MediaNews Buys Mercury News and Contra Costa Times
Important Details: They were the prizes Dean Singleton had sought from the beginning.
Once word got out in November that Knight Ridder would accede to the wishes of its three largest shareholders and sell the company, it was clear that Singleton’s MediaNews company would want to buy KR’s Bay Area properties. On Wednesday, a month and a half after McClatchy bought KR and announced it would sell 12 of its newly acquired papers, Singleton got his wish by buying four of them.
MediaNews, which has owned 49 papers nationally, wanted the San Jose Mercury News and Contra Costa Times added to its stable of the Bay Area Alameda Newspaper Group. MediaNews owns eight papers within the larger Bay Area, placed strategically between the South Bay-oriented Mercury News and the suburban, east-of-Berkeley-and-Oakland Contra Costa Times. In total, the company owns 22 papers in Northern California, stretching farther north and east.
That strategy of "clustering" papers geographically is one that has motivated industry consolidation in the past decade. The notion: economic efficiencies in printing and production, circulation and distribution, ad sales, and newsgathering and editing can be wrung out of shared functions and facilities.
As a transaction, it’s a complicated one. The deal: $1 billion for four papers, the Merc, CC Times, the Monterey (Ca.) Herald, and the Saint Paul Pioneer Press. Formally, the buyers are the California Newspaper Partnership, an entity in which MediaNews has a 54 percent stake (and has as partners Gannett and the Stephens Media Group), and Hearst Corp. Then Hearst is "contributing" the Monterey and Saint Paul papers to a new partnership with MediaNews, in return for an undisclosed equity stake in MediaNews’ non-California operations. Got that?
The deal is sure to be dissected by journalism watchers in the days ahead – and by the California Attorney General’s office, which had already announced an inquiry into the McClatchy purchase and subsequent intended divestment. While Hearst would not be a partner in MediaNews’ California operations, eyebrows are already being raised about such a close overall business relationship given one new fact. Hearst, owner of the San Francisco Chronicle, controls 400,906 in circulation while the new MediaNews Northern California operation will control 702,738, with its 11 papers.
Those two companies will determine the future of print daily journalism in the area.
Journalistically, MediaNews nabs what CEO Singleton called "the crown jewel," the Mercury News, which has often won "top 10" newspaper accolades given out by journalism groups. While serving the high-income Silicon Valley, where median house prices in Santa Clara County recently reached $735,000, the paper has struggled since the Internet bubble burst. In the year 2000, it took in $118 million in recruitment (jobs) classifieds, and within four years that number fell to $18 million. Such revenue shortfalls led to massive staff cuts, with the newsroom sustaining a 32 percent cut since its late-’80s height. That downturn, and others in key KR markets, led it to the chopping block.
MediaNews now becomes the fourth-largest newspaper publisher in the country, with 2.7 million daily and 3.0 million Sunday circulation. Though many of its papers are small, the Mercury News and Contra Costa Times acquisitions now give it substantial heft, along with its Denver Post and Detroit News properties. Dean Singleton is known as a hard-charging, cost-cutting entrepreneur. While some point to the thinness of the editorial products of many of the papers, he’s also won some recognition for maintaining higher levels of staffing at his larger papers in an effort to serve large and diverse community needs.
Outsell believes Singleton’s grit may bring a new dimension as the newspaper industry inevitably engages in new rounds of talks with the GYM players. Talking to the American Society of News Editors in Seattle yesterday, he made the point that newspapers have got to find ways to monetize editorial content that’s given away on the Web: “We have to get paid for it. We either have to come together as an industry or partner with Google or Yahoo! or whomever. If we don’t get paid for it, we aren’t going to continue to be able to produce it.”
For McClatchy, the sale may begin to vindicate Gary Pruitt’s business instincts. In the McClatchy release on the sale, the company noted that it got 11.5 EBITDA in the sale, compared to the 9.5 EBITDA it paid for the 32 KR properties. How much the somewhat-higher-than-expected $1 billion price affects McClatchy’s standing on Wall Street – where its share price has dipped as much as 16 percent since the KR sale – will be seen as it moves the eight remaining KR orphans to sale.
In Outsell’s Opinion: The sale reflects the inevitable consolidation within the industry. It also reflects the emerging truth that these news publishers are not competitors, but increasingly partners. They are trying to align – and stop competing – so they can meet far larger financial challenges posed by the disruptions of the Internet. Getting the print and digital equations right is key. Outsell believes those next acts in the drama will count in the long haul, acts that determine how big and savvy a role these traditional news companies will play in the media of tomorrow.