the investigation of the state auditor for which he shared the Pulitzer, the methodical mass murder of eight student nurses by Richard Speck in 1966 and the riots during the Democratic National Convention in 1968.

An exclusive bedside interview with the dying Cardinal Albert Meyer in 1965 is a classic example of Ed’s technique. Although a nun was stationed at the hospital “to keep the reporters at bay,” recalled long-time rewrite partner, Phillip J. O’Connor, Ed knew his way around the building because his wife worked there as a nurse. “So he climbs up a back stairwell, goes into the cardinal's room, kisses his ring . . . and got a bunch of quotes, probably the last person, certainly the last reporter, to speak to him.”

In addition to nailing several careers worth of scoops, Ed’s unabashed resourcefulness earned him a reputation as the city’s premiere “door kicker,” an honorable sobriquet bestowed by colleagues with reverence and affection.

Although he aggressively and relentlessly pursued the news, Ed didn’t actually kick down doors to get his stories. He did it with intelligence, skill, diligence, charm and plenty of old-fashioned hard work.

He was way more than a door kicker. He was a kick.

Post-Murdoch stress syndrome

Rupert Murdoch’s potential interest in the parent company sent an epic shudder through the newsroom of the Chicago Tribune, where many friends and colleagues took refuge after he bought the Sun-Times in 1984.

More than 60 Sun-Times staffers departed shortly after News Corp. bought the tabloid for $90 million and installed a new publisher, who also doubled as Mr. Murdoch's personal baggage handler, and a pair of snarky Fleet Street editors.

Only days after asking me to help them locate Chicago on a map of the United States, the new editors began replacing the paper’s vigorous and thoughtful coverage with such fare as a bold, red, page-one screamer proclaiming, “Men Can Have Babies, Too!”

When voluntary buyouts became available, there was no shortage of takers.

The highest-profile staffer to depart for the Tribune was the legendary columnist Mike Royko, who quipped, “No self-respecting fish would be wrapped in a Murdoch paper.”

(One of the lowest-profile participants in the Diaspora was yours truly, who exited without a well-wrought plan in mind but landed serendipitously in San Francisco.)

Today, the Tribune newsroom continues to be well stocked with a number of talented Sun-Times refugees, including several occupying senior positions throughout the operation.

Although initial reports say News Corp. is intersted only in ways non-editorial operations can be combined to save money at its New York Post and Tribune's Newsday, there's fear that there could be more to the story than that.

After weak initial interest in the Tribune auction, the low prices of its high-quality print and broadcast properties represent a potentially tantalizing bargain to any savvy global media titan.

There are reasons to doubt News Corp. would be interested in taking on Tribune, but it's understandable that something more than the 20-degree breezes on Michigan Avenue are sending shivers through Tribune Tower.

Those who saw the original movie at the Sun-Times would not be looking forward to a sequel.

Traders gave Trib deal short shrift

A substantial number of savvy financial players never had any faith the Tribune Co. would be sold at a premium price, according to an analysis of trading data for the last 12 months.

Although Tribune’s stock took a bit of a hopeful leap in June after the disgruntled Chandler family put the company into play, a hefty 39.4% of the company’s shares were sold short at the same time.

Short sales occur when sophisticated investors sell stock they don’t own in hopes of purchasing the shares necessary to cover their positions when the stock’s price falls at a later date. If a lot of investors think a stock is overpriced, the percentage of short shares rises.

As illustrated in the chart below, the short interest in Tribune peaked in June. The shorts were more scarce when the stock price surged in October and short interested declined for the balance of the year as the stock eased to its present trading range. Short interest was 7.9%, on Dec. 8, 2006.

The Tribune’s year-end short interest, which is the most recent available, stands in contrast to short percentages of 2.2% for Gannett and 4.5% at McClatchy.

Fasten your belt-tightening belts

The future of the Tribune Co. may be a mystery but one thing is almost certain: Regardless of the outcome, major expense cuts are coming to every corner of the company, with the possible exception of the Chicago Cubs.

It doesn’t matter whether Tribune’s board of directors this weekend accepts or rejects the competing proposals to buy the company. Unprecedented belt tightening is on the way. Here’s why:

:: If the board agrees to the recapitalization (Broad-Burkle plan) or outright sale (Chandler proposal) of the company, spending will have to be throttled to ensure the company’s ability to pay off the massive debt incurred to finance the transaction. The company’s debt load, which now is nearly $5.3 billion, would be more than doubled by either plan.

:: If the board rejects the aforementioned proposals, management will have to tighten spending to lift the company’s earnings in hopes of forestalling an almost-certain collapse of the Tribune’s stock price.

The speed and depth of the cost reductions will be determined by the perceived ability of Tribune to significantly lift its revenues in the immediate future.

To be on the safe side, however, any near-term scenario likely would require cuts in headcount, newsprint consumption, circulation and production costs at newspapers and in headcount, programming and promotion costs in the broadcast division.

How low? Based on common industry metrics, a case could be made for cutting the newsroom of the Los Angeles Times by 17.5% to 775 from the current force of 940 journalists.

As the Chandler family correctly argued in its letter offering to buy the company, Tribune’s stock price, though anemic by historic standards, is trading for more than it would in the absence a prospective takeover of the company. Shares that sold as high as $51.99 in early 2004, are selling today around $31.

How low would shares go if all hopes for a buyout were dashed? The Chandlers reckon about $26, which is as good a guess as any (though they haven’t always been right in the past.)

The Broad-Burkle proposal would require Tribune to shoulder about $10.5 billion in additional debt (vs. the current $5.3 billion) to pay existing shareholders a one-time dividend of $27.

The Chandler proposal initially would saddle the company with $11.3 billion in debt until it spun off the broadcasting division. A successful sale of the broadcast assets could help reduce the debt load.

In either case, the new debt would have to be repaid from future increases in the profits of the Tribune’s media properties. In the absence of far better sales gains that the properties have been able to achieve in the recent past, the only way to improve profitability is by whacking expenses.

One of the few exceptions to the likely belt tightening might be the Chicago Cubs, which is believed by some analysts to be on track to increase payroll by $20 million to $30 million this year from $117 million in 2006. That would represent an increase of 17% at the low end and 25% at the top.

Noting that the team added a cluster of high-priced players to its roster last fall, James Peters, an analyst at Standard & Poor’s, told Marketwatch.Com that “you'd be hard pressed to make the argument that they're minimizing their expenses.”

Then again, the Cubs are estimated by Forbes Magazine to be worth $448 million, or 2033% more than they cost when Tribune bought them for $21 million in 1981.

Putting grief in proportion

I didn’t know Mike Levine, the editor of a newspaper in Upstate New York whose big heart gave out over the weekend at the untimely age of 54. But it sounds like he was a great guy.

So, I can understand how his shocked and bereaved colleagues were determined to pay him a heartfelt tribute in the pages of their paper, the Times Herald-Record in Middletown, NY.

Not only did they turn page one of Monday’s paper into a full-size poster of Mike, but they also devoted most of pages 2, 3, 4, 5, 16 and 17 to articles about or by him. The paper’s web site was packed with even more stories, photos, videos and remembrances.

Although the extensive coverage is tastefully and sincerely presented, it raises the question of whether the staff, in its grief, lost its sense of proportion.

As fine a husband, father, journalist and friend as Mike was, did his passing rate exponentially more ink than the death of any other member of his community?

In giving one of their own a bigger send-off than likely would be accorded a mayor, plumber, homemaker, shopkeeper or schoolteacher, is the newspaper subliminally saying that the lives and deeds of journalists are more important than those of lesser mortals? Is that the elitist message journalists want to send while newspapers are suffering historic declines in confidence and patronage?

A sense of proportion in news coverage is increasingly rare in these days of YouTubed hangings, fulminating blogs and frothing cable commentators. Newspapers are unique among all the media, in that they have the time and resources to report, evaluate and thoughtfully present the news.

They, and we, can’t afford for them to lose their grip when times get tough.

Wrong way, Chandlers

Tribune Co. stock has fallen 3.3% since the Chandler family bitterly launched an effort seven months ago to lift the value of their holdings by trying to force the breakup of the company.

Tribune has set Wednesday as the deadline for bids on its newspaper and broadcast assets, but the growing expectation is that the response will range from tepid to nonexistent. Saying there is a “distinct possibility” no bidders will emerge, Lauren Rich Fine, the influential newspaper analyst at Merrill Lynch, predicted that a “big premium” over the stock’s current price is “unlikely.”

As if the potential insult of no takers were not injury enough, Tribune’s shares on Friday closed at $30.60 a share, or 3.3% less than on June 12, the day before the Chandlers went public with their demand that the management sell some or all of the company.

The Tribune effectively was put in play when the Chandlers, who gained 20% of the company upon the sale of their Times Mirror Co. in 2000, aired their lack of confidence in Tribune management in an unusually blunt filing with the Securities and Exchange Commission on June 13.

“Over the past two years, Tribune has significantly underperformed industry averages and there is scant evidence to suggest the next two years will be any different,” wrote the Chandlers. “The gravity of management’s failure to address fundamental strategic issues is apparent from the precipitous decline in stock value over the past three and a half years…. These results have been disastrous to investors.”

The Chandlers had a point, given that Tribune’s shares had peaked at $51.99 as recently as February, 2004. If they had been paying attention, however, they would have noticed that the market for media companies had changed a lot since then.

(As reported elsewhere herein, the combined stock valuation of newspaper companies has tumbled $13.5 billion since 2004 and the value of metro newspapers has fallen by 48% since 2005.)

Although breaking up a company often is a good way to lift the value of its shares, the Chandlers picked the wrong industry at the wrong time. They should have known better, too, in light of the so-so response to the sale of Knight Ridder, which was reaching its denouement at the moment they fired their provocative missive to SEC. The price of McClatchy’s stock dropped the instant it announced its intention to acquire what subsequently turned out to be two-thirds of KRI. Since then, the stock has fallen 22.6% to close Friday at $41.19 a share.

If no third-party materializes this week with a compelling bid for Tribune, management has a chance to take the company private by rounding up the financing necessary to purchase the shares of the Chandlers and the other public investors.

As a private company, Tribune could neatly avoid truculent investors and the vagaries of a stock market that in recent years has turned decidedly hostile to media companies. But its executives would exchange those burdens for stringent new operating objectives that likely would require them to increase revenues and cut expenses even more than they have been able to achieve in recent years.

So far, the only folks making any money on the Tribune’s tribulations are the platoons of lawyers and investment bankers hired by the various parties to advance and protect their respective interests.

The shareholders who were supposed to benefit from all the high-flautin’ high finance are deeper in the hole than before this got started.

Do the right thing

Pity the growing discomfiture of David Brooks, the designated conservative voice of the Op-Ed page of the New York Times and the NewsHour on PBS.

Although David appears to be just as disenchanted as the two-thirds of Americans who are fed up with the dishonesty and ineptitude of the Bush administration on Iraq, Katrina and assorted other matters, he can’t say so.

His lucrative and highly visible media gigs require him to remain a vigorous apologist for the White House, the Republican Party and other bastions of conservative thought.

This is forcing David, who appears to be an otherwise intellectually honest guy, to concoct increasingly contorted and disingenuous arguments in the interests of maintaining his franchise.

He may have a hit a new low today.

Even though David is clearly squeamish about sending additional troops to Iraq, his column says the Democrats are “partly to blame” for the upcoming escalation because they “never came up with anything remotely serious” to avoid it. “So,” he concludes, “we are stuck with the Bush proposal as the only serious plan on offer.”

Excuse me, Dave, but don’t you think a growing majority of Americans are serious when they say they want all of our troops to come home within 12 months, if not sooner?

The mendacious and ill-conceived Bush invasion of Iraq is not entirely responsible for the bloodshed destroying that unfortunate land. Most of the violence today results from deep religious and ethnic rivalries suppressed under Saddam Hussein after he took control of a country established as an arbitrary political construct by the British in a last gasp of colonial pretension.

The presence of American troops is not going to speed the resolution of these ancient antagonisms. Far from helping, the ad hoc and incompetently executed American occupation is inciting a higher level of violence than would be the case if the Iraqis were left to sort out matters on their own. The occupation not only postpones the day of reckoning for the beleaguered region but will increase the bloodshed unconscionably for as long as it continues.

David Brooks knows this full well.

As one of the foremost conservative commentators in the mainstream media, David could clear his conscience and save countless lives if he forthrightly called for a prompt conclusion to the fiasco in Iraq.

It's time for him to come clean and do the right thing.

Metro-paper values plunge 48%

The Minneapolis Star Tribune evidently is being sold at a lower valuation than originally reported, meaning that the value of metro newspapers has fallen by 48% in less than two years.

Contrary to initial reports on the surprise sale of the Strib for $530 million, the Wall Street Journal now states that the Twin Cities title is being shed by McClatchy for 6.5 times its operating cash flow. Wall Street analysts originally estimated the transaction at 7.4x earnings. McClatchy in 1998 paid $1.2 billion, or a reported 16x cash flow, for the paper, the 15th largest in the land.

The value Avista Capital Partners placed on the Strib is a staggering 48% less than the 13.5x cash flow that Lee paid in 2005 when it bought the St. Louis Post-Dispatch and the rest of the Pulitzer chain.

The Pulitzer transaction stands as the contemporary high-water mark for newspaper values – and the dramatic drop in two short years is another measure of how deeply newspapers have fallen in the esteem of the financial community.

The cash-flow multiple is a common metric used by investors to determine what a company is worth. Cash flow is the difference between a company’s revenues and certain expenses. It is known formally as EBITDA, which stands for earnings before interest, taxes, depreciation and amortization.

The EBITDA multiple represents the degree of investor confidence in a company’s ability to increase its future profits. If the company is believed to have strong prospects to grow its sales and profitability, investors assign high, double-digit multiples to its cash flow. The shares of Google, for example, trade at 34.3x the EBITDA it realized in the last 12 months.

When investors believe a company’s earnings prospects are stagnant, or, worse, falling, they cut the EBITDA multiple. Gannett, the largest publicly held newspaper company, is valued by the stock market at 8.4x its cash flow over the last 12 months.

To put these values in context, Exxon trades at 4.9x its trailing 12-month cash flow, while AT&T is at 7.7x, Caterpillar is at 10x and General Electric is at 23.4x.

In the rare times in the past when metro newspapers were available for purchase, trophies like the Star Tribune traditionally changed hands for multiples in the mid-teens, because metros operated in monopoly and near-monopoly conditions with commanding and predictable shares of local advertising revenues.

The Pulitzer acquisition, in retrospect, appears to represent the last gasp of that bygone era.

When Knight Ridder was forced by dissatisfied investors to liquidate itself in 2006, it sold for 9.5x EBITDA, or 30% less than Lee paid for Pulitzer.

One year after the KRI liquidation, Tribune Co. is valued at 8.4x amid the expectation that it, too, is destined to be taken private or sold. Thus, Tribune is trading at a 12% discount to the value at which KRI was sold. Spirited bidding over the Tribune properties could push the eventual sale multiple higher, if the company's managers can gin up the competitive auction that has eluded them to date.

Although Media News paid 11.5x EBITDA for the Northern California metros spun off by McClatchy in mid-2006, the higher price was made possible only because MediaNews knew it could achieve extraordinary operating efficiencies by merging the San Jose Mercury and Contra Costa Times into its already formidable footprint in the Bay Area. And that’s exactly what Media News has done.

Apart from such exceptional circumstances as the Bay Area consolidation, however, it appears that the ordinary market value of individual metro newspapers has been halved in the two years between the acquisition of the Post Dispatch and announced sale of the Star Tribune.

Small and medium newspapers with defensible positions in isolated markets will continue to command multiples closer to the industry’s historic highs for as long as they can sustain the sort of fundamentals that the metros formerly enjoyed. As the new media begin chipping away at the readership and revenues of smaller properties, their values could erode, too.

The upcoming sale of the Copley papers in the Midwest will be an excellent barometer of the market for mid-sized newspapers. If the Copley papers fetch significantly higher multiples than the Strib, which is likely, then the transactions will validate the emergence of a two-tiered market for newspapers.

Absent significant new circulation and sales successes at some big-city papers, however, the M&A market for metros could remain unprecedentedly unkind.

Size does matter

“Managed correctly, staff cuts can be good for a newsroom,” wrote the editorial director of a national newspaper chain in response to the widespread dismay over the cutbacks in Philadelphia.

Although you have to worry that the industry may be experiencing a bit too much of a good thing, my friend is right in observing that staff size alone is not as important as, well, how you use it.

“The percentage of actual feet on the street at metros averages about 30%,” he says. “Some of the remainder do necessary work, but many of them run around with clipboards, attending meetings at which they exercise their superior ‘news judgment.’”

My friend asserts that newspapers become livelier, more pertinent and more beloved by readers when newsroom bureaucracies are pared to the point that 60% of the staffers are producing content instead of yakking in meetings.

This certainly comports with my experience as city editor of the Chicago Sun-Times in the early 1980s, where, if I do say so myself, we consistently out-hustled the more generously endowed staff of the newspaper across the street.

But that was then and this is now.

Today, we are approaching a point when many staffs may be so diminished that they lack the people and time to develop the original, enterprising and compelling stories that historically have distinguished newspapers from all other competitors.

If newspapers lose this, their most powerful differentiating strength, they will pass the point of no return.

Feet on the street in Philly

The latest staff cuts in Philadelphia will leave 186 fewer journalists working at the Philadelphia Inquirer and Daily News this year than in the fall of 2005, a reduction of 28.8%.

Several reports of the cutbacks announced this week don’t take into account the significant staff reduction undertaken by Knight Ridder before the papers were put up for sale in 2005.

In the fall of 2005, KRI cut 90 of the 515 newsroom jobs at the Inquirer and 25 of the 130 editorial positions at the Daily News, making for respective reductions of 17.5% and 19.2%.

If the Inquirer terminates the additional 71 positions announced this week, the paper will be left with 354 staffers, or 31.5% fewer feet on the street than the staff’s peak strength in the fall of 2005.

Shaken but not stirred

Although forecasting the newspaper business is as difficult as predicting earthquakes, there probably is enough tension building along the industry’s fault lines to fear we may be headed toward a cluster of newspaper closings.

This is, after all, ’007. And publishers, like the owners of any other business, have a license to kill any asset that can’t meet its performance targets.

In the last 30 years or so, 23 major American metros have been shuttered as the result of poor performance and the conviction of their owners that poorer prospects lay ahead.

While that’s a reasonably comforting average of only two-thirds of a newspaper per year, you will note from the chart below that closings tend to come in clusters during periods of industry distress. Three newspapers were closed in each of 1982 and 1988 and a pair folded in each of 1991 and 1992.

The titles included my beloved Chicago Daily News in 1978, the Washington Star in 1981, the St. Louis Globe Democrat in 1986, the Miami News in 1988, the Los Angeles Herald Examiner in 1989, the Houston Post in 1995 and, well, you get the picture.

All the departed publications were the No. 2 papers in their respective markets and the majority of them had been publishing on the evening cycle. With readership and revenues falling and no hope of an upturn in sight, the shutdowns tended to come in clusters when economic conditions soured.

Although the general economy today is considered to be in strong shape, the audience and advertising market share for newspapers has been constricting for the last few years.

If things don’t turn around quickly, then weak papers in multi-title markets could be at particular risk. Meanwhile, neighboring papers in adjacent markets may become more aggressive about combining ad sales, production and, eventually, the titles themselves.

A new willingness on the part of newspaper executives to deal decisively with ill-performing properties may have been foreshadowed by McClatchy’s decision to sell the Minneapolis Star-Tribune, its largest property. The stealth Strib sale fecthed about half of the $1.2 billion for which the trophy paper was acquired 1998.

The transaction was shocking not just for the method, timing and price, but because it seemed to signal a new desperation, hopelessness or callousness in the largest pure-play publisher in the industry.

Prior to Christmas, McClatchy’s esteemed managers were viewed as the last remaining true believers in the newspaper business. If they have run out of confidence and ideas in Minneapolis, that’s a frightening commentary on the state of the industry.

Vaporized: $13.5B in news stock value

In a dramatic repudiation of newspapers by investors, the shares of publicly held publishing stocks in the last two years lost nearly $13.5 billion in value, or 20.5% of their market capitalization.

To put this in perspective, the vaporized value is greater than the enterprise value of the Tribune Co. or the combined value of the McClatchy, New York Times and Media General publishing companies.

The vertiginous drop came at the same time the Dow Jones industrial average soared to an all-time high and other market indicators gained by healthy double-digit percentages.

Of the 12 publicly held newspaper stocks traded in 2004 that remain with us today, only the shares of Scripps have advanced. Scripps’ 5.4% gain contrasts with the 15.6% advance in the Dow industrials in the same period.

Scripps shares are going in a different direction from the rest of the newspaper industry, because the company has been moving aggressively to build its cable TV, broadcasting and online holdings. With only about a third of Scripps revenues coming from the newspaper business, it probably shouldn’t even count as a publishing company any more.

Although the shares of Dow Jones, Gannett and Tribune gained in 2006, those companies and the rest of the industry have been in negative territory since 2004. The biggest loser, in the last two years, by far, was Journal Register Co., whose shares plunged 61.8%. The Washington Post Co., which has been diversifying away from its eponymous newspaper, suffered the smallest decline at –1.9%. Details are in the table below; calculations are based on 2004 closing prices adjusted for dividends and splits.

At the end of 2004, newspaper shares roughly paced the performance of the S&P 500, an index measuring the performance of a broad array of stocks. In the last two years, however, the S&P 500 rose 17% while the publishers melted down.

The sell-off has been prompted by declining readership, falling revenues and rising concern over the industry’s ability to respond effectively to competition from the new media. As Goldman Sachs recently noted, 2006 likely was the first “non-recession year” in history in which newspaper revenues declined.

Publishers, investors and others who care about newspapers rightfully were (and should be) worried about changes affecting the long-term economics of the industry. It is completely rational for the market to discount stocks in response to a real or perceived deterioration in their fundamentals.

But the collapse of newspaper share prices arguably was accelerated by a panic sparked by several large investment funds that suddenly soured in unison on the publishing stocks they once accumulated with confidence and zest. When they fell out of love with newspaper shares, they (and the stocks) fell hard.

Institutional investors for the last two years have pressured a succession of iconic newspaper companies – including Dow Jones, Knight Ridder, the New York Times and Tribune – to put themselves up for sale in hopes of realizing greater value than the stock market accorded their shares.

To date, Dow Jones and the New York Times have resisted the pressure to peddle their assets. Tribune has been trying, without much evident success, to find someone to buy part or all of it. And Knight Ridder succumbed in what proved to be a disappointing financial outcome for its faithful investors.

Growing investor pressure has terrorized and dangerously defocused the executives of publicly held companies, whose compensation and job security are tied directly to the value of their shares.

Instead of navigating their businesses through the most difficult environment they will ever know, the executives have been forced to spend disproportionate amounts of their time on investor relations, financial engineering and ill-considered expense cuts that could imperil the long-term health of their franchises.

In all likelihood, newspaper companies would have performed better in the last two years, if publishers had spent more time rigging their businesses for the digital age and less time truckling with the pin-striped barbarians at their gates. Better operating performance probably would have led to higher share prices, too.

As big a fan as I am of free enterprise and free speech, I don’t think anyone has the right to cry “Fire!” in a crowded theater while decent and well-intentioned people (newspaper executives) are trying to shepherd the innocents (readers, employees and advertisers) to safety.

But that’s essentially what Wall Street has been doing for the last couple years.

Unintended consequences

Although investors forced management to sell Knight Ridder in the interests of improving shareholder value, the transaction has resulted in precisely the opposite outcome.

In the six months since KRI was sold, the shares of the acquiring company, McClatchy Newspapers, have deteriorated so badly that the KRI shares swapped for MNI stock have lost nearly 7.6% of their value.

When Knight Ridder agreed to be sold in March, 2006, McClatchy paid $67.25 a share for a stock that closed the previous day at $63.10. The deal was below KRI’s trading high of $71.02 in the previous 12 months and the 6.6% vigorish over prior day’s price wasn’t even a third of the 20% premium common in such a deal.

KRI agreed to accept $40 of the per-share payment in cash and the rest in MNI stock. Because McClatchy’s shares have fallen since June, the holdings of a KRI shareholder who kept his MNI stock through the end of 2006 were worth $5.09 per share less than on the day before KRI was sold.

The KRI deal resulted in the dislocation of the lives of hundreds of employees and the liquidation of one of the nation’s most esteemed journalistic institutions. But the collateral damage isn’t over yet.

In a shocking aftershock, MNI at yearend dumped its largest paper, the Minneapolis Star-Tribune, for less than half the $1.2 billion for which it was purchased in 1998.

Faced with declining revenues and high operating costs, the new owners of the Strib may be planning some measures of their own to improve shareholder value.