Writing about another redesign and reorganization at The Star (see previous post) prompted me to think, once again, about how far The Star and most other major U.S. dailies have fallen in quality and monetary value.
…In 1977, a little-known company called Capital Cites, which owned TV and radio stations and some relatively small newspapers, bought the employee-owned Kansas City Star for $125 million.
Twenty years (and two more KC Star ownership changes later) the Knight Ridder newspaper chain bought The Star, The Fort Worth Star-Telegram and two smaller papers for $1.65 billion — the largest ever sale of one or more newspapers.
At that time, considering that The Star was the premier part of the package, The Star probably was worth more than $500 million.
Today, The Star has a market value of less than a tenth of that.
I can understand if you’re thinking, “Where’s the support for that statement?”
Example No. 1: Two years ago a Boston businessman named John Henry, who owns the Boston Red Sox, among other enterprises, bought The Boston Globe and the Worcester Telegram & Gazette for $71 million. That’s The Boston Globe that The New York Times had paid $1.8 billion for in 1993.
Example No. 2: In 2012, a group of Philadelphia investors bought The Philadelphia Inquirer and its sister paper, the Philadelphia Daily News, for $56.7 million. Six years earlier, the papers had sold for $605 million.
Such declines in value are astonishing — almost incomprehensible to those of us who spent careers in the newspaper business.
But that’s the way it has gone for almost all major metropolitan dailies since the Internet established unequivocal and relentless dominance over print the last 10 years.
About the only newspapers that are worth anything close to what they were a decade ago are The New York Times, which had deep enough pockets to lose a lot of money while adjusting to the new newspaper landscape, and the Wall Street Journal, which has long had a prosperous niche.
I have written several times about McClatchy’s spectacular overpayment of $4.5 billion for 32 Knight Ridder newspapers, including The Star, in 2006.
At the time, that purchase looked like a big gamble. Today it looks like the worst newspaper purchase of all time. McClatchy assumed $2 billion in debt and has lurched around with a debt of at least $1 billion ever since.
I understand why McClatchy bought the Knight Ridder papers: McClatchy was an ambitious company that had been successful with mostly minor-league papers, like the Sacramento Bee, and they wanted to break into the majors…So, company officials convinced themselves that they could. Gary Pruitt, then-McClatchy CEO, said:
“Opportunities like this come along once in a company’s lifetime. These papers are a natural fit for us.”
At the time of the purchase, shares of McClatchy stock were selling for more than $50 a share. I know because I bought, as best I can recall, $10,000 worth, or 200 shares. At the time, I convinced myself that McClatchy knew what it was doing, and I mistakenly placed my confidence in the future of the newspaper business.
Very soon the value of McClatchy shares began plummeting, and they fell to less than a dollar each. (I sold at eight, thank God.)
The deal was a colossal miscalculation by McClatchy.
In December 2006, six months after closing on the Knight Ridder deal, McClatchy unexpectedly announced plans to sell the Minneapolis Star Tribune — its largest paper before the Knight Ridder purchase. The sale price was $622 million, less than half the $1.7 billion McClatchy had paid for the paper in 1998.
Pruitt explained the sale like this:
“It (The Star Tribune) was a drag on the bottom line and we felt we would do better without it. We could also pay down debt and be more flexible to make digital investments…”
With good reason, reporters and other employees at The Star Tribune were alarmed. Nick Coleman, a metro columnist, was quoted as saying, “At a fire sale people get discounted, so we’re very concerned, worried and anxious.”
Earlier in that fateful year of 2006, Gary Pruitt had come into the newsroom a couple of months before the Knight Ridder deal closed and told reporters and other editorial employees McClatchy expected the newspaper to grow and that he did not foresee any buyouts or layoffs.
I remember the gathering very well because I had been hoping for a buyout under Knight Ridder, and I still had outside hopes McClatchy would offer some buyouts. When Pruitt dashed those hopes that day, I realized there wasn’t going to be any golden parachute for me, not even a gentle letdown. I was on my own.
I had just turned 60 and still had plenty of time to do something else in life. And even though I was betting stock money on the future of print journalism, the future looked hazy.
In May 2006, I told my supervisor I was retiring, and June 30 was my last day.
I was one lucky duck. Within two years, good friends and longtime, dedicated Star employees were being shown the door…Boy, was I wrong about McClatchy and the future of the newspaper business.
Below is a graphic from the Pew Research Center showing the sharp decline in the value of several major U.S. dailies.