Tuesday, April 18, 2006

Shake, rattle and roil

As if timed to coincide with the centennial of the Big One in San Francisco, there are several bits of earth-shaking news to discuss.


All signs point to the likely imminent purchase of the San Jose Mercury and the Contra Costa Times by MediaNews Group, which already owns 22 other papers serving some 320,000 readers in Northern California.

The acquisition of the Mercury, the CoCo Times and their little sister, the Monterey Herald, would bring MediaNews circulation in the market to well over 650,000, surpassing the reach of the soon-to-be-encircled San Francisco Chronicle by roughly 100,000 readers.

For those who have been out of the galaxy, the Mercury et al are owned by Knight Ridder, which was forced by restive investors put itself up for sale. When McClatchy Newspapers bought Knight Ridder, it decided to divest a dozen of the KRI properties. This put the NorCal papers into play, along with properties from Philadelphia to Aberdeen, SD.

MediaNews has done a bang-up job of acquiring several of the dailies surrounding Los Angeles in places like Van Nuys, Pasadena, Long Beach and San Bernardino. Now, it appears poised to reprise the feat in NorCal.

Operating in mostly non-union environments where it aggressively shares editorial, ad sales and production resources, MediaNews is known for its ability to wring substantial expenses and high profitability out of its properties. Leveraging these and other efficiencies like tight newsholes, the company is an aggressive competitor for both advertising and circulation. If you want to know how that plays out, see “Roll” below.

By purchasing the three KRI orphans, MediaNews literally will surround the once-dominant and now profitless Chronicle on the north, east and south. The nearest competitor to the west is the Honolulu Advertiser, so at least one flank is safe.


Wall Street investors urged the New York Times to scrap the two-tier ownership structure that gives the Sulzberger family separate, but in some ways more equal, control than accorded to the company’s common shareholders.

“It is time for the company's board to combine Class A and Class B common stock into a single class of common stock that would provide equal rights, voting power and representation for all shareholders,” said Hassan Elmasry, managing director of Morgan Stanley Investment Management Ltd. “De-classifying the share structure will foster a culture of accountability that will ultimately benefit all shareholders...by improving financial and operational performance and closing the gap between the market price of the stock and its intrinsic value.”

Translation: Investors feel the family’s indulgence in such luxuries as deep staffing, far-flung bureaus and generous newshole is limiting profits, thus depressing the value of the company’s shares.

In addition to the Times, similar family-ownership structures are credited with contributing to the quality journalism crafted at Dow Jones, McClatchy and the Washington Post.

To pressure NYT directors to abandon the dual-class share structure, Morgan Stanley and other holders representing a total of 30% of the common stock refused to approve the slate of directors nominated at the annual meeting. This action didn’t immediately change anything.

But it is the same type of message that Tony Ridder, the soon-to-be-former CEO of Knight Ridder, failed to heed when shareholders told him in April, 2005, to raise the value of their stock – or else.

You know the rest.


Three mortal enemies improbably have joined forces to collectively corral the preprint advertising business in Los Angeles. Preprints are the advertising circulars you find larded in the Sunday newspaper or stuffed in your mailbox.

Under the new deal, the L.A. Times, the MediaNews papers in the market and Advo, the nation’s leading direct mail service, will produce and distribute packages of circulars to homes on a sub-Zip Code level (meaning advertisers can pick and choose households down to a single block).

Prior to this surprising truce, each of the three parties vigorously competed against one another for this growing and important class of advertising. Why did they suddenly decide to make nice? You guessed it.

“The deal…appears to mitigate risk and lower production/distribution costs for all parties,” says analyst Paul Ginocchio of Deutsche Bank, who reports that Advo management alone expects to save “double-digit millions annually.”

Ditto, doubtless, for the publishers. It’s not a bad deal for advertisers, either, who can improve the efficiency and accountability of their initiatives.

With newspapers and Advo jockeying for higher profits across the country, don’t be surprised to see more such deals in the future.

The canoodling likely will go well beyond Advo and the newspapers. As we enter a frenetic era of tectonic media realignment, deals are thisclose to being cut among publishers, broadcasters, mobile phone operators, cable companies, telcos and even the Yahoogles of the world.

Is your earthquake kit packed?