The case for a JOA in Miami
If they can modify their loan covenants, appease federal antitrust-regulators and navigate the myriad other details associated with an undertaking of this sort, the heavily leveraged owners of the Miami Herald and Sun-Sentinel have a chance of improving the performance of two newspapers foundering in one of the most toxic markets created by the real estate bust.
Who knows? Relief might be spelled J-O-A.
The real estate meltdown has slammed South Florida harder than just about any other metro region in the country. Zillow.Com says real estate values in Miami have fallen 23.7% from their Bubblicious peak. Further, Economy.Com predicts that prices won’t hit bottom until the end of 2009. That’s right, 2009.
Only two other major markets in the United States are worse off than south Florida. Ironically, they are Orlando, where the perilously financed Tribune Co. has another major operation, and Sacramento, which is McClatchy’s hometown. Tribune, of course, owns the Sun-Sentinel and MNI owns the Herald.
The glum outlook in south Florida means more pain almost certainly lies ahead for two metros competing in close quarters in a contracting market where advertising sales are twice as bad as the depressing national average.
While neither McClatchy nor Tribune Co. details the sales of individual properties, MNI reports that revenues at its Florida papers through May were down 22.6% from the prior year. That’s double the decline of 11% that a growing number of analysts are predicting for the industry as a whole in 2008. (MNI’s results in Florida also include its paper in Bradenton, but the title is so small that it couldn’t materially offset Miami’s performance even if it were doing significantly better – which it probably isn’t.)
The troubles in south Florida are but one of the many geographically dispersed challenges faced by McClatchy and Tribune, including sales swoons at their respective California properties that rival the downturn in Florida. But the two publishers have something special in south Florida that they don’t have anywhere else: side-by-side metros in neighboring counties that represent ample opportunities to boost efficiency by combining ad sales, production and distribution.
For starters, the daily circulation of both papers is roughly the same. The circulation of the Herald, which is headquartered in Dade County, is 256k. The Sun-Sentinel, whose home base is 31 miles to the north in Fort Lauderdale (Broward County), sells 215k papers per day. If the publishers drew a Mason-Dixon line between their turfs, they could agree to axe inefficient circulation and save the cost of marketing against each other in any formerly disputed territories.
(UPDATE 6.19.08: As noted in Comments below, the papers have some shared some distribution. A thoroughly integrated operation would enable the partners to fully consolidate many duplicative marketing, billing, delivery and customer support functions. )
Each of the newspapers operates a five-press printing plant that individually is capable of producing both papers on the morning cycle, assuming deadlines are shortened to assure timely delivery across a combined distribution footprint that runs more than 100 miles from end to end.
Although this sort of thing would have been unthinkable even months ago, neither Tribune nor McClatchy seems reluctant now about co-operating with competitors. The Chicago Tribune has begun delivering papers for the rival Chicago Sun-Times, and McClatchy plans to outsource the printing of two of its titles to neighboring newspapers in Idaho and Washington.
If one or the other Florida property could qualify as “failing” under the terms of the Newspaper Preservation Act, the publishers might be able to go all the way and enter into a joint operating agreement.
A JOA, which represents federal permission for pubishers to collaborate in ways normally forbidden by the antitrust laws, would enable the complete combination of all sales and operating functions, except for preserving two separate and independent editorial staffs. Each publishing company would cover its own editorial costs and they together would split the profits generated by the consolidated aspects of the operation.
If this came to pass, it wouldn’t be the first JOA in Miami.
An earlier operating agreement between the Herald and the late Miami News was dissolved in 1988, with Knight Ridder, the former owner of the Herald, agreeing to pay Cox, the owner of the News, a portion of its profits until 2021. A spokeswoman for McClatchy confirms that her company has been continuing the payments to Cox since buying KRI in 2006.
If a new JOA were created, McClatchy would be the first publisher in history to be party to two separate JOAs in the same town at the same time.
Another possibility would be for one paper to purchase the other, so as to move forward as a single, consolidated entity. This would give the seller after-tax cash to pay down some of its debt and enable the buyer to achieve maximum efficiency by wringing all duplicative costs out of the business. This seems a less likley outcome for two reasons:
:: A straight-out sale might be harder to clear with the Justice Department than a JOA.
:: MNI and Tribune probably won't be able to finagle much more money out of their lenders until they can show gains in their anemic sales and profits.
Any form of collaboration in south Florida would unhinge the proud staffs of the Herald and Sun-Sentinel, who have competed fiercely against each another forever. But things are getting so grim that there may be no other choice.